The recent annual speech of President Juncker on the “State of the European Union” contained a strong dose of spending pledges and protectionism.
Public investments to the tune of 600 billion euros (the “Juncker Plan”), free access to internet around public spaces in every village and city in the EU by 2020 (!) and further support to milk producers because it is not acceptable that milk is cheaper than water. “Being European also means a culture that protects our workers and our industries in an increasingly globalized world”, the President underlined emphatically in his speech.
This “Strasbourg Plan” has no commonalities however with the “Thessaloniki Plan” announced by Alexis Tsipras, the Greek PM in September last year (which helped him win a landslide victory in snap elections and this in spite of the latest austerity program bearing his own signature). This is so because every single promise in Juncker’s speech is realistic as all expenditure is rightly budgeted in the EU spending plan.
It is precisely because this “Strasbourg Plan” is realistic that serious concerns are raised.
Let’s take the example of the so-called “Juncker Plan”, alias “European Fund of Strategic Investments”. In its original concept 2 years ago, the EU would provide about 20B euros in loan guarantees that they in turn would help mobilize private investments across Europe to the tune of 300B euros. These investments entail such a high risk that neither the market (commercial banks and venture capitals) or the European Investment Bank could lend money for – hence the need for loan guarantees. In other words, rather then listening to the markets and why they hesitate in investing in innovative and high-risk projects in Europe, the EU Member States and the European Parliament subscribe to a neo-keynesian policy of leveraging taxpayers’ money to the benefit of private investments.
It is equally important to understand how these plans are being selected. Project proposals are being channeled to the various National Governments across the EU that they in turn convey their shopping list to an independent Committee of European experts, themselves nominated by these Governments and the EU. Put differently, what is not seen - as Frederic Bastiat would argue – is that wealth creation and economic development passes through corporate lobbying vis à vis state authorities. This is a pure instance of corporatism and has nothing to do with the principle of free market.
Contrary to the anticipated rise of state-induced corporatism across Europe, these investments, if and when channeled to the economy, cannot by any means whatsoever guarantee a positive impact on the fundamental macroeconomic conditions in Europe (the European Commission itself acknowledges that it is premature at this stage to forecast the possible impact). Taking a helicopter view, 600 billions euros to be spread across 27-28 Member States over a period of 6-10 years is a rather negligible amount of money. Assuming however that there will be a meaningful impact on the European economy, this means that to sustain such development figures more public investments, more leveraging and more lobbying will be required.
This is why President Juncker announces already the doubling of the EFSI spending. There is however a sheer difference between the revised and the original plan. Emphasis is now given to big infrastructure with invitations to the public sector at the national level (not just the EU) to shoulder these efforts. In this context, national and regional promotional banks have a role to play. But these banks are often under direct or indirect state control and, as if this was not enough, they are not “systemic” – thus, operating away of the direct scrutiny of the ECB. Don’t rush to underestimate the seriousness of the problem. Hundreds of billions of euros have ben channeled to the South of the EU in infrastructure development as part of the EU Cohesion Policy the unintended consequence of which being the proliferation of clientelism, corruption and undermining of competitiveness.
Greeks cannot but be grateful to President Juncker for his personal commitment to ensuring Greece’s anchoring to the EU. Nevertheless, there is a duty to remind that not all Europeans share the protectionism mandra in favor of “our own workers and our own industries”. On the contrary, there are Europeans that praise the market forces that enable milk to be actually cheaper than water.
Olympios Raptis is an advisor on EU politics and policies.