A first evaluation of the Juncker Plan is now available. At the same time, there are signs that the EU Commission might deviate from its strict austerity policy.

Due to the strict austerity policy Europe is lacking in investments, in particular long-term investments in infrastructure and research & development. The strict fiscal rules have put countries into a far too tight corset for investments. In order to deal with the gap in investments, without having to abandon austerity policy, the European Fund for Strategic Investments, in short EFSI or Juncker Plan, was initiated last year. The Fund, in cooperation with the European Investment Bank (EIB) supports projects by private investors through financing and guarantees. Now, a year on, a first evaluation on the Plan's effects, strengths and weaknesses has been presented.

In September, in his State of the Union speech, EU Commission President Jean-Claude Juncker announced that the EFSI would be extended and that the available investment amount would be increased. In addition, the evaluation, which was presented this week, shall help to make the EFSI 2.0 more efficient.

The evaluation states that the EFSI is playing an important role to ease the investment gap in Europe. In particular guarantees have made a positive contribution to enable the European Investment Bank to significantly increase its activities. According to the analysis of the Commission, the Juncker Plan has mobilised about 154 billion euros in total and helped almost 377,000 SMEs. Hence, the EU Commission feels vindicated by its course. Jyrki Katainen, EU Commissioner for Jobs, Growth, Investment and Competitiveness states: “EFSI functions as planned. It crowds in private resources from the market.”

However, the portfolio of the EFSI is only focussing on a small number of Member States. In Austria, for example so far only one project with EFSI financing has been signed. Two further agreements for financing start-ups and SMEs are under preparation. Hence Austria, together with Germany and Sweden, finds herself at the bottom of those who benefit.

The findings of the evaluation and the “new” EFSI 2.0 have not eliminated points of criticism. For example, to ensure support, there must also be private contributions to projects. Furthermore, it cannot be determined with certainty whether the supported projects are in fact additional investments. Apart from that, the assumption of guarantees carries the risk that profits are privatised; however, that losses are borne by the public sector. Nevertheless, one can say that the EU Commission has recognised the importance of investments and that markets obviously required public incentives.

Is the wind blowing from another direction?

At the same time, one can observe a change in the attitude of the EU Commission with regard to fiscal rules. Following almost nine years of crisis, with low or even no growth and rising unemployment, the EU Commission recognises in a current Strategic paper that the fiscal policy strategy requires change and that conditions would now be favourable.

Because of the long phase of stagnation in the Eurozone, in which the monetary policy of the European Central Bank with its zero interest-rate policy was stretched to its limits, what is now urgently needed is a fiscal policy, which has a supportive effect. This includes that those countries, which are not affected by unsustainable debt, should be allowed and even encouraged to deviate from the strict austerity course in order to increase aggregated demand. The low Interest rates, which some eurozone countries are paying for their government bonds, would favour long-term investments and ensure a burst of growth.

Hence, what is required to break out of this damaging cycle is a relaxation of the general attitude in respect of fiscal policy. This judgment after six years of unsuccessful austerity programmes is remarkable. By focussing on investments via the EFSI and in particular by ending its austerity policy – which might be in sight now – the EU Commission finally adopts a course, which the AK has been demanded for a long time, for example in its Alternative Annual Growth Survey.

Whilst even the EU Commission finally recognises that a strategic change is required regarding the fiscal policy alignment in the Eurozone, the German Finance Minister Wolfgang Schäuble is still unimpressed and reprimands the EU Commission. By making this foray, it would exceed its mandate; it would be better served to use its energy to ensure that Member States would keep to the fiscal rules. Hence, one can only hope that the EU Commission will be able to enforce its new course.

Further information:

Evaluation of the first year of EFSI

Towards a Positive Euro Area Fiscal Stance

European Semester: Communication on Fiscal Stance