COMMENT
BILLJAMIESON
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Executive Editor of The Scotsman
Jean-Claude’s bulging billions Jean-Claude Juncker has promised Europe a huge investment boost: but where will be the money come from and, more importantly, where will it go?
IN
the conference rooms of the European Commission, there’s nothing quite like big numbers to lift morale when all else fails. Take European Commission President Jean-Claude Juncker’s recent announcement of a €315 billion (£247 billion) ‘New Deal’ to pull Europe out of its slump over the next three years. The money will be used to build roads, renew railways, refine energy grids or upgrade high-speed internet. Governments have already sent a list of 1800 possible projects to Brussels: just the stuff to get business going and in due course present lots of opportunity for UK companies exporting to the continent. Alas, all is not as it seems. Barely had this massive stimulus been announced than it ran into a blizzard of criticism. It will provide almost no new money of its own, the ‘new’ money in the package is mostly cobbled together from pre-announced and forgotten projects. It depends on financial leverage via €21 billion to be managed by the European Investment Bank. And it has come under fire for not being nearly enough. German economy minister Sigmar Gabriel says the amount is “not only not enough but it is not clear what the money will be used for.” It would just be a ‘straw fire’ – the money would be gone and nothing lasting would come out of it. Nor was he alone. Professor Charles Wyplosz from Geneva University declared the money “is chicken feed and it won’t do anything to kick-start growth … It is unbelievable they are doing this rather than real fiscal expansion. The private sector will just take governments to the cleaners.” Elsewhere this ‘last chance’ mega-package stirred little excitement. Might that be because this is just the latest in a series of spending bazookas fired by the Commission? It seems curiously similar to the package announced in June 2012 when EU leaders 6 Industry Europe
unveiled a massive €120 billion stimulus plan to kick start economic growth across the continent. The European Investment Bank would be given a €10 billion injection of new capital, taking its total lending power to around €1.2 trillion. Other unused funds would also be redeployed. “We have prepared the ground on how to stimulate growth,” declared European Council president Herman van Rompuy. “It is not just about injecting money.”
Alas, all is not as it seems. Barely had this massive stimulus been announced than it ran into a blizzard of criticism. Of course not. Because hadn’t that already been done in the previous massive stimulus package – the one announced on 26 November 2008, when the Commission proposed a €200 billion European stimulus plan (aka the European Economic Recovery Plan) to cope with the effects of the global financial crisis? The plan included targeted and temporary measures, using both the national budgets of the national governments, the budget of the EU and – yes, again, the handy old European Investment Bank. It was hailed by Gordon Brown as “proof that Europe’s governments have united to combat the global economic crisis.”
False promises? What lies behind the latest resort to these bumper bulging billions? Much hope has been vested in ECB stimulus to bring a miracle. It’s certainly true that there is no other zonewide authority in the economic sphere. Little progress has been made towards establishing the machinery of fiscal union. The notion
that central bank action is the remedy for all economic ailments seemed an easy way out of painful budget decisions by member states. And the ambiguous teasing ‘will-he-won’the’ language of ECB president Mario Draghi worked to bolster hopes that the bank had it in its power to wreak transformation. But he declared recently that monetary policy could not do all the ‘heavy lifting’. This may have been the inspiration for the latest resort to those magical bulging billions. Even if such money is real and will be deployed, how reliable is its magical power? The problem in Europe is not lack of money but of competitive investment projects. Reading through the long litany of the EU’s failed bulging billions, I was reminded of an incident in the early 1970s when I was a trainee subeditor on a local paper in the south Wales valleys. The story involved a visit to the Ebbw Vale steelworks by Lord Melchett, then head of the British Steel Corporation. Some vague promise of future investment had been made. As I struggled with the text, the editor reached over my shoulder and wrote, in huge letters the three deck front page splash headline: ‘Melchett’s Magic Millions’. In truth, there were no magic millions. The millions went instead to the steel plant in Consett, County Durham. Some 15 years later I was being shown round the Highveld steelworks in South Africa, out in open country east of Johannesburg. The managers were especially keen for me to see a glittering new rolling mill extending a third of a mile. The price, they proudly declared, was just £1 – that and the cost of dismantling and shipping it wholesale – from Consett, County Durham. Any hope of competitive steel-making there had long gone. So don’t just query where these magic millions come from. Even if they are ever spent, spare a thought as to where the benefits might finally end up. n
