A new Investment Plan for Europe

He has been on board for three months only, but has already managed to attract attention, doubts and criticisms. I am referring to Jean-Claude Juncker, and his plan to create a new European Fund for Strategic Investments (EFSI).

A plan to trigger a “Virtuous Triangle”, so he claims: investment, fiscal responsibility and structural reforms, to bring European countries back on the track of economic recovery. Since the global financial and economic crisis, the EU has suffered from low levels of investment (a 15% decrease in 2014 with respect to 2007 figures, amounting to about €430 billion). This has led to a weak recovery from the crisis, especially in the Eurozone[1], and may further result in a fall in GDP and an overall decrease of growth and competitiveness.

The starting point for Juncker’s plan is the low investor confidence, due to the uncertainty of economic and political contexts and to the indebtedness in parts of the EU economy. This means that the riskier a project is in financial terms, the less likely it is to be funded, thus creating a vicious circle.

Convinced that “producing money” or creating debt will not fix the problem (wait, but isn’t this what the EBC has just done through its decision on Quantitative Easing?), the Commission has decided to focus on three pillars:

• Mobilising sources of investment finance to deliver at least €315 billion of additional investment over the next three years;
• Making sure this extra finance contributes to growth in ways that are adapted to each sector and geography;
• Measures to improve the investment environment in Europe and thereby trigger knock-on effects.

Juncker’s plan inserts itself into the first pillar. Well, actually it’s not €315 billion for real.

The plan provides for the collection of €21 billion, which will target specific high risk projects in sectors such as infrastructure, transport, innovation and research and development. These investments, the plan articulates, will create up to €315 billion over the next three years, through activities such as long-term senior debt for higher risk projects, subordinated loans or equity and quasi-equity products, and products for SMEs, such as venture capital, securitisation, growth finance or guarantees.

It all makes a lot of sense.

However, three points remain unclear:

1. Competition
2. Attractiveness to investors
3. Source of the money

First of all, let’s talk about the competition of proposals: Horizon 2020 envisages a transparent, competitive procedure which is clearly explained in its rules. Evaluators are independent individuals: any expert in project management can apply to become one, and the whole system ensures that it is really the best proposal to win the competition and obtain funding. How are projects going to be selected by the Investment Plan? Is there going to be a public, transparent procedure? The Commission has already published a list of around 2,000 projects that could be implemented over the next three years, simply describing them as “viable projects, with a real added value for the European social market economy”.

But what does this mean – exactly?

The listed projects were “identified in a report to the European Council ... [which] was made by a task force set up by the European Commission and the European Investment Bank, together with EU Member States”[2]. That’s all we get to know!

Secondly, can we confidently foresee that the EU-fundraised €21 billion will almost automatically, and within the timeframe of three years, produce “up to” €315 billion?

Guardian journalist Simon Jenkins also doubted Juncker’s plan: “Who will invest when there is no demand? … Ever since the credit crunch the continent has been suffering what Keynes called a classic liquidity trap. There is too little money around and thus a chronic shortage of demand. People have too little to spend, which means shops close, supplies dry up and no one invests.”[3]

Industry chiefs have also questioned the plan: Rodolfo de Benedetti, CIR chairman, defined the €21 billion as “peanuts”, related to Europe’s gross domestic product. Benoît Potier, chairman and chief executive of Air Liquide, was concerned that “what matters is where [the priorities] are going to be”. Volvo’s chief executive in Sweden, Olof Persson, even stated that his company “would be unlikely to co-invest alongside the proposed EU funds, because these are likely to be directed to infrastructure projects”[4].

Some critical voices have already advanced this argument. For example, Guntram Wolff, director of the Economics think tank Bruegel, wondered: “What can you do with €21 billion in an economy that amounts to over €12 trillion or more? [Juncker]'s trying to do a miracle with very little … The plan is likely to bolster projects that would have happened anyway in this short time frame, enabling investors to make higher profits instead of attracting actual new investment ... To finance the scheme, it would be wiser to tap into other parts of the EU budget, such as funds for agriculture or regional development, instead of Horizon 2020.”[5]

And here we get to the third point, the most relevant point for the Europa Media team and project manager colleagues: where is this money coming from?

Well, next to funds from the European Investment Bank and single Member States (who have not yet declared their availability or the quantity of money they would provide), €2.7 billion would arrive from Horizon 2020.

The Commission’s legislative proposal[6] specifically suggests reducing “the available envelopes of the Horizon 2020”; this should also ensure a greater investment in certain areas of the two programmes respective mandates than is currently possible. More specifically, “the EFSI should be able to leverage the EU guarantee to multiply the financial effect within those areas of research, development and innovation and transport, telecommunications and energy infrastructure compared to if the resources had been spent via grants within the planned Horizon 2020 and Connecting Europe Facility programmes. It is, therefore, appropriate to redirect part of the funding presently envisaged for those programmes to the benefit of EFSI”.

Article 18 gives more details about the proposed amendments:

• The financial envelope for the implementation of Horizon 2020 is set at €74.328,3 million in current prices (instead of €77.028,3 million[7])
• This amount shall be so distributed among the priorities:
  • Excellent science, €23.897,0 million in current prices (instead of €24.441,1)
  • Industrial leadership, €16.430,5 million in current prices (instead of €17.015,5)
  • Societal challenges, €28.560,7 million in current prices (instead of €29.679)
• Also, the following actions will have a cut in budget:
  • Spreading excellence and widening participation, €782,3 million (instead of €816,5)
  • Science with and for society, €443,8 (instead of €462,2)
  • Non-nuclear direct actions of the JRC, €1.852,6 (instead of €1.902,6)
• The EIT shall be financed through a maximum contribution from Horizon 2020 of €2.361,4 million in current prices (instead of €2.711,4)[8].

A total of €2.700 million is therefore cut just from Horizon 2020.

So, dear friends, project managers, academics and practitioners who are striving to produce quality proposals in this (already) highly competitive Framework Programme: be ready to struggle even more!

As the League of European Research Universities affirmed: “Horizon 2020 is not a lemon! Stop squeezing it!”[9]