Sunday February 1, 2015 Search
Weather | Athens
16o C
13o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Europe needs new investment, not new rules

In the telecoms area, building a better European network makes sense, yet the public hand should not crowd out private spending.

By Guntram B. Wolff *

As the European Council meets in Brussels this week, the big debate on what a new policy deal for Europe could look like has re-emerged. Opponents group themselves around the famous “stability” vs “growth” camps, with the former arguing for the merits of fiscal discipline while the latter argues fiscal flexibility to finance reforms is more prudent. The “growth” camp points to the harsh reality that once the fiscal compact kicks in, it requires substantial savings by the government, while the “stability” camp emphasizes that this is exactly what is needed to render high debt levels and unfavorable debt dynamics more sustainable.

In my view, the EU must avoid another useless fight over its fiscal rules and instead use political capital to foster growth. A deal could be designed along three central elements.

The first element starts with the recognition that debt levels in several countries are already very high. The fiscal space to engage in a new stimulus as a growth instrument is simply not there and one must avoid risking a new financial crisis.

In particular, in countries where the size of the state is already very large and the efficiency of the government sector is questionable, a new fiscal stimulus should be avoided. The most convincing national growth proposition in such circumstances is a serious reform of the state and an adjustment of fiscal expenditure away from rents to much more needed growth enhancing public goods. The current fiscal rules already allow a slow-down in fiscal consolidation in exchange for serious structural reforms.

The second element of a deal would be recognizing that it is very difficult to maintain debt sustainable and primary surpluses high when euro area inflation rates are very low and real economic growth is as anemic as it is currently. Arguably, the euro area needs a different macroeconomic policy stance.

Yet, countries with high debt levels cannot provide a stimulus. The logical consequence is that countries that do have fiscal space, such as Germany, the Netherlands, Denmark, Sweden, Poland and Finland should start a public investment spending stimulus financed with deficits. Investment areas include the improvement of infrastructures such as roads and railways as well as increased spending in education and R&D.

This would be good for several of the countries and especially for Germany, which in any case is investing far too little, but it would also have positive spill-over effects on the euro area. This boost needs to be combined with an aggressive monetary policy stance.

The third element is recognizing that Europe underinvests in European public goods. An investment boost in trans-European infrastructure would not only be beneficial for Europe’s single market, it would also constitute an important stimulus to economic growth.

Which projects would be worthwhile undertaking and how could they be financed? The European energy network comes first to mind. In fact, with Ukraine’s gas supply crisis, the question of an adequate EU response to a potential gas shortage has become urgent. Building a better European energy network that could address energy shortfalls due to such external shocks is critical.

Yet, much of the energy network as it stands currently is in private hands. A public intervention should prevent to crowd-out private investments or render private investments non-profitable and it therefore must focus on those parts of the network, which the private sector does not deliver.

A further important area to invest public resources in is energy savings. Subsidizing and supporting investment in this area would not only make sense to meet Europe’s climate goals, it also can represent meaningful amounts of resources to have a macroeconomic impact on demand.

Similarly, in the telecoms area, building a better European network makes sense, yet the public hand should not crowd out private spending. Therefore, support for broadband build-up and other networks must be focused on areas, where the private sector would not typically invest, such as rural areas. In addition, more resources for a European mobility scheme for young workers would be useful.

Funding for this investment boost should come from European funding mechanisms. The European Investment Bank as well as project bonds could be used much more aggressively to allow for additional European investments of at least 70 billion euros in 2015.

Instead of wasting political capital on yet another reform of the Stability and Growth Pact, it is time for Europe to design a new deal on investment. Europe sorely needs this growth to meet its fiscal targets.

* The writer is director of Bruegel, a European economics think-tank.

ekathimerini.com , Wednesday June 25, 2014 (10:54)  
Unyielding truth
This is not a game
SYRIZA must come up with ‘pragmatic solutions,’ Schulz tells Kathimerini
Strange haste
Europe waits for proposals from Athens
European officials believe that there is scope for an agreement with the new Greek government but that Athens will have to accept a compromise on its demands. Officials in Brussels told Kath...
Notes provide more clues on prison breakout scheme
Police have found handwritten notes exchanged between 22-year-old Angeliki Spyropoulou and jailed members of the Conspiracy of the Cells of Fire at a safe house in Loutraki, west of Athens, ...
Inside News
ECB’s Constancio signals Greek waiver may end if program dropped
Vitor Constancio signaled that the European Central Bank stands ready to end its acceptance of Greece’s junk-rated debt for bank funding if the government drops out of an aid program. If a n...
Greece starts countdown to cash crunch saying bailout over
Finance Minister Yanis Varoufakis set the clock ticking on Greece’s standoff with the euro area on Friday saying he’s ready to take his chances without a financial backstop rather than submi...
Inside Business
BASKETBALL
Panathinaikos preserves perfect home record
After yet another great performance at home, Panathinaikos defeated Galatasaray 86-77 in Athens on Friday to get to three wins in five games at the Euroleague top-16. The Greek champion shoo...
SOCCER
Gattuso: Unpaid OFI players couldn´t buy food
Former coach Gennaro Gattuso has lifted the lid on the plight of crisis-club OFI Crete which has been banned from playing in the Super League until it clears mounting debts with its staff. T...
Inside Sports
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Europe waits for proposals from Athens
2. Notes provide more clues on prison breakout scheme
3. Drug prices are falling but volume sold remains high
4. Tsipras plays down chance of rift
5. Ex-revenues chief Theoharis claimes political interference
6. Journalist to head Greece´s National Intelligence Service
more news
Today
This Week
1. US to work closely with Greece and EU to resolve differences, says White House
2. Merkel rejects debt writedown for Greece
3. Greek bank debt plummets as investors head for the exit
4. Greek markets plunge as SYRIZA digs in on challenge to austerity
5. Tsipras says Greece to repay ECB, IMF, reach deal with euro area
6. Greece starts countdown to cash crunch saying bailout over
Today
This Week
1. Greek Elections 2015 | LIVE
2. SYRIZA heads for historic victory but without majority
3. SYRIZA's win will test institutions
4. Greek Elections 2015: The day after | LIVE
5. EU must accept that Greek debt relief is inevitable
6. Athens may veto further EU sanctions against Russia
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2015, H KAΘHMEPINH All Rights Reserved.