Jean-Claude Juncker: What we need is not more public money, but smarter investment

Jean-Claude Juncker, former Prime Minister of Luxembourg, became the new President of the European Commission. We met him shortly after he presented his new EUR 315 billion Investment Plan that aims to boost the European economy over the next three years. Here he gives his views on the future cooperation with European regions and cities and offers insight about the Commission’s Work Programme for 2015. He argues that “reforms, both at European and national level, and fiscal responsibility are needed to unlock investment, growth and job creation”.

You have presented a new investment plan and 28 Member States have proposed 2000 projects worth over EUR 1 300 billion. However, we are still in a time where sovereign states, local and regional authorities, the private sector and households, are struggling to balance their budgets. How would you reconcile this need for fiscal responsibility and the need for additional investments?

There is no contradiction between these. Remember the virtuous triangle I presented when tabling the EUR 315 billion Investment Plan: we need to boost investment, promote fiscal responsibility and accelerate structural reforms. We need these three pillars. Reforms, both at European and national level, and fiscal responsibility are needed to unlock investment, growth and job creation.

We needed to act fast because our public resources are stretched. We also needed a solution that attracts investment without creating public debt – this is what I had committed to.

What we need is not more public money, but the smart use of it, geared to unlocking investment.

The Commission has put up EUR 8 billion from the EU budget. This backs up a EUR 16 billion guarantee given to the Fund from the EU budget which will be topped up by another EUR 5 billion from the EIB. With this EUR 21 billion reserve, the EIB can give out fresh financing loans of EUR 63 billion. And the EIB will not be acting alone: with its Triple A rating, it will be financing the riskier parts of projects worth 315 billion, meaning private investors will be pitching in the remaining EUR 252 billion.

Thanks to the European Council on 18 December which endorsed all elements and the timing of the Investment Offensive we can now get started on setting up the Fund swiftly. Importantly, it will finance riskier investments, that would not have happened otherwise, and this is why it will particularly benefit countries that have been most hit by the crisis. Public expenditure should be used for what it is best at doing: funding our schools and welfare systems, not servicing our debt.

The list of potential funding projects published by the Task force on Investments contains over 2000 examples. Obviously, not all of these are new, strategic and economically viable. Nevertheless, there are many interesting examples – like infrastructure for energy connections in Finland, Poland and the Baltic States, reform of school infrastructure in Italy or modernisation of regional hospitals in Belgium, to mention just a few examples.

In terms of financing, Commissioner Corina Creţu said that cohesion policy will make a significant contribution to the plan. What role will European cohesion policy and the already agreed Multiannual Financial Framework (MFF) play? Some suggest that the MFF will need to be reviewed to implement the plan. Do you share this view?

The investment plan comes on top of existing financing programmes at EU and national level. It is about increasing investments in our common future. The necessary re-allocated appropriations will come not from cohesion policy but from the Connecting Europe Facility (EUR 3.3 bn) and Horizon 2020 (EUR 2.7bn) as well as from the EU budget reserve (EUR 2bn). Of course, this does not mean that the money is lost. On the contrary, the European Fund for Strategic Investment offers significantly increased possibilities to invest in Europe’s infrastructure, as well as for research and innovation purposes. The impact of investments through the European Fund for Strategic Investment will be more significant than under the current programmes.

To be clear: in cohesion policy, national allocations and the EUR 10 bn earmarked from the Cohesion Fund for the Connecting Europe Facility will not be touched. But as a complement to the new Fund and on top of the EUR 315 billion being mobilised, Member States are encouraged to increase the use of innovative financial instruments in the form of loans, equity and guarantees, instead of traditional grants in the context of the European Structural and Investment Funds. The Commission would like to see the overall amount doubled compared to the 2007-2013 period. Just by doubling the current use of innovative financial instruments, you can significantly increase the impact on the ground in terms of mobilisation of additional investments available at national and regional levels.

Overall, the reformed cohesion policy will be an important complement to the investment offensive. The increased focus of cohesion policy in the period 2014-2020 on key areas will maximise investment in SME support, research, innovation, digital and low-carbon economy. And as the increased use of financial instruments in the form of loans, equity and guarantees, instead of traditional grants, is already allowed for in the reformed cohesion policy 2014-2020, we do not even need to reopen the Multiannual Financial Framework. Reopening the Multiannual Financial Framework would lead to significant delays in implementing the Investment Plan. Europe has no time to lose.

Some people have voiced the need for more flexibility in the application of the Stability and Growth Plan, particularly as regards co-financing of the Structural Funds and also in relation to your plan. What do you think about these proposals?

The Commission has already stated its intention to take a favourable position towards capital contributions to the European Fund for Strategic Investments when it comes to assessing public finances under the Stability and Growth Pact. The European Council of 18 December took note of this approach. We will come forward with detailed guidance on this in January.

What progress has been made as regards rolling out the new investment plan? You have announced that you intend to start projects in 2015…

The plan has been designed with urgency in mind. To set up the Fund we need one legal act, to be adopted in co-decision. The Commission will put forward a proposal on 13 January 2015 and we count on the support of the Parliament and the Council for a swift adoption so that the Fund is fully operational by the middle of next year. In order to start delivering on the ground as rapidly as possible, the European Investment Bank has confirmed that it will start certain activities using its own funds in early 2015.

How would you like to involve local and regional authorities in the implementation of your plan?

Local and regional authorities will be instrumental in the implementation and the success of the plan. In fact, the Commission has proposed a number of implementation options for local and regional authorities in order to encourage and optimise their use of financial instruments under cohesion policy. We are ready to support regional and local authorities and to guide their choice.

In many cases the lack of private investment – especially in less developed areas – is due to factors that are not strictly financial, such as public procurements rules, limited transparency, corruption or weakness in government. How do you hope to ensure that these areas benefit from the plan?

This is very true. There is much liquidity in the financial system that is currently underutilised. For this reason the Investment Plan is not only about mobilising funding but also about creating the right investment conditions through the right regulatory conditions. While there will be no sectoral or geographic pre-allocations or ‘quotas’, technical assistance will be stepped up so that project promoters and relevant authorities in all countries are able to present viable projects. These efforts will be accompanied by practical proposals to improve the investment environment by removing regulatory barriers in our single market.

In addition my colleague Corina Creţu, the EU’s regional policy commissioner has set out to look at the underlying dynamics of very poor regions and regions with consistently low growth rates in order to find ways to reverse this trend. It has not gone unnoticed that social and economic developments in a number of less developed countries and regions appear to be going in the wrong direction. One of Ms Creţu’s first acts as Commissioner for regional policy was to instruct DG Regional and Urban Policy to set up an internal task force to look at the issue of low absorption of European Regional Development Fund and Cohesion Fund monies in certain Member States for the 2007-2013 programmes.

Finally, in addition to the investment plan, what are your key policy initiatives for 2015 to tackle challenges related to the internal market, especially the integration of Europe’s energy and digital markets?

Only a few weeks ago, the Commission adopted its Work Programme for 2015 which sets out the 18 initiatives that we will tackle as a matter of priority in the New Year. We will table an ambitious Digital Single Market package to create the conditions for a vibrant digital economy and society. We will also take steps towards a European Energy Union to ensure energy security, integrate national energy markets, reduce energy demand in Europe and promote green technology.

We also plan to deepen our economic integration which is very important for the stability of the eurozone. This will be matched by plans to create a Capital Markets Union, diversify sources of financing for the economy, reduce fragmentation in capital markets and make Europe more attractive for investors from third countries. A fairer approach to taxation is something citizens rightly feel strongly about. At the December European Council, European leaders agreed that there is an urgent need to step up the fight against tax avoidance and aggressive tax planning, both at the global and EU levels. The European Commission will therefore present a proposal on the automatic exchange of information on tax rulings in the EU in the first half of 2015. And we will kickstart work on the Common Consolidated Cooperate Tax Base.

Interview by Branislav Stanicek