The gap between EU ambitions and reality

Plans by the new European Commission President to revive the economy face many hurdles

Before the new European Commission President Jean-Claude Juncker took office, he announced that he planned to create jobs and inject new life into the stagnant European economy by injecting an additional 300 billion euros ($374 billion) over three years, beginning next year. Nearly one month into his new job, and he has unveiled some details of his plan. The investment budget for the three years has now been increased to 315 billion euros. At first glance, such a big sum may seem a boon for Europeans eagerly looking for signs of new jobs being created. But on careful examination of the plan, many are likely to feel disappointed, not least because of the cold realization that for it to become a reality many policy difficulties need to be overcome. The 315 billion euros is not fiscal or public investment. The European Commission has merely earmarked 21 billion euros of public money for the plan, 16 billion euros from the EU budget and 5 billion euros from the European Investment Bank. Instead, Juncker is trying to act as a magician, pulling great dollops of money out of his hat by leveraging private investment to generate the remaining amount. Although a detailed project list is still in the pipeline, Juncker says additional investment will target infrastructure, notably broadband and energy networks, as well as transport infrastructure in industrial centers. It will also focus on education, research and innovation and renewable energy and energy efficiency through viable projects with a real added value for the European social market economy. That is all well and good - if it happens. The European Investment Bank says investment in Europe is 15 percent lower than in 2007 because investors are wary of the risks. It argues that this lack of investment is not because of a lack of capital. Europe has ample liquidity that is available both in financial institutions and in corporations, but this money is not reaching the real economy.

A conversation I had with a Belgian supermarket owner the other day illustrates the point the bank is making. EIB's point. He says the bank is ready to lend money, and he has had plans to open new outlets apart from those in Brussels and Antwerp.

But he says EU policies do not favor business, and labor costs are too high. On top of that, getting rid of workers who are not up to scratch can be costly. In fact, the businessman said, one or two of his employees had suggested he go through the ruse of sacking them so they could ask for compensation and government unemployment benefits.

While the European Investment Bank is on track to meet its commitment as part of the EU's Compact on Growth and Jobs, some member governments oppose an increase in its lending because they want to ensure its AAA credit rating. And even if the money does start flowing as promised, it will be but a small fraction in what some have called the eurozone's investment gap, the amount that was expected to be invested had the financial crisis not occurred and had investment continued to increase at pre-crisis rates. For Juncker the priority is not to give a big sum to boost public confidence. His most urgent task is to balance the welfare of workers while offering incentives to businesses to invest. This will be a difficult balancing act. Belgians took to the streets last month as the country's new Prime Minister, Charles Michel, drew up plans to reduce unemployment benefits, and more protests are planned this month. Inflation in the eurozone, which is expected to come in at 0.3 percent for last month, is adding to Juncker's policy difficulties, because the European Central Bank cannot cut interest rates further as they have already hit bottom.

Juncker also has to bear in mind the initial purpose of his plan, which is to stimulate growth and create jobs. While he has yet to finalize his project list, he should be paying special attention to the jobless rate in different countries. He needs to have a very clear picture of where the 24 million unemployed in the 28 EU countries are. The increased investment should target those with high unemployment such as Greece and Spain, instead of being channeled to the likes of Germany and Austria. Obviously, given the dastardly complex nature of EU politics, it is going to be nigh on impossible for Juncker to please everyone.

The author is China Daily chief correspondent in Brussels. Contact the writer at fujing@chinadaily.com.cn