Yesterday evening the European Commission launched the investment plan promised by the new president Jean Claude Juncker who will present it to the European Parliament today. On the table, 315 billion euros for the three-year period 2015-2017, a sum that could increase the Union's GDP by 330-410 billion, producing – according to Brussels forecasts – 1,3 million jobs. A new instrument will be created to manage the plan: the European Fund for Strategic Investments (EFSI or, in the English acronym, EFSI), which will be managed by the European Investment Bank, but will formally remain a separate entity so as not to put its triple-A rating at risk.
THE 21 BILLION COMING FROM BRUSSELS
However, the EIB itself will make just five billion available, while another 16 will be collected from the European budget. In detail, of these 16 billion, eight will consist of already existing resources to be reallocated (2,7 billion from the Horizon 2020 research programme, 3 from the Cef program for the financing of transport networks) and from sums "to be found in the coming financial years". Another two billion will come from "budgetary margins", i.e. the difference between the appropriations entered in the European budget and the annual payment ceiling, which is higher precisely to leave a margin to be used in case of need. In all, therefore, only 21 billion will come from Brussels.
THE LEVERAGE EFFECT
For the other 294 billion, the focus is on the leverage effect, which has the purpose of attracting private capital. The underlying principle is a creative finance mechanism: for every euro of public investment, Brussels plans to attract 15 from private investors. But how? The EIB will use the 21 billion to issue bonds and raise 60 billion on the market, with which in turn individual infrastructure projects (energy, telecommunications and transport networks) will be financed. At that point the leverage effect will come into play, which consists in borrowing capital trusting in one's ability to invest it obtaining a return greater than the interest rate requested by the lender.
The Fund, explains the Commission, "takes on the part of the complex risk", taking charge of the guarantee "in the form of subordinated debt": in other words, it agrees to be paid after the other creditors, and this should induce private individuals to participate to the investment.
NOT A TRUE GOLDEN RULE, BUT ALMOST
The other significant novelty is that the States will be able to directly finance (on a voluntary basis) the new European Fund for strategic investments and the expenditure will be considered "favourably" when assessing budget deficits. It is not yet the real "golden rule" requested by Italy since the time of the Monti government, but we can speak of an initial opening to flexibility with respect to the rules of the stability pact.
