The ‘Juncker plan’ does not offer a genuine path to boosting the Eurozone’s recovery

The €315 billion European investment initiative – the so called ‘Juncker plan’ – was accepted by EU finance ministers on 10 March and is expected to go operational as a new “European Fund for Strategic Investment” (EFSI) by mid-2015. Is this finally good news for Eurozone recovery? Unfortunately, the Juncker plan has been widely misunderstood as a recovery programme for the crisis-ridden Eurozone: it is in fact no more and no less than a (welcome) investment initiative for Europe. The Juncker plan should be welcomed as a long-run strategy to address investment weakness and to promote (green) growth in Europe. But since Lord Keynes constantly reminds us that in the long run we are all dead, it must be made crystal clear that the plan does not solve the Eurozone’s current economic problems.

In this piece, written for LSE EUROPP, I review the pro and cons of the Juncker initative as an investment plan and discuss why it will not boost the Eurozone’s recovery. I conclude that a fiscal pillar of a Eurozone recovery plan would look quite different and there is widespread consensus among many economists as to what it would entail: fiscal stimulus from countries that can afford it, the return of the golden rule of public finance at the national level, which allows for debt finance of public investment if required, thus giving more fiscal leeway beyond the Maastricht rules, and an additional boost in European/Eurozone public investment.

Read more…

This entry was posted in Euro crisis, fiscal policy and tagged , , , . Bookmark the permalink.