The European Commission’s President Jean-Claude Juncker has just announced a €315 billion jobs program to jump start Europe’s failing economy. With the markets awash in cash, it is a matter of debate as to whether this will work. The size is almost certainly a fraction of what is needed, if an injection of money can help at all. Nevertheless, this is important because it will take some of the pressure off national governments.
The BBC reports, “At its heart is a new €21bn fund that would provide loans for infrastructure projects. Mr Juncker hopes most of the rest of the money will come from private backers. Only €16bn of the original money would come from the European Union budget.” The Beeb also stated, “The Commission and the European Investment Bank (EIB) would create the fund’s €21bn reserve,” according to Mr Juncker, which would then enable the EIB to fund loans worth €63bn. Private investors would be expected to put forward the lion’s share of the money, some €252bn.”
This is the first difficulty with the plan. There is no credible scenario under which the private sector will help leverage the initial funds at a ratio of 15 to 1. In fact, one would be surprised if a total of €100 billion results from this effort.
Even if the full amount were possible, one must recall the size of the EU economies and the dire straights in which many find themselves. For comparison, the US (which has fewer people than the members of the EU combined) the stimulus package passed in 2009 was $831 billion (in the €700 billion range), and it was deemed inadequate by many economists at the time, and this journal admits contrary to expectations here, that that was indeed the case. What Mr. Juncker is offering just isn’t big enough to create the number of jobs needed, either directly or indirectly.
Chancellor Angela Merkel of Germany will, of course, be the one who decides whether the plan goes forward. She has stated that, in principle, her government supports the idea. The caveat there is Germany is concerned about where the projects are located. Mr. Juncker fudged this by stating that construction in one country will boost the economies of its neighbors. To an economist, that may be so, but to an elected politician, bringing home the bacon doesn’t count if one brings it next door.
Even so, this is a significant move by Brussels. The sad truth is that the weakest economies in the club are those least able to improve their own situations through spending (thanks in large part to the wrong-headed Merkel government’s policies of austerity). By proposing to help develop the infrastructure of the EU, the Commission is doing something to help. That precedent will be followed in future crises with, one expects, greater enthusiasm.
As a result of that, Europe will experience less flying-by-the-seat-of-the-pants policy making and more coordinated responses. This will increase the cohesion of Europe, which could well upset the nationalists like the UKIP. However for the average European, this adds to the policy tools available, and that can not be bad.