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How to spend 315 bn. Euros in three years?

16.01.2015 – Jean-Claude Juncker, in the centreThe European Commission’s Juncker Plan aims to deliver 315 bn. Euros of investment over the next three years to boost Europe’s economy and create jobs. According to Standard & Poor’s (S&P) the plan is ambitious but achievable, mainly for long-term strategic project investment but with a sizable portion ring-fenced for investment at SMEs and mid-market companies.

Under the plan, the European Commission will establish a European Fund for Strategic Investment (EFSI) with an initial size of 21 bn. Euros. Most of it for long-term project investments, while nearly a quarter will be ring-fenced to fund investment at small and midsize enterprises (SMEs) and mid-market companies. Of the facility’s initial amount, the EU will provide 16 bn. Euro in form of guarantees, and the European Investment Bank (EIB) will provide 5 bn. Euros. The EFSI will invest in riskier projects − ­or in more junior positions in low-risk projects­ − to help attract further private capital 15x greater than the initial EU and EIB 21 bn. Euro input. Despite the plan’s laudable aims, market observers have expressed many concerns about its feasibility, application, and ultimate ability to attract the necessary level of institutional capital.

S&P analysis shows that increased investment in infrastructure can stimulate economic growth and create jobs as long as projects have a clearly targeted rationale and viable structure. However, the rating agency considers the plan’s greatest challenge will be to open up the capital markets sufficiently in a relatively short three-year timeframe, given its aim to attract private-sector investors at a multiplier of 15x the EU’s and EIB’s investment both for projects and SMEs. To succeed, the plan will have to attract substantial crowding-in of the private sector through scaled-up capital market funding with support and incentives from Europe’s multilateral institutions, politicians, and policymakers. (vwh/mst)

Image source: European Commission Audiovisual Services

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