The €315bn “New Deal” for investment and growth in the EU was today dismissed as “chicken feed” by a leading academic. Professor Charles Wyplosz from Geneva University dismissed the proclamations by President Juncker and said “it won’t do anything to kick-start growth”.
He told The Telegraph that it was “really an excuse to pretend they are they doing something while the austerity is still going on.”
The money is supposed to pull EU economies out of its economic slump, where eurozone countries in particular have been lolling, unable to attract private investment into their countries.
But the package will provide almost no new money of its own and will depend on leverage that increases the headline figure by 15 times. In short, Juncker is using EU tax payers money to bear the heaviest risk and protect the investors he is desperate for from losses. The only new money comes from a new “European Fund for Strategic Investments” which is backed by €21bn from the EU budget and European Investment bank.
As one MEP put it, it’s “Heads investors win, tails tax payers lose.”
“It is unbelievable they are doing this rather than real fiscal expansion” Prof Wyplosz added. “The private sector will just take governments to the cleaners.”
“This is It will take too long to work and there will be a big fight over the projects as every country tries to get a share of the cake.”
Patrick O’Flynn, UKIP’s Economics, spokesman, compared the proposal to a clapped out banger.
“The truth is the vehicle itself is unsound. The euro is what motor traders in my country would call a lemon and it should be scrapped.”
He added that the fund would not change the fact that southern Europe is in a terrible state because the countries are expected to live in the same exchange rate and thus with the interest rate as Germany.
Even leftwing MEPs who usually jump at the chance to support new billion pound projects were unimpressed.
Dimitrios Papdeimoulis told Mr Juncker, “the package you presented is just empty words. €16bn comes from the EU budget and €5bn from the EIB. There is not one Euro of fresh money in there, and you promised that you are going to create some kind of leverage effect multiplying funds by 15. In these times of stagnation and recession in the Eurozone, there is no economist in the world that would believe this”.
Head of the European Central Bank, Mario Draghi, has been pleading for EU bodies to launch a recovery package, warning that monetary stimulus such as interest rates and quantitative easing cannot do the job alone.
But the cap on EU spending to near €140bn a year until 2020, insisted upon by Germany, Britain and other ‘net contributors’ to the EU budget, mean that the Commission cannot try to spend its way out of the slump and instead needs to look at supply side reforms it usually turns its nose up at.
But the latest announcement shows that far from looking to previous economy success stories, Brussels is instead playing high risk roulette with tax payers money and using bold headlines and nuanced finances to hide what the substance of their ‘New Deal’ really is.