Public investment for economic growth in the European Union

By Julie Marange’, Social Platform Intern working on Services of General Interest

Last week I assisted to the first panel of a conference held in the European Parliament on stimulating growth and jobs enhancing investments, organised by the European Social Observatory (Ose). The main question of the debate was ‘Is there a need for improvement of the European Union (EU) fiscal framework?’.

Ivo Belet MEP introduced the session by referring to a number of initiatives that have been taken in response to the crisis – such as the Youth Guarantee mechanism – and the lack of investment within the EU. He also highlighted the need for socially and economically responsible investments in order to restore trust in theEU and to achieve sustainable growth. The panel debate was about public investment in the EU since the reinforcement of the Stability and Growth Pact (1997), and the introduction of the macro-economic imbalances procedure. According to Ronald Janssen, Economic Advisor at the European Trade Union Confederation (ETUC), there is a strong link between public investment and the quest for stability. However, public investments were the first victims of the pro-cyclical fiscal tightening that was organised across Europe at the beginning of the crisis. He then emphasized the benefits of public investment to promote growth:

  • A major public investment initiative would break with this ‘snail pace’ recovery and produce a real take off of the economy instead
  • It would correct the overreliance on export demand
  • It would also rebuild and expand public capital (infrastructure, networks, equipment), thus strengthening potential growth
  • Investing in public investment is a ‘double dividend’: better performance both in the short as well as in the long run
  • Even the IMF says so: 1 billion of public investment adds 3 billion of activity.

Ronald Janssen argued that the single currency is not adapted to public investments. Indeed, “whilst money is europeanised, sovereign debt remains national”. He then suggested a way out by creating a European treasury, issuing European common debt. It would fix the euro by fixing public investment.

Philippe Maystadt also made interesting proposals to foster public investment:

  • To give a special attention to public investment in the “European semester”: On the one hand, the goal would be to avoid that a member State, in order to reach its deficit target, reduce or postpone growth-enhancing investment. On the other hand, a more systematic treatment of public investment in the “European Semester” could facilitate a better cross-border coordination of national programs.
  • In the implementation of the Juncker Plan, to authorize more flexibility for applying the ‘investment clause’ of the Stability and Growth Pact.