According to the European Commission, a so-called market failure triggered by the supply side is to blame for the continuing investment recession in Europe. Major projects of strategic interest currently cannot be funded without political intervention, even though sufficient liquidity is available. Furthermore, the Commission claims that exaggerated uncertainty of private investors can be held responsible for the market failure. Ultimately, only state intervention can clear the market by taking on the project’s risks and thus attracting private investors.
In fact, the reality looks quite different: the economic sentiment in Europe has recently improved to pre-crisis heights. In contrast, it is political uncertainty that turns out to be extremely sticky and remains twice as high as in 2007 (see figure). Both facts show that there is no excessive risk aversion in Europe. In truth, the stakeholders seem to adequately assess risks.
Political uncertainty is a rational barrier to investment. It can lead to a deterioration of investment projects or shun investors entirely. In any case, uncertainty in itself contains no evidence of market failure and legitimises no state intervention. By and large, the investment plan tries to fight structural investment constraints by creating a transitory tool.
Placed at the heart of the investment plan, the European Fund for Strategic Investments (EFSI) will start its work in September 2015. An independent group of experts is supposed to pick projects from a huge project pipeline. Although this guarantees a minimum amount of political independence, it is not enough to legitimise the European investment plan beyond usual reasoning for state interventions. In other words, investment projects need to be examined on the grounds of their potential to provide real EU value-added before they are supported. For this evaluation, it is useful to estimate the potential positive cross-border externalities. Another key criterion in the selection of projects needs to be the principle of real additionality. Additionality means that crowding out of private investors must be avoided. Also, funding of projects that could be financed from other EU budget positions must be prevented.
Jyrki Katainen, the Commission's Vice President, is currently touring all member states to promote the plan and to identify projects to be added to the pipeline. After the investment plan’s approval by the ECOFIN Council and the Permanent Representatives Committee in early June, the final plenary vote takes place on 24 June. In the meantime, the EIB has already approved financing for certain projects, even though the EFSI’s legislative process has not yet been concluded.