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Main points of investment plan to revive EU economy

28 November 2014, 18:10 CET
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Main points of investment plan to revive EU economy

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(STRASBOURG) - New EU Commission chief Jean-Claude Juncker unveiled Wednesday an eagerly awaited 315-billion-euro ($393-billion) investment plan to "kickstart" the economy, saying it would show the world that Europe is back in business.

Here are a few of the plan's main points:

THE PROBLEM

Investment in the 28 countries of the European Union is 15 percent below pre-crisis levels, a whopping 430 billion euro shortfall from 2007.

The missing investment is widely blamed for Europe's inability to recover from the crisis and comes despite ample liquidity in the economy, provided through unprecedented stimulus by the European Central Bank.

THE FUND

To solve this dilemma, the Commission is proposing the new European Fund for Strategic Investment. This new EU body will finance projects deemed too risky by the European Investment Bank, the EU's financial arm based in Luxembourg and known for its caution.

The fund will be backed by 21 billion euros in capital, taken from existing sources. This includes 5 billion euros from the EIB and 16 billion in the form of a guarantee from the EU's own budget.

This 16 billion euro guarantee will in reality be leveraged from 8 billion euros in budget funds, which will be re-allocated from existing projects.

The EIB calculates that the seed money will multiply 15 times once deployed into the real economy, bringing the 315 billion euro headline figure.

If member states choose, they can also contribute to the fund, but with no guarantee that the money would go to national projects.

As an incentive for contributions, the commission said it "will take a favourable position" towards such contributions when assessing potential overspending by national governments under the EU's new powers of budget oversight.

THE PROJECTS

An existing EIB-Commission task force is already assessing projects, with the input of member states.

Once up and running, the new fund will have a dedicated investment committee staffed by experts and EIB officials.

Projects will be chosen by their added value to European priorities -- such as digital development, energy, as well as transport and education.

A portion of the mechanism will be allotted to small and mid-size companies that are struggling more than large companies to raise financing for investment.

EFFECT

The commission said the plan had the potential to add between 330 billion and 410 billion euros to gross domestic product in the EU.

It also said the plan could create between 1 and 1.3 million jobs over three years.

The EIB meanwhile, will preserve its cherished super-safe AAA credit rating it says is necessary for the bank to maintain unfettered access to raise cash on the markets.


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