The strategy for addressing the euro debt crisis evolved last summer, as European leaders put economic growth right in the policy agenda. It was an important commitment. Yet, at this juncture, action is required, and for at least two reasons.
The first is that the Marshall Plan for Greece agreed in July 2011, whose purpose is to accelerate the use of outstanding Structural and Cohesion funds to boost growth, takes time to deliver. A Taskforce for Greece was created over the summer with the responsibility, amongst many others, of facilitating the absorption of outstanding EU funds. Greek managing authorities and the Taskforce are collaborating over the selection of the worthiest investment projects. But this process is proceeding slowly.
Moreover, out of the €15bn in Structural Funds Greece has still available, the European Commission has offered about €2bn, which shall be leveraged through the European Investment Bank to bring them up to €6bn. Why not more?
There is one practical reason why it is difficult to channel all remaining resources at once. The cash transfers from the EU to the beneficiary are approved annually in the context of the EU Budget and require net contributors to the EU Budget (about half of the Member States) to concretely transfer the money. That shall explain why it may be unfeasible to anticipate the allocated money to any given country all at once.
As I argued elsewhere*, there may be alternative ways to do that, which do not require immediate cash transfers. Why, for example, could not the European Commission anticipate the full amount of outstanding EU funds by borrowing on capital markets under implicit EU budget guarantee, as it already does for some financial assistance programs?
The second reason why the EU needs to do more on the growth front is that prospects are meager and deteriorating for most euro zone countries. Greece is clearly stacked in a recession but some other countries in the periphery are not doing much better either. That calls for a European approach rather than isolated country-specific measures like the Greek Marshall Plan. Again, the European Commission could borrow on capital markets to anticipate the full amount or at least a very large portion of unused Structural and Cohesion funds.
Fresh resources are important. But their use is too. Most euro zone peripheral countries face competitiveness problems. Their prices are much higher than those in other members, an inheritance from the previous credit booms and excessive protection on product and service markets. Competition-enhancing measures including those aiming to complete the Single Market are the priority. They are followed by the need to invest in training and R&D in the manufacturing sector, which is the only one that produces the kind of exportable goods, with which a country can pay back its external debt.
* Benedicta Marzinotto, “The numbers behind a new EU Growth Fund”, 25 January 2012