How to kickstart investment in Europe?

Investment, both public and private, has been characterized by a long-term downward trend since the early 1970s in the main advanced economies. In Europe, from the middle of the 1990s to the beginning of the crisis in 2008 this trend was partly offset by an investment boom in Greece, Ireland, Spain and Portugal. However, after the global financial and economic crisis, those countries introduced very tight fiscal policies, with consolidation programmes heavily focusing on spending cuts in public investment. At the same time, private investment (in particular for long term projects) also suffered from unfavourable financing conditions, a consequence of the damaged financial sector. Given today’s situation in the EU, there is a clear need for long-term investments not only to finance infrastructure, innovation, education and environmental projects, but also projects aimed at increasing competitiveness. Kickstarting investment and channelling excess savings (as shown by today’s current account surpluses in Europe) to the right places in Europe is therefore a major challenge for policy makers.

During the event, the speakers will try to answer the following questions:

• What are the causes behind this declining trend? The public investment decline, especially in the last few years, can be explained by fiscal consolidation and the constraints of the European fiscal framework, but it is less clear what the origins of the private investment decline are. Usual suspects include the transformation of the European financial market structure, with a transition from bank lending to capital market financing for long term projects. European demography could also play a role as well as uncertainty about future demand, tighter regulatory requirements, and in the more troubled countries the current decline could result mainly from a correction from an unsustainable trend.
• What is the best solution to channel European savings to fruitful investment uses in Europe, taking advantage of today’s low interest rates? Is there a role for a pan European investment program? If so, what form should it take? Should it be implemented directly by countries that have more fiscal leeway? Or should it be led by the EIB and/or by national development/public banks? Lastly, should Europe create a new instrument such as a federal investment fund to carry out that task?

Speakers

• Zsolt Darvas, senior fellow at Bruegel
• Natacha Valla, deputy director at CEPII
• Debora Revoltella, chief economist at European Investment Bank (EIB)
• José Abad, Chief Economist at Instituto de Credito Oficial (ICO)
• Giorgio Chiarion Casoni, DG Economic and Financial Affairs Financing of climate change, infrastructure policies and Euratom
• Chair: Gregory Claeys, Research Fellow, Bruegel

Event materials

A New Architecture for Public Investment in Europe by Natacha Valla, Thomas Brand and Sébastien Doisy

In sickness and in health: protecting and supporting public investment in Europe by Francesca Barbiero and Zsolt Darvas

Practical details

• Venue: Bruegel, Rue de la Charité 33, 1210 Brussels
• Time: Tuesday 8 July 2014, 12.15-14.30. Lunch will be served at 12.15 after which the event begins at 12.30.
• Contact: Matilda Sevón, Event Manager - [email protected]