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Symposium 2015

Virtual Library File - The Juncker Plan: From €21 to €315 billion, through smoke and mirros

The Challenge

Five years after the Great Recession the economic recovery in the euro area remains remarkably subdued. Labor markets have started to improve, but only very gradually. Above all, investment spending h ...

Five years after the Great Recession the economic recovery in the euro area remains remarkably subdued. Labor markets have started to improve, but only very gradually. Above all, investment spending has barely reached the levels recorded ten years ago despite historically low interest rates across the euro area. Uncertainty surrounding the future direction of policies, even surrounding the composition of the currency area as a whole, has apparently led to a wait-and-see attitude of businesses when it comes to investing into future markets. The credit-fueled boom that preceded  the financial crisis left the economy with a debt overhang and severe mismatches in the production structures (i.e. a huge capital stock distortion) that makes the diagnosis of aggregate output gaps particularly difficult. Resolving these obstacles and creating a business-friendly institutional environment, thereby unleashing investment to build up a productive capital stock, is of utmost importance to put the European economies back on a sustainable growth path and to bring people back to work.


This commentary raises serious doubts that the proposed Juncker Plan is able to significantly increase investment in Europe. It argues that, given that no increase in the EU budget has been proposed, there can be no fresh money, only a rearrangement of existing budget lines. Likewise, there is no guarantee that private sector funding mobilized by the plan is not withdrawn from existing projects.