Leaders Are Fiddling While Europe Burns

Friday, November 28, 2014
By Paul Martin

The Economist
BusinessInsider.com
Nov. 28, 2014

Europe is in dire economic straits. Growth in the euro zone is stuck below 1%, unemployment is above 11% and inflation is hovering around 0.4%, far from the European Central Bank’s 2% goal and dangerously near outright deflation. This week the Paris-based OECD rich-country club warned that the euro zone was mired in stagnation, and added that it was dragging down the world economy. Even the pope has joined in, calling the European Union “elderly and haggard”.

Such a situation surely calls for an urgent and decisive response. On November 26th the European Commission’s new boss, Jean-Claude Juncker, duly unveiled what he sees as the centrepiece of his presidency: a grand investment plan worth €315 billion ($392 billion) that officials are claiming is the best way to create extra demand in Europe. Yet although Mr Juncker’s headline number sounds impressive, the sums behind it are puny. And the chances that it will kick-start growth, as Brussels is suggesting, are minimal (see article).

For a start, the plan will not begin until mid-2015 at the earliest. The extra spending that it hopes to engender will then be spread over three years. Furthermore, most of Mr Juncker’s €315 billion is based on financial engineering, using public guarantees of small sums in the hope of leveraging in a lot more private capital—some of which would have been lent anyway to other projects. Even the €16 billion that is being touted as “new money” is illusory; almost all of it is being recycled from unspent bits of the EU budget. Another chunk comes from that hardy perennial, expansion of the European Investment Bank (EIB), but this institution is notoriously slow and cautious about any risky projects.

The Rest…HERE

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