Juncker Plan: billions keep flowing but data shortage is here to stay
The Juncker Plan has accomplished most part of its mission according to the last figures released by the European Commission in February. 366 infrastructure and innovation projects worth €40.4bn and 370 financing agreements for small and medium enterprises (€12.8bn) have been approved so far and they are now expected to mobilise €264.3 billion in private investments. The amount represents 84% of the original target set by the EU in 2015: €315bn to be triggered through the European Fund for Strategic Investments (EFSI) by summer 2018. On December 2016 the Plan has been extended for two more years raising its investment capacity to €500 billion. Among the EU countries, France benefited the most in absolute terms receiving almost €9bn of financing and triggering €40.1bn of private investments. Italy (€7bn plus €38.4bn of mobilised investments) ranks 2nd followed by Spain (€5.6bn plus €32bn) and Germany (€5.1bn plus €22bn). Greece leads the top five ranking of private investments relative to GDP, followed by Estonia, Bulgaria, Portugal and Spain. Today, European Investment Bank (EIB) shows confidence: «The Juncker Plan and its financial pillar, the EFSI, are working well» says an EIB spokesperson who asked not to be named. Overall results, he adds, show that the financial institution is «on a good track» to deliver the €315bn investment target by this summer; an impact assessment conducted by the EIB «demonstrates that already within the first 18 months of its existence, EFSI was able to create hundred thousands of jobs and significantly contribute to GDP growth across the European Union».
The multiplier effect
The key instrument of the Juncker Plan is the so-called "multiplier effect", the mechanism designed to attract private resources thus increasing the total amount of transactions. The system is a mix of financial leverage and private investment and it aims to turn the initial capital, set at €21bn (€5bn from EIB plus €16bn from EU budget) into a total amount of €315bn. The goal seems ambitious and some analysts are puzzled, but the operation appears actually sustainable. «It’s not so incredible» says Grégory Claeys, Associate Professor of Economics at the Conservatoire National des Arts et Métiers in Paris and resident scholar at the Brussels-based think tank Bruegel. «The €21bn capital is leveraged 3 times allowing the Bank to invest €63bn in various projects in which it usually takes a 20% share of the amount leaving the remaining 80% for private operators» he explains. «That’s how €63bn turns into the magic number of €315bn, that’s how the multiplier works». Compared to traditional projects, in which EIB usually takes a majority stake, the initiatives conducted within the Juncker Plan may also represent a positive change: «Usually the share of EIB is much higher: one third or even half the amount of each project» says Claeys, «so investing just 20% is a welcomed change because in this way they crowd out less private investments. I think they should extend this rule to more traditional projects too».
Lack of analyses
According to current approvals, says EIB, the sectors that are expected to benefit the most from EFSI financing are smaller and medium-sized companies, energy and transport. Energy sector received 21% of the resources put in place by the Juncker Plan while 9% went to transport whose projects include, among others, airports upgrading (Greece), a new high-capacity bus network and cycling lanes (Spain) and a new traffic route designed to reduce traffic congestion (Poland). SMEs come out as the great winners: resources allocated to smaller companies represents 29% of the total, the highest percentage among all the categories financed. According to the European Commission about 589,000 SMEs are expected to benefit from the Plan. However, a deep analysis remains difficult due to the lack of accurate data. Eugenio Quintieri, Secretary General of the European Builders Confederation (EBC), for example, expresses a positive judgment on the Juncker Plan - "We look with favor on it" he says highlighting the positive impacts on business credit - but also admits that its evaluation is complicated. «The Plan covers several areas that usually involve the construction sector such as transports, energy efficiency and social projects» he argues. «Currently, however, there is no specific analysis of the results of the Juncker's Plan on construction’s core business: commercial and residential real estate. The same applies to construction SMEs’ main business: the renovation market. Without these data, today it’s still hard to estimate the results of the multiplier effect of the investments in the construction sector».
Is the Juncker Plan useful?
Poor information available means no easy assessment. «The Commission has already claimed to have mobilised €300bn of additional investments that would have not existed without the Juncker Plan but this is very difficult to assess» says Grégory Claeys who studied the EIB investment mechanism since its inception. «The original goal of the Plan – he argues - was to promote additional private investments in Europe: the idea was that EIB would invest in riskier and more innovative projects and it would take subordinated positions, which means that if things went bad the EIB would have been ready to take the first loss». The objective was to push investors to commit more money despite being really risk-averse at the time. In order to assess the progress of the Plan and to evaluate its usefulness, in 2016, with the help of Bruegel researcher Álvaro Leandro, Claeys compared the investments to previous ones that weren’t labelled EFSI and therefore not guaranteed by the EU budget: «Was EIB investing in more innovative and riskier projects at that time? We were a bit sceptical about this since we saw that the projects looked very similar to the usual EIB initiatives» Claeys says. Today he doesn’t rule out that EIB is now investing in more innovative projects as available information seems to suggest. But lack of details still prevails. «We need more data» he claims. «The Plan itself is not very transparent: you have a list of projects, you know the amount but you still have to know if EIB have invested in projects in which it wouldn’t have previously committed or not and if it has invested in a subordinated way or not. The multiplier effect is easy to check and it currently seems to work. But still there’s no easy way to know if private investments have grown at higher speed thanks to better economic outlook or because of the Juncker Plan».