The Misunderstood Needs of Europe

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Politicians like competitions. Sometimes they compete in election promises, to which we have already grew accustomed. Besides elections there is another contest between opposition and coalition regarding who can govern in a better manner. From the beginning of the crisis this competition became interesting in terms of a very common theme – an attempt to stimulate economic growth by the government or, recently, by the European Commission. 

Last month the list of people who are planning such move joined Jean-Claude Juncker, the newly elected President of the European Commission, who introduced his Investment Plan. It should help to boost the economy by drawing private investments. The actual investment plan, at least in the way it was presented to the media, should bring about 315 billion EUR to the economy, which should enable a strong economic recovery, which until now is still bypassing Europe. 

But there are several problems with the Plan. Firstly, after having a closer look at this phenomenon, we may find out that this investment plan is based on the combination of public and private resources, from which the new finances from “public” resources will amount only to 21 billion EUR – mostly in the form of investment collateral. It means that the plan proposed by the new President of the European Commission counts with contribution by private enterprises in ratio 15:1, what makes all of the goals of the plan only a means of wishful thinking without any actual chance to success. We have not even mentioned yet that another basic pillar of this plan is the direction of the investments to the Southern Europe, heavily affected by financial crisis. This part should show aspect of solidarity between EU countries and an effort to commence economic growth of the weakest parts of the EU. In combination with reliance on private capital, this is only one of many sings that the plan will end up in vain.

Economists and politicians are competing in making projections about whether the plan can or cannot be successful and, if the latter, then what should the European Commission do instead. These discussions are, similarly to J.C. Juncker’s plan, completely pointless. Both are based on a total misunderstanding of what problems the EU and the world economy in general are facing. This plan, like other similar plans, attempts to come up with a spark that would start the engine. The main problem of the engine of Europe is not the need to change the spark-plugs, but to add some more fuel that will make the engine work for a long time. And for this fuel stands economic freedom, which all European countries have been gradually diminishing for such a long time that now there is a shortage in its supply. Instead of solving this problem, the self-proclaimed “auto mechanics” are focusing on those parts of an engine that will not help start the car at all. 

Applied to the current problem, the plan proposed by J. C. Juncker is an effort to stimulate economies that lack the basic fuel that could energize the economic growth. The plan is based on a presumption that it will be able to start investment activities of the private sector. The main issue is not, however, that they cannot be started, but that in reality there is nothing that can be “started” because most of the European enterprises are suffering from the crisis and have no resources for this kind of investments. The long-term trend of high debts and deficit spending by the governments can be spotted also in the private sector, which is, in addition, burdened with higher taxation to cover up the governmental deficit spending that they cannot reduce. Conducting real reforms demands painful measures that no politician is willing to take. 

However, politicians still have to pretend that they are doing something and the new management of the EU is not an exception. The problem is that their current effort is mainly defined by the bureaucracy and by the need for centralized decision making. But the real needs of the EU economy will not be met.

Translation: Juraj Medvec

Martin Reguli