By Brian Parkin, Helene Fouquet and Birgit Jennen
Germany and France are poised to take the first step toward a European investment program, as the euro (CME:E6Z14) area’s two biggest economies seek to resolve differences and spur growth without resorting to stimulus spending, government officials said.
The proposals, which enlist the European Investment Bank for loans to companies, aim to pave the way for a €300 billion ($388 billion) investment plan outlined in July, according to three euro-area government officials who asked not to be named because the document is in draft form. Germany and France plan to present the initiative at a meeting of European finance ministers in Milan, Italy on Sept. 12.
Germany’s emerging endorsement marks an attempt to shift the debate away from austerity and acknowledge the European Central Bank’s efforts to prod governments into action to combat low inflation and a weak economic outlook. It’s also intended to deter ECB President Mario Draghi from resorting to purchases of sovereign bonds and asset-backed securities to increase bank lending, a move viewed with anxiety in Germany.
Draghi “threw the kitchen sink” at German Chancellor Angela Merkel, Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said in an interview after the ECB’s policy decisions on Sept. 4. “Draghi’s message was plain: my back’s to the wall -- do something to push fiscal stimulus now or watch me buy bonds.”
No Stimulus
With Merkel opposed to fiscal stimulus, German backing for the investment plan requires avoiding pledges of cash and any suggestion that pressure on France and Italy to make their economies more competitive is easing, one official said.
At the same time, the French and German governments aren’t interested in providing state guarantees for Draghi’s asset- purchase program announced last week, according to a draft document obtained by Bloomberg News.
The separate proposal on investment is part of preparations for European Union leaders to discuss growth at a special summit on Oct. 6 and sign off on an investment-boosting plan by the end of the month. Without citing specific projects, the joint paper will refer to an investment gap in Europe in areas such as transportation, broadband and energy, one official said.
The Luxemburg-based EIB would be the favored conduit for investment loans, as outlined in the €300 billion ($388 billion) proposal to “re-industrialize” Europe that designated European Commission President Jean-Claude Juncker presented in July, according to the officials.
Earlier Attempt
Juncker plans to outline the program by February. It would follow a €120 billion growth boost pledged in 2012 that was based on a €10 billion increase in the EIB’s capital and assumptions about how much investment that would unleash.
Germany and France are working on joint proposals to strengthen investment, German Finance Ministry spokeswoman Marianne Kothe said yesterday, declining to comment on details. French government officials didn’t return calls seeking comment.
Pressure on governments is increasing as France’s economy failed to grow in the last two quarters and the government scrapped plans to cut the budget deficit to 4 percent of output this year. Italy is in its third recession since 2008 and Germany’s economy shrank by 0.2% in the second quarter.
Both sides also plan to back national efforts to attract private investors, such as Germany’s bid to harness insurance- industry capital to finance infrastructure projects, the officials said. Cross-border cooperation between national development banks or funds would also be conceivable.
German Model
Merkel’s government touts German development bank KfW Group, the country’s third-biggest lender by assets, as a possible model for other countries. KfW has aided in loans to Greek companies in the wake of the debt crisis, though such an engagement isn’t envisaged in other euro-area countries for now.
KfW development loans “are working well in Greece,” Ralph Brinkhaus, the finance spokesman in parliament for Merkel’s Christian Democratic Union, said in an e-mailed reply to questions. “It makes sense to build up a European development bank model. If supporting companies with tailor-made finance is needed, development banks are the right way.”
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
No comments:
Post a Comment