The uncertain investment plan
The leaked investment plan—Withinvestment trending down in the euro area (Guntram Wolff), Juncker’s forthcoming €300 billion investment program, called « Invest in Europe, » is attracting a lot of attention. Details are emerging. The FT (hat tip EuroIntelligence) describes it as a massive collateralized debt obligation, with a built-in leverage factor of 10, i.e., the EU or the EIB put up to €30bn to fund a first-loss tranche, as a loss guarantee to attract private funding, to raise a total investment financing of €300bn. Bloombergwrites that loans, lending guarantees and stakes in equity and debt will be part of its toolbox, with the goal to jumpstart private risk-taking so that stalled projects can get off the ground. The WSJ writes that the plan represents a shift in how the EU uses structural funds, as Mr. Juncker’s plan would use the money to leverage investment funding from the private sector, absorbing most or all of the initial losses in a project in which it co-invests with the private sector. FAZ reports that member states will be able to choose how they want to contribute, for example through their own development banks such as KfW in Germany, and will be managed by the European Investment Bank. A technical assistance program will complement this to identify projects of interest to private sector investors, along with a road map to clear regulatory hurdles.
