EIB’s Annual Economics Conference: Financing productivity growth
With Member States discussing an extension of the European Fund for Strategic Investments (EFSI), implemented by the European Investment Bank, it is vital that we ask some fundamental questions about Europe’s economy: Has investment in Europe recovered from the crisis? What is holding it back? How can we ease financial constraints for investment to enhance productivity and our ability to compete in the global economy?
Bringing together more than 100 participants from the private sector, government and academia, the EIB Economics Conference – co-organised with SUERF (the European Money and Finance Forum) – discussed the problems we face and the solutions we need in Luxembourg on 17 November 2016.
Recognising the need to step up the recovery of investment
“The European Union is a historic achievement and its transformation has recently advanced at a tremendous pace: the euro, the banking union, the Schengen space, free movement of people, goods and services,” said EIB President Werner Hoyer. “But we cannot become complacent. The economic recovery in Europe remains sluggish. Very high levels of unemployment in many European countries persist and pose a threat to our long-term growth potential. Indeed, different European countries appear to be on very different growth paths, creating strains.”
“We as Europeans need to strengthen our competitive position on the global market. And we need to act now for the security and prosperity of future generations.”
Werner Hoyer, President of the EIB
EIB Vice-President Ambroise Fayolle emphasised the response required: “Public support for investment is very important to mobilise and crowd-in the private sector. We need concerted efforts to remove bottlenecks, to respond to investment needs in infrastructure and innovation and to help alleviate the financial constraints faced by smaller firms. SMEs are still more likely to report financial constraints than larger firms. Access to equity for SMEs remains difficult, and that is something we need to tackle.”
Getting finance to the most productive firms
Three expert panels discussed the state of Europe’s investment performance and what needs to be done to ensure that the right kind of finance is available so that needed investment takes place. With some European banks still suffering from the after-effects of the crisis, it was argued that this has affected the performance of firms in the real economy.
“The crisis has impacted the ability of our financial sectors to allocate resources efficiently to the most productive firms; this may be contributing to the persistent slowness of productivity growth, undermining our competitiveness,” said EIB Vice-President Andrew McDowell. “To compensate, we need to see strengthened public support for investment, making the best use of available EU and national financing capacities to address investment gaps, particularly through investments that enhance productivity and deepen market integration.”
Referring to the results of a new EIB survey of businesses across Europe, to be released in early 2017, EIB Chief Economist Debora Revoltella pointed out that now, “the outlook for investment does appear to be picking up. Business investment seems to be mostly driven by a desire to replace and improve their capital stock, to raise productivity and competitiveness, rather than a desire to expand capacity. But smaller businesses seem to face more constraints. Only 77% invested last year, compared to 88% for larger businesses.”
The conference launched the annual EIB report Investment and Investment Finance in Europe – 2016 that examines the investment trends and challenges facing Europe. This edition examines “Financing productivity growth” with a particular focus on how the crisis has impaired the ability of Europe’s financial sector to finance the kind of investment needed to enhance Europe’s productivity, competitiveness and long-term prosperity.