Europe faces not just an on-going economic crisis, but also a crisis of investment that has potentially serious implications for future EU competitiveness and growth. That’s why the EIB Economics Department brought together over 100 economists, policy makers and industry representatives to debate the causes of the crisis and the key policy responses that are needed.
Investment and investment finance in Europe: Putting Europe on a sustainable growth path was the theme of this year’s Economics Conference, held at the EIB, 13th – 14th November. It is a pressing issue: “The crisis has caused an extraordinary decline in investment across the EU” declared Werner Hoyer, EIB President. Indeed, investment levels in the EU are about 17 per cent below their peak at the start of the crisis. EIB research shows that investment is still depressed. In some of the countries hardest hit by the crisis – like Greece, Ireland, Portugal and Spain – the decline is over 40%, and continues at pace.
Great uncertainty about Europe’s future economic and policy environment was highlighted as the main driver of investment decline. But the supply of finance was also hotly debated as a critical problem, particularly for the most crisis-hit countries, and for small and medium-sized enterprises, young innovative firms, and infrastructure.
The crisis has led to financial and banking market fragmentation in the EU along national lines, with a significant collapse in intra-EU capital flows. This has made finance harder to find in many crisis hit countries and for those types of firms most dependent on bank loans to finance their investment, such as SMEs.
Participants agreed that well-targeted policy action is needed, addressing bottlenecks for growth and clear financing gaps. There was consensus on the need for policy interventions aimed at reopening market opportunities. “We need to develop a more versatile financing system, with access to various kinds of financing instruments, to be able to support infrastructure, innovation and SMEs” remarked EIB Vice-President Mihai Tanasescu.
Structural reforms are also needed to reallocate resources towards more productive uses. This is clear for the crisis hit countries, but is just as true for the best performers. Innovative ideas, like the creation of a German sovereign wealth fund, were discussed.
Yves Mersch of the European Central Bank (ECB) Executive Board used his speech at the pre-conference diner to focus on the problem of financing SMEs, and to set out his vision of the response needed: “First, deepening our capital markets, and second, building a genuine banking union, would not only serve SMEs today, but also make our economy more resilient to ‘the next crisis’. Of course, both goals will take time to achieve, but it is imperative that we strive towards them as soon as possible.”
The conference was organised by the EIB in collaboration with the Reinventing Bretton Woods Committee (RBWC) and the Euro50 Group. The EIB Group was represented by President Werner Hoyer, European Investment Fund Chief Executive Richard Pelly, Director of the Bank’s Economics Department Debora Revoltella and Vice President Mihai Tanasescu.