For the DIW, one of Europe’s weaknesses is the lack of private investment. Gornig’s team advocates for a European investment agenda, a fund – limited in time and managed by the European Investment Fund, EIF, from the European Investment Bank- that lends money “into productive private investment.”
According to DIW calculations, the difference between the volume of investments registered in the eurozone and the necessary investment in machinery, manufacturing and infrastructure to generate growth was 2% in the euro area between 2010 and 2012. In Germany that hole accounts for 3% of GDP, which would mean that both the State and the German companies would need to invest €80 billion more every year to boost the economy. In Spain, the deficit amounts to 1.1%. The reason is, according to DIW, the widespread uncertainty about the economic future.
Is it really possible to stimulate economic growth without touching the Stability Pact?
Of course. In our last study we show that one of the biggest factors hindering growth in Europe is the deficient willingness of companies to invest. And best thing is that for boosting investment is not necessary that states spend much more money.
What is exactly your proposal?
We believe that to solve this problem of weak investment in Europe we need a broad strategy that aims to fight against both the structural reasons and cyclical reasons (financial crisis of recent years) of that investing deficit. In order to improve the conditions, a more efficient policy in favour of promoting competitiveness would have to be implemented, considering that bigger competitiveness allows to boost the innovations as well as the investments. Furthermore, we recommend a favourable fiscal policy to investments that offers better possibilities for amortization. And the third pillar of this European investment-oriented agenda could be a new European Fund, limited in time, and which would refinance itself with guarantees of the Member States. Thus, both the supply and demand for credit in these countries would improve.
How has the German government reacted to your proposal?
Most German policymakers recognise the need to grow and encourage investment, also in Germany. The two parties governing the coalition in Berlin expressed it in their election programs in 2013 but in practice they have hardly intervened in this direction. Until now they have only taken a couple of steps, insufficient. Our Institute believes that Germany would have to work with more determination to invest primarily in the areas of energy improvements in buildings and transport infrastructure.
And given the risk of entering into a new phase of economic recession. Why can we not relax and apply softer fiscal rules?
One problem is that the states of the EU start with amounts of debt and public finances very different from each other. In this situation, it is difficult for some countries to stimulate business investment with public money. In this sense, it might be reasonable to relax the fiscal rules if needed. What you can not do is to ignore always the fiscal criteria, because it would lead to a loss of confidence in solving debt problems and it would harm the willingness to invest of the companies.
Since the start of the financial crisis the gross fixed capital formation has fallen 15% in the eurozone. How important would a European agenda for investment and what specific measures would require for example Spain to grow?
According to the study conducted by our research team, it would be essential to encourage companies’ investment to overcome the sluggish growth. More growth also means higher expected business sales; which leads to a wider margin to invest. We consider it is a possible and viable option. However, each country should assess with its experts what additional and specific measures are needed to boost growth. From the outside I think in Spain it would be advisable some measures that consolidate a innovative and research-based medium high-tech industry.
According to your study, in Spain the investment gap amounted to 1.1% between 2010 and 2012. Where specifically do you observe and identify it?
Especially the investment gap is observed in the industry, in the manufacturing sector. I think that is the challenge for Spain.
Regarding the solutions, you propose that this European fund operates independently of regional or sectoral interests. But then it could happen that the borrowed money flows preferentially to the richer regions, deepening the differences in Europe…
I think the we should see it in another way. Europe is an integrated economic region. The better Europe is as a whole, the bigger will be the possibilities to generate new growth impulses in weaker states. What we can not do is just invest. The objective of Europe should be different: to renew and increase its capital stock to be competitive in the market. The purpose of the investment fund will focus primarily on solving the problems of the weakest regions of the EU, because it is precisely in these areas where SMEs have more problems to access to finance. We start from the assumption that a large part of the fund’s resources will go to these states.
Your Institute propose wage increases in Germany. On the other hand, unions fear that employers here elude the new minimum wage of 8.5 euros/hour to pay even less than that. They are contradictions of a society in which social differences increase. To where is Germany going in this area?
The income gap is increasing since 2000 in many European countries. And now with the euro crisis, this tendency to increase social inequalities deepen even further in the countries particularly affected by the lack of growth. By contrast, the German case shows that the opening of labor markets and employment growth allow to soften that tendency of wage gap.