More Money Please: A New Plan to Boost Europe's Straggling Investments

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http://www.spiegel.de/international/business/a-new-plan-to-boost-european-investment-to-avoid-recession-a-978357.html



The euro crisis may have eased recently, but companies and countries in the common currency zone still aren't investing enough to fuel growth. The best solution, a Berlin economics institute argues, is to establish an EU-wide investment fund.

More Money Please: A New Plan to Boost Europe's Straggling Investments
By Christian Reiermann
July 01, 2014 – 05:37 PM

Among economists, Marcel Fratzscher is considered to be particularly creative. As head of the German Institute for Economic Research (DIW), Fratzscher publishes more than almost any other economist in the German-speaking world and even politicians come to him for expertise. Indeed, he has been tasked by Economics Minister Sigmar Gabriel -- who is also German vice chancellor and head of the center-left Social Democratic Party -- with heading up a working group to examine how investments in Germany can be boosted.

Fratzscher's report, to be released on Wednesday, will likely garner the economist even more high-level attention. The study shows how Europe might be able to mobilize the kind of investment it badly needs, despite empty state coffers and the shackles imposed by the debt and deficit limitations of the European Stability Pact.

"We need an impulse to trigger growth in the crisis countries and to prevent the return of recession in the euro zone," Fratzscher says. He believes the recent proposal from France and Italy, which have insisted that stability rules be adjusted to allow for more investment, have merit as long as the debt rules are not weakened.

The DIW proposal adheres to the long-held economic axiom that today's investments ensure future growth -- that money left unspent on new technology or facilities today will not still be available tomorrow. Since the beginning of the financial crisis, gross fixed capital formation -- a macroeconomic measure of investment -- has dropped by 14 percent in the European Union and by 15 percent in the common currency area, DIW researchers have determined.