Stimulating Europe The Big Sell

Jyrki Katainen, new vice president of the European Commission, says concerns about funding and an initial lack of commitment from E.U. states are no threat to its new €315 billion investment program.
A man on a mission.


Jyrki Katainen, the former Finnish prime minister, took up the role of vice-president of the European Commission, the European Union's executive arm, last month. His area of responsiblity is jobs, growth, investment and competitiveness.

Following the announcement last week of the Commission's €315 billion ($392 billion) stimulus package, which aims to trigger mass public and private investment in infrastructure projects, he is planning to visit all 28 of the bloc's member nations to secure support for it.


Handelsblatt: Mr. Vice-President, the pope said in a speech to the European Parliament last week that the continent is more like a grandmother than a young, fertile woman. Is that right?

Europe is getting older. The numbers confirm it.

The pope doesn’t mean just the demographic development.

Our continent is certainly not the most dynamic one. We still haven’t completely recovered from the financial crisis. There is a lack of investment everywhere.

The European Commission is now answering that problem with its multi-billion-euro investment program. The seed money for it, however, is coming from central coffers and member states are not having to commit any new money. Are you disappointed?

Now, hold on a second. The governments, of course, first have to take a look at our plan. Naturally, I hope they will also deposit capital into the funds.

The German finance minister doesn’t want to. He feels Germany’s own €10 billion investment program is enough.

That will be discussed at the summit of heads of state and governments in the middle of December. It is conceivable that Germany will contribute a part of its €10 billion program to our fund. National contributions could considerably increase the fund’s impact. If our €21 billion were doubled, we could use it to mobilize more than €600 billion in private investments.

Many states are indebted and cannot afford payments into a new E.U. fund.

That is why we don’t want to take the contributions to the investment fund into account in the evaluation of the budget deficits.

What does that mean in concrete terms?

If paying into our fund pushes countries over the E.U. deficit limit of 3 percent, then we won’t initiate proceedings against that particular state. The same is true when payments into the fund result in an overall debt above the E.U. threshold of 60 percent of GDP.

As prime minister of Finland, you would have never tolerated such exemptions from those Stability Pact rules. Are you becoming more “French” in your outlook after your move into the Commission?

No. For one thing, the payment into the fund is a one-off expenditure. It doesn’t drive up the deficit permanently. Secondly, it is money well spent. Investments bring more growth in the future.

According to your plan, private investors have to participate. Why should they?

Just take a look at the insurance and pension funds. They have a vast fortune at their disposal that they have to invest somewhere. It would be well placed in large infrastructure projects.

Are you now going on a promotional tour to the investors?

Yes. I’ll be visiting all the member states in the next seven months and talking with potential investors. Just recently, I met London bankers. They want to invest, but can’t find suitable projects. We are now filling this void. We’re working on a list of projects that have a good chance for the future.

For example?

They could invest in power lines, power plants, fiber-optic networks or highways. Research and educational projects are very important to us. Joint projects between state and private investors are also conceivable, like constructing a new clinic.

How does a businessperson obtain information about the E.U. fund?

Owners of small- and mid-sized companies can go to their bank. We will be working closely with business banks. That is why the European Investment Bank is looking after the project. Commission funds will concentrate on higher-risk projects, whether it is the financing of start-ups or major infrastructure projects. With these, we will offer investors a so-called “first loss security.” This means the fund will take responsibility for the first losses.

Won’t this boost private sector losses, while the public sector picks up the cost of any losses?

When profits are generated, they will flow to all participants including the fund. If there are losses, they will first be covered by the fund, meaning the public sector. We are doing that to kick off investment. The risk to taxpayers is manageable. After all, not all the projects we help to finance will collapse.

The new fund is of little help when the investment climate is generally poor. In France, bureaucracy and high wages frighten off investors. Can the E.U. continue to accept that?

No. When a member state gets the reputation of being incapable of reform, mistrust grows. Investors ask whether their money is well placed in such a country, since there is certainly the risk that taxes and social welfare contributions will continue to increase.

France is going deeper and deeper into debt to avoid that and is in permanent violation of the Stability Pact. Can the E.U. tolerate that any longer?

When the pact’s regulations are continually broken, then ultimately, they are of no value. We cannot afford such a loss of credibility. If the world no longer trusts in our fiscal policy, then in the end, no one at all will invest with us.

Your fellow European Commissioners, Pierre Moscovici and Valdis Dombrovskis, are due to present recommendations for the member states national draft budgets for 2015. Will the Commission threaten France with sanctions?

I cannot say anything about the details of the recommendations, but it is not about 0.1 percent more or less of a budget deficit. It is more important that the euro states become more competitive.

France is not succeeding at that. Its deficit continues to increase.

We now have to concentrate on removing such macroeconomic imbalances. There is a procedure in the E.U. for that, which also can ultimately lead to sanctions.

Doesn’t the E.U. need to massively increase the political pressure on the government in Paris?

Political pressure from other member states is what is needed. I find it interesting that other countries – for example, Spain and Italy – are now tackling reforms. It is all the more important that the finance ministers in the Eurogroup exert more pressure on those countries unwilling to reform.


Ruth Berschens is Handelsblatt's Brussels bureau chief, Thomas Ludwig is the paper's E.U. correspondent. To contact the authors: [email protected][email protected]