EU infrastructure plan could reinforce ECB policy

Subject

Outlook for infrastructure spending.

Significance

European Commission President Jean-Claude Juncker proposed a 315 billion euro (340 billion dollar) infrastructure initiative to revive the EU economy, expected to reinforce ongoing monetary policy efforts to boost growth. Fund raising is progressing through the European Investment Bank (EIB). The programme can benefit both short-term and long-term growth prospects, while its actual impact will depend on the projects implemented, as politically motivated choices can delay, distort and depress the benefits. This plan comes late, six years after the global financial crisis; one of its priorities is generating rapid results to boost the economic recovery.

Impacts

• To have a net positive impact, any infrastructure proposal would have to avoid drawing funds away from existing investment plans.
• The plan could help reducing disparities between labour markets in different euro-area countries.
• Persistently high euro-area unemployment will need a domestic demand revival to boost sentiment, growth and job creation.