EU flags at the European Commission TPCOM/Flickr

Europe’s Misguided Investment Mania

The lynchpin of the new European Commission’s economic strategy is its recently unveiled plan to increase investment by €315 billion ($390 billion) over the next three years. But the Commission’s proposal is misguided, both in terms of its emphasis on investment and its proposed financing structure.

BRUSSELS – The mantra in Brussels and throughout Europe nowadays is that investment holds the key to economic recovery. The lynchpin of the new European Commission’s economic strategy is its recently unveiled plan to increase investment by €315 billion ($390 billion) over the next three years. But the Commission’s proposal is misguided, both in terms of its emphasis on investment and its proposed financing structure.

The Commission’s plan, the signature initiative of President Jean-Claude Juncker at the start of his term, comes as no surprise. With the eurozone stuck in a seemingly never-ending recession, the idea that growth-enhancing investment is crucial for a sustainable recovery has become deeply entrenched in public discourse. The underlying assumption is that more investment is always better, because it increases the capital stock and thus output.

This is not necessarily the case in Europe at the moment. European Union authorities (and many others) argue that Europe – particularly the eurozone – suffers from an “investment gap.” The smoking gun is supposedly the €400 billion annual shortfall relative to 2007.

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