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Can Investment Save Europe?

Jean-Claude Juncker, the president-elect of the European Commission, wants to mobilize an additional €100 billion for public and private investment each year for the next three years. But, at a time when private income has shrunk and public resources are scarce, plans to stimulate investment should be carefully scrutinized.

PARIS – Economic growth in Europe remains disappointing. Virtually all European Union members are expected to post higher output in 2014; but, according to the International Monetary Fund’s latest projections, the average growth rate in the eurozone will barely exceed 1%. And, whereas the British economy is displaying strong momentum, its GDP has only now surpassed the pre-crisis mark. In per capita terms, the EU is still poorer than it was seven years ago.

In this context, a new policy target has emerged: investment. Italian Prime Minister Matteo Renzi, who currently holds the EU’s rotating presidency, has pushed for it, and Jean-Claude Juncker, the president-elect of the European Commission, has called it his “first priority.” His goal for the next three years is to mobilize an additional €100 billion ($134 billion) per year (0.75% of GDP) for public and private investment.

Investment is certainly a politically appealing theme. It can unite Keynesians and supply-side advocates; proponents of public spending and supporters of private business can stand together. And historically low long-term interest rates undoubtedly provide an exceptionally favorable opportunity to finance new ventures.

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