Europe’s Hidden Stimulus
LONDON – When the European Council next meets, on February 7, it should look at private investment as a means to kick-start Europe’s stagnant economy. With the usual drivers of GDP growth constrained across Europe, the one economic sector able to spend is the non-financial corporate sector.
Indeed, publicly traded European companies had excess cash holdings of €750 billion ($1 trillion) in 2011, close to a 20-year high. Unlocking that cash would give Europe a much larger stimulus package than any government can provide. In 2011, for example, private investment in Europe totaled more than €2 trillion, compared to government investment of less than €300 billion.
And yet, while trends among European economies have varied, private investment was, overall, the hardest-hit component of GDP during the crisis, plunging by more than €350 billion – ten times greater than the fall in private consumption and four times more than the decline in real GDP – between 2007 and 2011. The magnitude of the private-investment downturn was, in fact, unprecedented – and lies at the heart of Europe’s economic malaise.
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