Time for leaders to ‘walk the walk’ on economic growth. Pity they didn’t start sooner

Date: 16/10/03

The final decisions on how best to galvanize the EU economy await the European Council in December - but wheels must be set in motion this week, writes Peter Chapman

EU LEADERS love to talk about economic growth - especially when there isn't any to talk about.

If talking about it had any impact, the European Union would have been the fastest growing and most dynamic knowledge-based economy ages ago.

But, for one reason or another - much of it, such as 11 September 2001 and Enron, not actually the EU's fault - the talk has not delivered.

Now, as the Americans like to put it, the emphasis should be on walking the walk. This week in Brussels, the talking ends and the walking begins.

Well, in a fashion. The final "concrete decisions", as the Italian presidency calls them, are put off, but not for long, until the European Council of 12-13 December.

However, today and tomorrow, political leaders will, at least, set in motion an ambitious "growth initiative" aimed at boosting the long-term potential of an EU enlarged with ten new members.

Everyone seems to agree that the initiative - now an amalgam of ideas from the Commission, the presidency, the European Investment Bank and the big three member states of Germany, France and the UK - is welcome and necessary, not just for Europe, but for the global economy as well.

Finance ministers gave the plan their broad support at a preparatory session in Luxembourg last week.

Even the United Nations' Conference on Trade and Development got in on the act - appealing for Europe to take more responsibility for the world's financial health and urging it to use every available means to "bolster growth". So what is the Union signing itself up for?

At its core, the plan gives extra political impetus to the completion of a raft of priority Trans European Network (TENS) projects in the transport field - many of which have been gathering dust since the 1980s. These include intriguing new plans for "motorways of the sea" between ports across Europe, and existing proposals such as the controversial Brenner Tunnel between Italy and Austria, although some may find the idea of creating a permanent link between Sicily and the Italian mainland a "bridge too far".

Many economists, raised since Roosevelt's "New Deal" of the 1930s, are sceptical about the impact these big strategic projects, expected to cost €220 billion, would have on growth and jobs.

But the indirect effects of replacing a Stalin-era infrastructure in the EU's new eastern members, and updating rusty or non-existent links elsewhere, will make it easier to conduct trade and business.

To pay for it, the Commission and, crucially, the European Investment Bank will be asked to think of creative ways to combine government money with private-sector capital. With an eye on the long-term public debt levels and short-term budget deficits, the emphasis will be on smart means to raise money without the cash appearing as a black hole on governments' balance sheets.

The scope for encouraging the private sector to take on more of the financial risks of big projects - through so-called public-private partnerships - will be examined, as will the "securitization" of existing assets.

This could be a balance-sheet friendly way of financing big-ticket infrastructure investments, though it is fraught with legal pitfalls because it allows governments, or anyone else, to raise money from the markets without selling their crown jewels. Instead, investors get the right to some of the income that these assets generate. The same concept can be applied to anything from expected TV licence fee receipts to property rents.

Hand-in-hand with the big TENs projects will be a collection of other initiatives to rev-up the EU's economic engine, many aimed at small firms - seen by economists as the most likely source of future wealth.

R&D will be given political priority, as will efforts to make innovation spread to the Union's far-flung regions.

EU policy-making often seems to be full of contradictions between things that are good for wealth creation and those that are bad. So, with minds concentrated on making EU economies tick over faster, the summit is also likely to heed the calls from Jacques Chirac, Gerhard Schröder and Tony Blair about the dangers of the far-reaching chemical testing proposal known as REACH (Registration, Evaluation and Authorisation of Chemicals).

The trio insist that the system, which the Commission admits will cost firms up to €5.2 billion, should be changed to make sure it does not "disadvantage legitimate EU business interests in the global economy".

Leaders are expected to demand a full impact assessment on policies like REACH, which employers' group UNICE cited this week as one of the "main risks over the next six months" to business and, yes, you've guessed it, "growth".

Of course, no summit these days would be complete without mentioning the "L" word (Lisbon, for the uninitiated).

Leaders will, no doubt, renew the vow to carry out root and branch economic reform first made at that fateful Lisbon summit back in 2000. But the growth initiative grabs centre stage this week.

There is a downside, however - everyone admits the initiative is unlikely to have much effect for a long time to come. That will be good news when the growth dividends are paid (assuming the initiative doesn't lose steam, as all long-term plans are apt to).

But it will not be much use for now when the EU economy is starting to lift itself out of the doldrums. It is a shame the action didn't start earlier.

The final decisions on how best to galvanise the European Union economy await the European Council in December 2003, but the wheels must be set in motion at the European Council in Brussels on 16-17 October 2003.

ESO: In Focus: European Initiative for Growth, October 2003 http://www.europeansources.info/record/european-initiative-for-growth-october-2003/

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