Contribution to a European investment strategy 40 proposals for an action plan

Philippe HERZOG

Founding President of Confrontations Europe

This contribution presents a synthesis of several years of studies and 40 propo- sals for a action plan and political agenda, by the working groups of the think tank Confrontations Europe. Men and women from very different back- grounds, all of whom are keen to build a better future for Europe, came toge- ther to define and shape a long-term investment strategy(1).

Investment is a necessary choice for any society that wishes to propel itself into the future. Today, there is a prevailing climate of uncertainty and distrust all over Europe. And although Europeans are highly interdependent, share the same institutions and cannot conceive of a happy and successful future without each other, there is still no pan-European civil society. Clearing the fog of uncertainty, opening up Europe’s horizons and establishing a European society are all inseparable tasks.
Under the current circumstances, there can be no progress unless we start to look more critically at the past and try to understand the historic times in which we are living. Neither can we move forward without the moral resilience and the political will needed to make new collective choices. If we have these things, then we can grasp and make the most of new opportunities and organise the time we have to implement our action plan.
Investment is, above all, an individual and collective commitment. Analysing the flaws in current economic policy is a valuable means of understanding why investment is so low right now and why it is not recovering. But it is not enough. The crisis is structural and our economic and political system is inadequate. It is also anthropological and cultural. Europe, whose strength lies in its inven- tiveness and its ability to innovate constantly by transforming ideas into tech- nological progress and new products, is struggling to keep pace with change. The precautionary principle is prevailing over the risk-taking so vital to invest- ment. A civilisation policy is just as necessary as an economic policy; it will make sense in terms of moving our societies forward(2). Extensive reform of the struc- tures and values of education, work and business is needed. Unless we build a “knowledge society”, to use the term currently favoured in the EU, a sustain- able development political economy will remain out of our reach.
We have not enough space in this paper to discuss our thoughts on all these subjects(3), so we will focus on economic policy. Our contribution explores what kind of action plan – with respect to substance and coherence – is needed to rekindle investment in Europe. Our recommandations and our proposals give virtually a political agenda for the European Commission and for the owner- ship of the different actors. The time to act is now. The situation is urgent. Whereas president Jean-Claude Juncker prepares the launching of a European investment programme, we show what makes its success uncertain and we go deeper towards searching the conditions and reforms needed for a sustainable endogenous recovery of investment in Europe.
The Member States claim to be sovereign but they are too small in today’s global world. Europe is encompassing the nation states more and more, and now seems the most appropriate level at which to promote innovation and progress. A united Europe could develop a strategy to support our collective choices in the international competition arena, by overcoming the resistance of Member States and the multiple failures of the markets and institutions. We do not underestimate the efforts made by the EU, neither are we deluding ourselves; if we try to do things too quickly, the future will be chaotic. But with a coherent and holistic view of the changes needed in the medium and long term, we can stop “muddling through” in the short term and restore the kind of confidence and efficiency we are looking  for.
The set of positions and proposals follows here in an English version. The whole study is presented in French.
40 proposals for action plan

1.     Put investment at the top of Europe’s political agenda

Include investment in the European semester procedure from 2015

◗ The Commission must provide an honest and candid explanation for risk aversion in the private and public sectors, which is impeding investment. Propose greater complementarity between the public and private sectors, which is needed to facilitate risk sharing and hence boost investment.
◗ The Council must engage in political negotiations to ensure that three condi-
tions are met: support for the global demand for European products and services through public investment; an appropriate timeline for the compliance of Member States with the fiscal stability treaty; and the introduction of priority structural reforms to promote investment and create new jobs.
◗ The Community institutions must set the budget for financing and stimulating
investment, their priority being to explain what kind of investment project will be considered eligible under the Juncker plan; revise the draft 2015 budget and the rules for using the structural funds in order to allocate the necessary resources and/or guarantees; and continue to set up a programme of investments of European interest for 2015-2020.

2.     Invest to develop industrial innovation in Europe

Establish the key strategic objectives for planning investments of European interest
◗ Identify cross-cutting areas that are of strategic interest to all Member States in terms of promoting human and productive development: vocational and life long education and training; development and appropriation of the digital revolution; the energy transition. Focus Community strategies on planning and financing investment in these areas.
◗ Develop research and industrial development programmes in key sectors and technologies; create the pilot structures and mobilise the funds needed to invest in new ecosystems and networks of European interest.
Promote vocational and continuing education
◗ Launch a European initiative to provide training for the unemployed, for the qualification of people with no qualifications and for the requalification of people already in employment. Encourage national reforms to make education systems more efficient and reduce inequality of access, by mobilising European social funds and investors.
◗ Set up a transitional European labour and education market and test a European education and employment mobility  contract.
– Develop the network of Knowledge and Innovation Communities and make it the cornerstone of a European network of technology universities, open to external partners.
Appropriate the digital revolution
◗ Revise the digital agenda: invest in high-speed internet across Europe and develop a strategy for a European cloud with the aim of creating infrastructure and service operators dedicated to industrial innovation in businesses and communities.
◗ Develop European regulations: harmonise data management regulations; develop partnerships between major players in the digital sector, innovative start- ups and research institutes; and foster data exchange between  companies.
Energy union
◗ Set a carbon price that provides a general signal for investment in low- carbon energy; and create long-term contract markets for research and inno- vation, capacity and infrastructure.
◗ Promote the development of large-scale programmes for the integration of the European electricity grid, gas pipelines and R&D focusing on energy storage and carbon capture.
◗ Draw up European industrial policies on energy efficiency in the transport and construction sectors.
◗ Negotiate an energy solidarity pact between the Member States to ensure the coherence of the European energy mix.

3.    Promote investment on regulated markets

Better regulation of markets
◗ There is a general need to simplify rules and incentives and to ensure they are reliable and consistent. Adjust the rules so they do not penalise risk taking; simplify tendering procedures and shorten preparation times; and remove the current contradictions between Community investment incentives and the restrictive rules on State aid.
◗ Create a European regulatory body for innovative and efficient markets in key areas of productive development.
Promote the development of SMEs, intermediate-sized enterprises and  infrastructures
◗ Set up European capital markets to provide equity for innovation and the development of SMEs and intermediate-sized enterprises.
◗ Create regulated European markets for the securitisation of bank loans and the development of loan and equity funds.
◗ Develop a European framework for public-private infrastructure projects and companies; and organise European PPP markets.

4.     Review the structural conditions for converting savings into investment

Revise the general framework
◗ Introduce specific European regulations for funding for long-term investments in order to drastically reduce the cost of risk.
◗ Take control of accounting rules again and distinguish between the economic value of investments and their financial value.
◗ Link new supplies of credit with direct capital investment via the markets.
Banking union
◗ Organise talks on the role of lending in the banking union, the reduction of lending costs and the channels of transmission of monetary policy towards businesses.
◗ Establish the complementarity of roles between banks and institutional and private investors; and investigate the changes in risk management models towards a an originate and share perspective.
Institutional investors and fund managers
◗ Develop European regulations for insurance companies and pension funds aiming to encourage them to finance the economy, making sure there is no longer any confusion between regulation and prudential supervision.
◗ Enter into a dialogue with asset managers to investigate how they could help finance the European economy.
◗ Set up talks on how to bring national savings policies into line with evolutions in social models.
Capital markets union
◗ Define the fundamental objectives: use savings to increase the equity of compa- nies; diversify sources of funding and liquidity; increase the length of commit- ments and introduce regulations to prevent  short-termism.
◗ Set up instruments to encourage greater transparency and efficiency in market operations; and take action against excessive alignment of interests in the management of companies.
◗ Launch the fiscal harmonisation project: consolidation and harmonisation of corporate tax bases; harmonisation and pooling of taxes applicable specifically to banks and financial institutions within the frame of the banking union.

5.    A governance system based on cooperation, towards a european investment system

Monetary and budget policies
◗ Use ECB funds to purchase securities relating to investments of European interest in the Eurozone; and redirect monetary policy transmission channels towards businesses.
◗ Appoint a European public finance Council to define a “golden rule” to secure productive investments within the frame of the budgetary stability pact; ratio- nalise European budgetary choices and create a special chapter on investment in the European budget, with leverage supervision.
◗ Create a European agency for assessing the economic and social return on invest- ments of European interest; device common criterias and adjust Eurostat  rules.
◗ Include Regions in the European semester procedure; pool structural funds at Community level.
Cooperation between the EU, the EIB and national public financial institutions
◗ Allow the European Union to buy into the capital of the EIB.
◗ Significantly increase the capitalisation of the EIF by stepping up the role of
national development banks, public investment banks and large private funds.
◗ Organise cooperation between the Commission, the EIB and national devel- opment banks/public investment banks for project selection and eligibility, involving a panel of private investors.

6.    Establish democratic control and a forecasting and  strategy-making  capacity

◗ Create a special committee within the European Parliament and give it an advisory role in the scheduling of investment projects and the budgetary control of investment funding.
◗ Create a new structure for prospective and strategy next to the Commission replacing the BEPA.
◗ Set up a forum of economic and financial investors, to be consulted when drawing up investment policies and assessing their results.

(1) Claude Fischer discusses the project in her article entitled “Discourse on the method” in Confrontations Europe, La Revue: “A new beginning for investment”, October- December, special issue n° I would like to extend my warmest thanks to Claude and to all those who took part in the project.
(2) Edgar Morin, Mauro Ceruti, Europe, décomposition ou métamorphose, Fayard,
(3) See Philippe Herzog, Wake up, Europe!, Éditions Le Manuscrit,