STRATEGIES EU transport investment International Transportation (69) 1 | 2017 12 Repair or replace Why the “Juncker Fund” is in contradiction with the EU’s transport policy - and how it can still be turned into a success Juncker plan, investments, TEN-T, infrastructure, EFSI After his election as President of the European Commission, Jean-Claude Juncker promised that he would initiate an ambitious investment plan for the continent. The “European Fund for Strategic Investments” translates this pledge into action and has already made investments worth EUR 33 billion. But so far there has been little in it for sustainable mobility: the transport sector is underrepresented, the fund channels away the resources reserved for the “Transeuropean Transport Networks” and the investment projects are often not aligned with the overarching goals of EU transport policy. Yet, the EU-Commission has made a proposal to extend and expand the fund, even before the mandatory mid-term evaluation has been carried out. The European Court of Auditors is not alone in criticising this hasty move. Michael Cramer, Jens Müller E ven the project promoters probably did not expect that one day the extension of the A6 motorway between the small German towns of Wiesloch-Rauenberg and Weinsberg, or the modernisation of Greek regional airports would be considered as investments of strategic importance for the whole continent. Yet, the “European Fund for Strategic Investments” (EFSI) provides almost EUR 600 million in funding to both projects. 1 This is not the outcome of EU transport policies, but result of decisions taken by Jean-Claude Juncker, President of the European Commission. After his election in 2014, he came up with the idea of a comprehensive investment programme, dubbed the “Juncker Plan”. But Juncker faced two problems: the EU budget could not provide the necessary resources for his plan and the Union is not allowed to contract debt. His team thus came up with a bold idea: instead of investing its own money, the EU would create a guarantee fund with the help of the European Investment Bank. This concept resembles modern financial alchemy (see figure 1). The fund secures selected private and public investments by hedging against first potential losses, thereby improving the financing conditions. This scheme requires a maximum of EUR 16 billion from the EU’s budget and aims at stimulating investments of in total EUR 315 billion by the year 2020. Serious concerns among transport experts from across all parties Juncker’s plan was generally taken up positively. Yet, transport experts from across all political parties had serious concerns from the outset. This was, first and foremost, due to the fact that the capital needed to establish the EFSI had to be taken from other parts of the EU budget, with transport being the major contributor (EUR 4.2 billion). This cut was all the more painful as the completion of the TEN-T will cost about EUR 500 billion, which is why transport experts had fought very hard for an increase in funding. 2 The transfer to the EFSI almost offsets this increase. The Transport Committee of the European Parliament was not only concerned with a funding shortfall. They also wondered whether transport projects would be able to secure a large share of EFSI funding, given the financial requirements and the need for very speedy realisation. And finally, the Members of Parliament also feared that eligible transport projects would contradict the overarching EU goals on better transport connections across borders, good jobs and sustainable development. In order to counter these concerns, the European Commission suggested that by July 2018 an independent mid-term evaluation of the EFSI should be carried out. It would be the basis for further decisions. It was also thanks to this guarantee that Jean- Claude Juncker eventually obtained a large majority for his idea in 2015. An early proposal to extend and expand However, one year later, the European Commission no longer adhered to this promise. They hastily carried out an internal evaluation and came to a positive evaluation of the investment plan. In September 2016, the Commission proposed the extension and expansion of the fund barely one year after the setting up of the EFSI, and almost two years before the deadline for an independent evaluation. Currently, both the Council of the EU and the European Parlia- Figure 1: How the EFSI works Source: European Investment Bank EU transport investment STRATEGIES International Transportation (69) 1 | 2017 13 ment are scrutinizing this proposal. It foresees an increase of the EU guarantee from EUR 16 to 26 billion and, thereby, aims at triggering investments equaling a total of EUR 500 billion. Moreover, the Commission wants to extend the duration of the fund from July 2019 to December 2020. The necessary funding shall yet again be raised from other parts of the EU budget, with transport once more being amongst the major contributors (EUR 155 million). This approach was met with harsh criticism by the European Court of Auditors, the EU’s budget watchdog. “The Proposal was launched without a comprehensive impact assessment (for the second time) and too soon for the economic, social and environmental impact of EFSI to be measured and to enable a conclusion whether EFSI is achieving its objectives”, the institution concluded. 3 The Transport Committee of the European Parliament was equally alarmed by the threat of seeing a further cut in the EU’s budget for transport infrastructure. The Members of Parliament prepared their own appraisal of the “Juncker plan” and arrived at explosive conclusions. Disappointing results for the transport sector Probably the most salient insight is that the transport sector is underrepresented amongst the selected projects, despite its high financial contribution (see figure 2). So far, transport only accounts for 9 % of the approved EFSI projects. Besides this sectorial imbalance, there also is a geographical one: three quarters of the projects are located in the older Member States, whereas Central and Eastern Europe are underrepresented. The second important lesson is related to the character of the selected projects. There clearly is a preference for projects with a high investment volume over the ones with clear added value for the EU. Projects of regional or national importance account for the major share of the supported projects, whereas measures for the Trans-European infrastructure and the transition towards sustainable mobility are rare. The aforementioned example of Greek regional airports is an example of the blindness of the EFSI fund with regard to transport policy objectives. In 2014, the European Court of Auditors scrutinized EU spending on regional airports and found that it “produced poor value for money”. 4 What is more, road construction represents 40% of signed EFSI transport projects, while the environmentally-friendly railways only account for 20% and cross-border projects can barely be found on the list. This is exactly the opposite of what the “Trans- European Transport Networks” try to achieve. It is clear that the “Juncker fund” puts the financial viability of projects before fundamental EU objectives such as cohesion, employment and climate protection. How the EFSI could be turned into a success The proposed expansion and extension of the fund appears counterproductive against this background. It would thus seem logical to freeze EFSI spending and transfer the remaining funds to other instruments. But such a proposal would be doomed to fail, given the dominance of the Grand Coalition between Conservatives and Socialists at the European level. It would be more realistic to temporarily suspend the increase and prolongation of the fund in order to draw the right lessons and readjust the fund. In this context, it is important to note that European economies no longer suffer from weak demand but rather have to cope with their structural deficiencies and the consequences of global trends. The focus on increased spending at almost every price therefore makes less sense than ever. Instead, the EU should put the long-term benefits at the heart of its investment policies. The European Commission’s proposal contains one lesser-known idea that shows how this could be achieved: they suggest that EU grants for transport infrastructure be “blended” with private capital in order to accelerate the realization of the TEN-T. This could indeed be an interesting approach - provided that EFSI spending is strictly linked to working towards the goals of territorial cohesion, employment and decarbonisation. Finally, one may also wonder whether it makes sense that the EU gets involved in capital markets. There may be benefits in certain cases, but this can never be a substitute for a well thought-out transport policy. It would be of much more strategic importance for the EU to finally turn the promises made in the 2011 EU White Paper on Transport into a reality, rather than putting their hopes in the “Juncker Fund” with its limited size when compared to the GDP of the EU. If the EU succeeded in establishing fair intermodal competition, better consumer protection and a shift towards environmentally-friendly transport modes, this would be a major step towards the future of mobility - and one that needs no additional public spending. ■ 1 The list of projects financed by the EFSI can be found on the website of the European Investment Bank: http: / / www.eib. org/ efsi/ efsi-projects/ 2 See Regulation 1316/ 2013 establishing the „Connecting Europe Facility“, recital 15; http: / / www.eca.europa.eu/ Lists/ ECADocuments/ OP15_04/ OP15_04_EN.pdf 3 See Opinion 2/ 2016 of the European Court of Auditors, paragraph 26; 11 Nov 2016; http: / / www.eca.europa.eu/ en/ Pages/ DocItem.aspx? did=39677 4 See the press release/ report of 16 December 2014 by the European Court of Auditors; http: / / www.eca.europa.eu/ Lists/ ECADocuments/ INSR14_21/ INSR14_21_EN.pdf Michael Cramer Member of the European Parliament for the Greens/ EFA, Brussels (BE) michael.cramer@ep.europa.eu Jens Müller, MA in European Economy Transport Policy Advisor in the European Parliament, Brussels (BE) jens.mueller@ep.europa.eu Figure 2: Sectorial distribution of EFSI investments Source: European Investment Bank