Transcript PowerPoint-presentatie - EESC European Economic and Social

EU Industry and Monetary Policy
Closing the investment gap
EESC, 12 November 2015
Guido Nelissen
Economic Adviser
industriAll European Trade Union
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• Industrial
employment in the
EU was 3.9 million
lower in 2014 than
in 2008.
• The level is almost
as high as in 2010.
• Slight increase in
2014.
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Investment gap in Europe
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Share of manufacturing
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Without investments...
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Share of industry from 20 to 15%
Translates into 4m job losses
Industrial production still way lower than in 2007
Lack of +-300 bn compared to the historical level
Public investments declined from 2,5% in the pre-crisis period
to 2,1% (historical average=4,5%)
• As a result growth remains subdued and at a much lower level
compared with the US
• Paradox
Cash piles at European companies have swelled with 40% to 1,1tr
Intrest rates at almost zero
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...no industrial “renaissance”
• Without investments
No increase in productivity and thus economic growth
No technological progress
No proper replacement for our capital stock and decrease of our
potential output
Secular stagnation with permanent high unemployment, permanent
risk of sliding in recession again, permanent risk for deflation
No solution for our big societal challenges
• EU 2020 strategy
• Roadmap 2050: 1,5% additional investments required
No increase share of industry again to 20%
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How come?
• Supply side factors
 uncertainty about the global economic outlook
 a still fragile financial sector
 Overcapacities
 Banks that have become risk averse
• but mainly the result of a massive shortfall of demand: investments
follow demand!
 Lethal combination of
• A fiscal contraction of 5%
• Processes of internal devaluation: creation of a low-wage sector, reduction of
purchasing power, deregulation of labour markets
• Deleveraging in the private sector and in the financial sector
 Only positive development was the increase in exports but exporting our
way out of the crisis will become more and more difficult
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Role of the ECB: from conventional to
unconventional policies
• 2008: unlimited liquidity for the financial sector
• 2009: Covered Bond Purchase Programme
• Mid-2010 till Jan. 2012: Securities Market Program (SMP): temporary and
limited purchase on the secondary market of bonds issued by the weaker ms
• Longer-term refinancing operation (LTRO): ECB loans with a maturity of 3 years
at 1%
• 6/9/2012: announcement that the ECB would do ‘whatever it takes to save the
euro’: Outright Monetary Transactions to buy public bonds on the secondary
market with no time- or size-limit
• Juin 2014: TLTRO
 targeted longer term refinancing operation: auctioning of 4-year loans at ultra-low
interest rates under the condition that the institutions would pass on the funds to
companies (funding-for-lending)
• first central bank to take interest rate on its deposit rate below zero (2014)
• Since April 2015: the last bazooka or QE: 60 bn bond purchases per month till
september 2016
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Monetary investment easing (MIE):
good reasons to use the very last bazooka
• The used recipes of structural reforms, fiscal austerity and
unconventional monetary policies didn’t deliver
• Current policy of QE doesn’t lead directly to new investments and has
some negative side effects
• Most pressing issue today for industry is raising production again to the
level of potential output
• Make use of the very low interest rates to create assets for the next
generation
• Combination of ECB and EIB will immediately lead to new investments
 Money could be invested in the pipeline of projects drawn up for the Juncker
plan
 Also for R&D: 130bn required to achieve 3% Barcelona objective
• Objective: MIE should reduce unemployment till 7% (= QE policy of
FED)
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Questions
• Who will carry the risks,
• Which guarantees to ensure a triple AAA rating
• Quality of projects
 Technical preparation
 Financial due diligence
 Implementation
• Combining fiscal and monetary policies contains risks
• Democratic deficit?
 EIB/ECB as the investment policy makers in the EU?
• ECB covers only eurozone
• Cofinancing?
• Why not a European Treasury to finance investments?
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What else to restart investments?
• A more flexible interpretation of the SGP
 Strenghtening the flexibility clause of SGP
 Room for manoever in MS with <3% deficit
• Promote internal demand
 Restore consumer confidence=restore workers’ confidence
• Shrinking the low-wage sector
• Minimum wages
• Reduce precarious work
 Real wages in line with productity increases
 Juncker Plan: 1,8m new jobs (ILO)
• Restore trust in the financial sector
 Completing the banking union
 Separation of investment banking and retail banking
 A Financial Transaction Tax will reduce speculative behaviour and provide
additional revenues
 Transparency and regulate shadow banking
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• Restore monetary transmission: diversification in funding
sources
Develop markets for high quality structured products, covered
bonds, corporate bonds
Better integrated capital markets will promote cross-border
investments
An integrated European market for venture capital
Cooperative finance, micro-finance
Support to long term finance
• ELTIF’s to mobilize funds of institutional investors
• Project bonds
• Green investment funds which couple finance with technical assistance and
risk sharing
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• Shape the supply side by an industrial policy in support of the ‘third
industrial revolution’ based on
 Renewable energy and energy-efficiency
 Digitalisation of economic activities
 New materials
 Renewable raw materials
 Circular economy
 Sustainable transport
 Breakthrough techologies: nano-electronics, biotech, optonics
• With special attention for the market introduction of new
products/services
 Joint European PPP’s: Shift2Rail, Biobased industries, Fuel Cells, Innovative
Medicines, ECSEL, Green Cars
 Innovative public procurement
 Dynamic standardisation procedures
 Addressing the big societal challenges will trigger new investments in
high-value added activities and with a high multiplier
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Thank you for your attention!
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