EU should invest in Greece, not just lend it money

Nick Malkoutzis, Kathimerini (English edition), 14.05.2011

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A restructuring of Greece’s debt or a second bailout from the European Union and the International Monetary Fund coupled with austerity measures and structural reforms will not be enough to ensure the country’s long-term economic future, according to the chief economist at a leading Brussels think-tank who is urging the EU to generate greater investment in the debt-ridden country. [...]

In a commentary published in the Brussels press last week, Zuleeg and co-author Janis Emmanouilidis, EPC’s senior policy analyst, put forward their proposal for a “new deal” to save the euro, and possibly Greece in the process. Their basic argument is that as long as Europe’s core continues to prop up its periphery through loans rather than developing initiatives to foster growth, there can be no long-term stability or progress.

Zuleeg and Emmanouilidis propose five tools to encourage growth so the EU can avoid becoming the “transfer union” that countries like France and Germany dread.
They call for debt-ridden countries like Greece to push through reforms in administration and the labor market; for productive investment sectors, such as education, to be exempted from austerity programs; for a reallocation of the EU budget with less focus on gross domestic product and more on combating the crisis and reducing imbalances; for the establishment of a dedicated fund – a new Stability and Growth Fund – to drive investments in countries that cannot afford them; and to increase the use of new loan instruments, such as project bonds, with the help of the new fund, the European Investment Bank and the European Bank for Reconstruction and Development.

“We propose a Stability and Growth Fund that is capable of investing in productive capacity and in infrastructure in areas where there is a need to modernize,” Zuleeg told Kathimerini English Edition. “This would come from a combination of structural funds, cohesion money together with any profit that is made on the loans that are given to Greece at the moment. Along with private-public partnerships this could be a substantive form of investment.”

Zuleeg and Emmanouilidis’s “New Deal” is in the same spirit as existing proposals that have called for the EU to issue project bonds for Greece, which would allow investors to put their money into specific infrastructure projects, as a way of stimulating the economy. So, what is keeping the EU from considering investment initiatives rather than just providing loans to support Greece? [...]

For the entire article see here.

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