布鲁盖尔-In-sickness-and-in-health_-protecting-and-supporting-public-investment-in-Europe_18页_438kb

Summary of "In sickness and in health: Protecting and supporting public investment in Europe" by Francesca Barbiero and Zsolt Darvas (February 2014)

Core Content

This Policy Contribution analyses the role and impact of public investment in the European Union (EU) and other advanced economies, focusing on how the EU fiscal framework has affected public investment during economic downturns. It highlights the long-term decline in public investment in the EU and the failure of the fiscal framework to protect it during the recent financial and economic crisis. The authors propose reforms to the EU fiscal rules to better support public investment, especially in times of economic stress.

Main Views

• Public investment is crucial for long-term growth, social welfare, and economic stability. It includes infrastructure, education, healthcare, and environmental protection, which have spillover effects and can stimulate private investment.
• EU public investment has declined sharply during the global and euro-area financial crisis, especially in vulnerable countries, while in other advanced economies public investment was used as a counter-cyclical tool.
• The EU fiscal framework (particularly the Stability and Growth Pact [SGP]) has not been effective in protecting public investment. The recently introduced "investment clause" has limited utility, and the European Parliament's proposal to permanently exclude national co-funding of EU projects from deficit calculations has not been implemented.
• The European Commission's fiscal rules are too rigid, especially for countries with high public debt, making it difficult to justify temporary deviations from fiscal targets for investment purposes.

Key Findings

Long-term Trends

• Public investment in the EU has been in long-term decline since the 1970s, similar to trends in other advanced economies.
• The EU15 (non-cohesion countries) saw a decline from ~4.5% of GDP in 1970 to less than 2.5%.
• The EU12 (new member states) had a gradual increase in public investment up to 2008/09, followed by a sharp decline.
• In contrast, countries like the US, Japan, and Switzerland maintained or increased public investment during the same period.

Recent Developments

• Public investment in the EU was heavily targeted for fiscal consolidation during the crisis.
• In the four EU15 cohesion countries (Greece, Ireland, Portugal, Spain), public investment fell by 36% between 2008/09 and 2011.
• In Italy, public investment fell by 16% over the same period.
• Major cuts were observed in categories such as economic affairs, housing and community amenities, and education.
• Private investment also declined in these countries, exacerbating the overall economic downturn.

Fiscal Framework Analysis

• The Stability and Growth Pact and Fiscal Compact have made fiscal rules more stringent, limiting the room for public investment.
• The "investment clause" allows temporary deviations from the structural deficit path under specific conditions, but it is not sufficient to protect public investment.
• The European Parliament proposed to exclude EU co-funded public investment from the structural deficit calculation, but the Commission did not adopt this.
• The EU budget has supported public investment, but its impact has been limited due to the strict fiscal rules and the fact that many countries have not had sufficient fiscal space to use EU funds effectively.

Recommendations

• Short-term measures: Exclude national co-funding of EU-supported investments from the indicators used in the Stability and Growth Pact to provide more flexibility.
• Medium-term measures: Introduce an asymmetric golden rule that protects public investment during downturns while limiting its use in good times.
• Structural reforms: Improve the quality of public investment through better budgeting, accounting, transparency, and project assessment.
• European Investment Programme: Encourage greater investment by member states with healthy public finances and low investment rates, especially during economic downturns.

Conclusion

The EU fiscal framework has not adequately supported public investment, particularly during the recent crisis. The authors argue that the current rules are too rigid and that reforms are needed to better align fiscal discipline with growth-supporting public investment. A more flexible and asymmetric approach is essential to ensure that public investment is not unduly affected by fiscal consolidation and can continue to play a constructive role in the EU economy.