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Economic and monetary challenges - Juncker Plan: first lessons from the past six months?

Lessons learned and prerequisites to foster long-term investments in Europe

By Buecheler Tobias - Head of Regulatory Strategy, Allianz Group

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The Juncker Plan has been a bold undertaking right from the start, with the aim of boosting European investment by up to EUR 315 bn. for infrastructure within a 3-year-period. Against this background, the total amount of about EUR 50 bn. that has been generated by the EFSI until the end of 2015 is a remarkable success. Notwithstanding this, there are a couple of measures which could help to further facilitate the realization of the Juncker Plan.

First of all, the capital markets related legal framework should be further modernized as infrastructure investments are frequently cross-border transactions. Unstable regulatory conditions, including retro-active changes to laws in the infra¬structure area that have occurred in some European countries, are a serious obstacle in this regard. Investors need legal certainty and ideally a harmonized legal framework in order to commit substantial funds over the very long timeframe that such projects require. The fragmented procedural law in Europe, with the duration of insolvency proceedings ranging from one up to seven or more years is another serious problem. As such, the EU Commission´s initiative to achieve a harmonized framework for insolvency rules is highly welcome. Last but not least investors need a sufficiently large and transparent project pipeline, with projects that are economically viable in terms of a meaningful risk/return profile. In this context, it is very important to avoid cherry-picking or even crowding-out of the private sector by public authorities like development banks.

Assuming that the challenges highlighted above can be tackled effectively, the insurance industry can substantially contribute to further advance the Juncker Plan. Considering its’ huge asset base combined with a need for stable and long-term investments to cover long term life insurance liabilities, the insurance industry can be a partner of choice to contribute to the growth agenda for Europe while at the same time investing in the best interest of the policyholders.