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

How to maintain and keep up a balanced path of growth in the Eurozone?

By Bonnaud Jean-Jacques - Independent Director, Eurofi

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The uncertainties of the overall economic environment should not lead to a progressive stifle of the present revival of a still modest growth in the Eurozone, which the Juncker Plan has the objective to stimulate.

Adverse to growth is the risk of reduction of the expected private complements to the relatively modest nucleus of investments provided by the public contributions from the European budget and the committed sums from the European Development Bank to this Plan.

Both the volatility of the financial markets, stimulated by the monetary policies of the main world central banks including the European one, and the difficulties to channelling correctly existing savings surplus generated in the Eurozone by the growing excesses of its northern countries, are in the process of blocking the desirable increase of the participation of the existing liquidities to the common effort of investment in long term projects, regarding innovation and infrastructure, that most countries of the Eurozone badly need.

The weakening image of banks – though largely unjustified thanks to the improvements already achieved of the banking sector – also adds to a lowering of the support by banks to those long term investments in some southern participants of the Eurozone.

In this perspective, the reinforcement of the Juncker Plan is one of the main answers, but probably equally to an increase of the public contributions targeted to the nucleus or in complement to this nucleus, especially in the field of infrastructures, which do not imply a significant elasticity of imports. This should help the Eurozone to solve existing imbalances between the South lacking of savings and the North, benefiting from excesses in their public budgets and external balances.

To start with, the need to reduce the gaps could be helped by a mechanism allowing to exclude temporarily from the budget pack a part of the long term investments, at least the infrastructure projects, with the counterpart of the realization of serious structural reforms. Ideally a common and Eurozone global budgetary policy should be a right answer.

These additional efforts can be envisaged thanks to the fulfilment of the Banking Union, through a common guaranty of the deposits to restore the trust, a significant effort is to reduce fiscal unbalances existing in certain countries in the Eurozone is also a pre requisite.