Public Investment, Growth and Fiscal Constraints

Public Investment, Growth and Fiscal Constraints

Challenges for the EU New Member States

Edited by Massimo Florio

This book makes a unique contribution in advancing understanding of the fiscal condition and growth potential of the New Member States of the European Union. It provides new data, policy evaluation, and offers national and regional perspectives. The core research questions are the effect of public investment in the context of macroeconomic disequilibrium and how it is possible to finance capital accumulation in the present and future conditions of mounting public sector debt.

Introduction: Public Investment, Growth and Fiscal Constraints in the EU

Edited by Massimo Florio

Subjects: economics and finance, public finance, regional economics, urban and regional studies, regional economics

Extract

Massimo Florio The European project, after the recent global financial crisis, faces a difficult challenge. In order to achieve real convergence and sustained growth of the 27 EU Member States, substantial resources should be devoted to investment, particularly in the recently accessed countries. The banking sector, however, is currently not in the position to offer the amount of credit needed by firms. These in turn are facing a weak demand, and have dramatically cut fixed capital formation. At the same time, public finances are under stress because of the sudden increase of government expenditures committed to support private banks, manufacturing firms, and households facing unemployment. This does not look like a favourable scenario for a grand public investment design. Yet, this is still needed, and in fact it was duly planned in ordinary times by the EU governments, as part of their long-term growth strategies. The situation in Europe is perhaps more complex than elsewhere because of the lack of a proper federal budget, the pending rules of the Stability and Growth Pact, the necessity to avoid a loss of confidence in the solidity of the euro, the not yet fully implemented provisions of the Treaty (hence a cumbersome governance of policy making), and the persisting gap between the ‘Old’ and the ‘New’ members. The latter were set on a relatively high growth path before the crisis of 2008, with average per capita GDP growth approximately two times higher than in the EU15. In fact, the objective of convergence in...