germany

The four big EU Euro countries and growth.

The latest from Frankfurter Allgemeine Zeitung and El País

A brief meeting in Rome between France, Italy, Spain and Germany agreed upon 130 billion Euros to crank up growth.

What few people in Europe understand – and even fewer outside – is that Europe is like a babushka doll – or unions within unions within unions. This has to be so because decisions using the Union Treaty normally demands unanimity – which is very difficult to achieve with so many countries. Unanimous decisions in the US Senate on important issues are rare. So smaller groups of countries gang up to get things done.

The money seems to come from two sources:

a)      The EU structural and cohesion funds that has some 55-80 bio. EUR for projects that have not been put to use.

b)      The European Investment Bank (f.i. investment in infrastructure) is said to be able to lend 60 bio. EUR if given additional capital of 10 bio. EUR.

The interesting part is that the use of these funds would preclude using the “krank-up” money to consumption and to rescue banks.

Those who have read my posts on f.i. HVDC electricity transmission system might have gleaned that these investments – though indubitably promoting productivity, efficiency and other good stuff – have benefits that are next to impossible to calculate – on all levels: Who gets the orders, who gets the local jobs, who avoids other investments, who gets the lower costs etc.

Such projects are prime candidates to be funded by these two sources. And as mentioned there are lots of these projects. Furthermore there is lots of money tied up in sovereign bond that yield nothing – not to mention deposits in CB’s. These projects could be financed by Euro bonds.

The German resistance to Euro bonds is due to a lack of faith in stimulus programs that just stimulate already abundant irresponsibility and bankrupt banks.

Furthermore the main beneficiary of these investments would be Germany – all the way: The heavy machinery will be German, the road, rail and power lines would to a large extend run through Germany, the imports and exports would run to and from Germany. A not insignificant additional benefit would be off loading the German public investment budget – Germany does at the moment run at a public deficit – a communal financing would move the expenditure away from the German state budget.

Finally it would gag the stimulus addicts in France, Spain and Italy.

It was what the US President meant? Wasn’t it? Europe should spend more money responsibly?

Of course it wasn’t what Obama meant: He wanted European banks shored up.