Right after the Euro Leaders Summit, European Commission President Jean-Claude Juncker told journalists that the Commission will offer to Greece a mysterious €35-billion aid package also called “Development Plan” or “Investment Package”. Juncker said that the package will be given to Greece from now -2015 – until 2020. Five years and seven billion per year for the noble cause of helping Greece out … you think.
What is this mysterious package? Financial aid with no tricky trade? A little help by Greece’s friends for a noble cause? The idea and “promise” is not new. In fact, Juncker repeated what he had said beginning of the month.
On 4th June 2015, Jean-Claude Juncker had tried to lurk the Greek government to proceed with reforms promising the 35-billion-euro package. The money is not given to Greece for free but “the EU was ready to lend €35 billion to Greece between now and 2020.”
“Greece can get a considerable sum, €35 billion euros until 2020, provided that they implemented programs that would enable our Greek friends to master these funds,” said Juncker, speaking to the members of the European Committee of the Regions on Thursday. The money is already reserved to Athens, but the allocation depends on Greek reforms, Juncker said.
A kind of European Union Funding but with interest.
Citing Greek Prefects who were present at the meeting with Juncker, To Vima newspaper of 5. June, writes that the aid funds were “to be directed to projects of businesses with high added value and for the modernization of public structures like hospitals.” Juncker had also said that the funds are big and that they would be distributed to 8 EU countries in total and thus under certain criteria. The money was in addition to EU Funds “National Strategic Reference Framework” (NSRF/ESPA in Greek), which do not have “austerity reforms” as precondition, as Juncker stressed on Monday after the Euro Summit.
Today’s UK’s Telegraph confirmed that the talk is about the Juncker’s Investment Plan and noted:
“This money is not specially allocated to Greece, but part of the investment drive spearheaded by the Luxembourg premier to tackle chronic unemployment and weak investment in the bloc.
Juncker said the funds, which are due to be released between 2015-2020, should remind ordinary Greeks that Brussels was committed to kick-starting the economy.
“The Commission is currently preparing a package on this… the package and the €35bn are conditional to the conditions being met, and obviously an agreement being found,” Spokeswoman Annika Breidthardt said on Tuesday during a press briefing. EU Commissioner’s Moscovici Spokeswoman Breidthardt added that
“from the €35billion, the 20 billion refer to Structural Funds and 15 billion to Agricultural Funds.”
Early in the afternoon, KTG posed a question to Annika Breidthardt asking for information about the EU Funding mechanism that will provide the money as well as the interest rate. Her answer came prompt and “nothing saying.”
— Annika Breidthardt (@A_Breidthardt) June 23, 2015
Juncker’s Investment Plan for Europe
Ende November 204, EC President J-C Juncker revealed his mega-project “Investment Plan for Europe. A project of at least 315 billion euro investment that could flow into EU-wide projects, increasing jobs and improving infrastructure.
Analyst France Coppola took Juncker’s magnificent plan under the magnifying glass and concluded that
“In fact, let us be completely clear. NONE of this money exists. Not a single Euro of it. This is a synthetic structure based entirely upon insurance, not actual funds.”
Stressing that Juncker’s “second attempt at increasing European investment without raising public debt levels, Coppola underlined in her blog that the Funds are supposed to come “both from the EIB [European Investment Bank] and the EU’s own budget.”
Posting an explanation from the European Commission’s factsheet, Coppola demonstrates how this planned fund works:
“The role of the Fund is to mobilise extra private finance in specific sectors and areas. The Fund is estimated to reach a multiplier effect of 1:15 in real investment in the economy. This is the result of the Fund’s initial risk bearing capacity and is an estimated average calculated as follows: For every initial one euro of protection by the Fund, three euro of financing could be provided to a certain project in the form of subordinated debt. Given that this creates a safety buffer in that particular project, private investors can be expected to invest in the senior tranches of that same project. EIB and European Commission experience indicates that 1 euro of subordinated debt catalyses 5 euro in total investment: €1 in subordinated debt and on top of that 4 euro in senior debt. This means that €1 of protection by the fund generates €15 of private investment in the real economy, that would not have happened otherwise. This 1:15 multiplier effect is a prudent average, based on historical experience from EU programmes and the EIB.”
Francis Coppola notes furthermore:
“Note that the actual investment would be Mezzanine + Senior Debt, i.e. EIB subordinated lending plus private sector investment. The Equity portion is described in the factsheet as “protection”. There is no actual money involved. It consists of public guarantees, not real money. In effect, the EU and EIB combined are providing insurance to private sector investors – accepting “first losses” of up to 21bn Euros. The EU’s portion would guarantee the first 16bn Euros of longer-term infrastructure investment: the EIB would guarantee the first 5bn of capital investment in SMEs.”
Too complicated? Yes.
Private Sector Investment and EIB lending? Yes…
Nothing but “smoke and mirrors”? Possible.
A lots of smoke, certainly, when once considers that: 1. Juncker did not reveal terms & conditions or the €36billion package. 2. Why should a country borrow money and burden the tax payers when the money goes also to private sector? 3. What have funding of Business X has to do with “austerity reforms”? 4. Who in the private sector will get the funding?
Channel 4 journalist Paul Mason asked the crucial question:
European Commission promising €35bn aid package if deal done. How it’s “absorbed" will define #Greece future: oligarchic/corrupt or modern?
— Paul Mason (@paulmasonnews) June 23, 2015
To me personally and it smells like a kind of an indirect 3. “bailout” package for Greece but just with different terms & conditions yet with the same “Stick to Austerity Cuts” mantras. So, a loan between friends with friendly interest rates… Then 35 billion euro is a huge bag of funding.
Worth noting is that also former Prime Minister Antonis Samaras had made a reference to such a “mysterious package” in form of what he called “a credit support line”. Speaking at the parliament on December 7th 2014, Samaras had praised this mysterious “credit support line ” thus “rejecting it was an enforced loan.” I assume, Samaras’ credit line had to to with the EFSF’s ECCL, a Precautionary Program with enhanced conditions offering partial protection to countries that cannot lend money from the markets but can borrow with low interest rates. Back then, Samaras was praising the Program in the same sentence he was cheering that “Greece was to exit the Bailout Program.”
I suppose Samaras’ credit line program has nothing to do with Juncker’s plan. Or does it?
KTG would appreciate enlightenment on the issue.
The more I discuss with colleagues about it the more I get the impression that Juncker will throw money from several sources into a huge bag and take out a rabbit.
Funds and Loans nicely mixed together. And money that is not there at all.
The generousoffer will be partly a loan, partly funds Greece would have gotten anyway and party money Juncker does not have.
PS If Juncker sticks to the “businesses with high added value” then we know it will be again the oligarchs and the corrupted cronies who will get the pie and the “the friendly people of Greece” will get the pie crumbles…
Either… or… while we’re waiting for the light to go through the smoke, we should also be beware of EU-saving presidents and Dona ferontes.