February 25, 2013
After reading Dimitris Rapidis post on Why there are no investments in Greece I started thinking that what he exposes on Greece in his article can be extended, with various degrees of accuracy to other Member States.
Due to the nature of my profession, I often come across this issue – implanting investments in certain territories, or more to the point creating the conditions necessary for investors to consider the particular territory as a viable opportunity for them to develop their business. A wealth of conditions apply however to obtaining a degree of attractiveness that would satisfy the territory’s need for outside investment. It starts off easy – available land, satisfying transport systems, workforce and continues with economic conditions, fiscal opportunities etc, etc. Some you can plan for strategically and develop the land use tools needed for the local administration that would enable it to successfully negotiate with a potential investor. But the tools that make the deal worthwhile are indeed those pointed out in the article written by Dimitris.
No matter how much you can enable locally, the deal breakers, generally, come from the overall economic and political climate of the region/ country. And it’s in direct connection with fiscal policies, stability and stable conditions over (at least) a medium range of time (10-25 years for eg.). Dimitris presents the situation in Greece where it’s exactly the latter that prevent successful foreign investment on the one hand and drive out existing foreign investment on the other hand.
The question i would like raised here is whether the EU can provide a degree of stability where local stability is questionable. Could the EU impose stability locally? Can such a program be conceived? In theory I believe it could, primarily because it serves everybody’s best interest: – the EU should be interested in economic growth all across it’s territory, the Member State would gain from the investment and the local factor would be satisfied as well, primarily through inherent job creation. Areas where unemployment is high across the Union are known. Each territory in question has it’s particular advantages. Should unitary development be the goal of the Union, or at least a more comprehensive development index across the territory, there is no reason to not do it.
Except that it would interfere with MS’s internal markets and overall sovereignty. But if we go past these very heated areas and consider the benefits,t hings might not look as bad.
So let’s say the EU decides to do something – create a EU sponsored and governed program that would insure that investments in high risk areas are granted a solid enough degree of protection from internal turmoil to become economically viable. This protection could be EU insured as a third party in an agreement between the MS and the investor. This would in turn guarantee that the MS is not going to double back or change the rules of the game. On the other hand it also insures a certain protection for the MS as breaking the deal could incite EU wide sanctions for the investor.
And advantages could continue – the EU can direct foreign investment. Or even internal investment.
The types of investments that would fall under such a scheme could be determined by correlating investment value with a proposed time frame of deployment and life span, job creation, and relevance to internal and external markets. There are a wealth of factors to choose from when judging such potential investments and there are sufficient experts across the Union to figure out exactly which ones are to be retained, especially since different criteria might apply to different areas.
So what this would actually amount to would be a more applied approach by the EU to the development of various areas plagued today by economic instability or grim outlook.
Of course, the other side of the coin, deals with a certain EU protectionism of it’s internal market. It might be that various agreements with external bodies would prevent this from being applied in all areas and fields. There is also a certain interference with a free market to take into account. This means that such measures cant be exhaustive, but must be offered as a alternative package with benefits for all those interested. On top of all this we have to add all that has to do directly with politics, both local and pan-EU.
[update] – since releasing this text there have been question raised on the topic.
Although at first glance this idea could lead to a certain “state” directed economy, this was not the intention – the intention was to establish the EU, as it is today – very important, as a third party on large investments across the continent. Let’s think of the EU as a mediator, a facilitator of sorts. And let’s consider this example – Member State A wants to build a nuclear power station (I’ve picked this since it’s complex enough). It has identified the site that is feasible for such an investment but does not have the financial capacity to build it. There are however 5 private companies that are interested in developing this investment, but of the 5 only 2 posses the financial resources to engage in this project. However these 2 companies do not want to be the sole 2 to do this, and it would be viable for them if all 5 got together. The other 3, while interested in the project, have doubts concerning Member State’s A ability to maintain stability over the next years, due to internal turmoil, let alone the next 25 needed to build the project and begin operations. Banks will not finance the 3 unless the other 2 came up with a significant financial contribution up front, which the 2 don’t want to do. So in comes the EU as mediator – it can negotiate with the 5 companies and the state, back up the financial scheme, and institute a certain equilibrium – namely offer both parties (state and corporate) a positive and negative scenario – should the state back down on it’s agreed offer he can get penalized at EU level, and if corporations fail to respect their part of the deal they can also face EU wide sanctions. All things have to be carefully considered to prevent abuse from either of the 3. But this type of approach would end up in a good deal for everybody – the corporate actor gets to negotiate its interaction with the MS, the MS gets the power station it needs while at the same time keeping public expense to the minimum with the added bonus of job creation, and the EU incorporates the same type of advantage as the MS. (in this case). There are other cases that might involve a different balance of benefits among the 3 proposed partners, but at all times the assumption is that each party comes out on the plus side.
This type of mechanism is not something intended for EU wide implementation – it can be a tool directed at areas suffering from capital loss, or post – turmoil investor desert, or simply, a lack of confidence with the particular MS. The intention is that as the EU has quite a “bad guy” image in some areas around the continent, it would be a great PR tool to show the people that there are some other types of advantages to being a member of the EU.
I’ll keep thinking this through.Horatiu Ferchiu