Thomas Spencer, Kerstin Bernoth, Lucas Chancel, Emmanuel Guerin, Karsten Neuhoff
(Working Paper / Institute for Sustainable Development and International Relations ; 2012,11/12)
The Eurozone is still stuck in a downward spiral: high public and private debts weigh on potential growth; gloomy prospects for growth prevent the further reduction of these debts. A European plan to support growth should be a complement, and not a substitute, to the ongoing efforts to reduce public deficits. It should both encourage structural reforms and incentivize investments. In the short term, supporting investment is vital: the crisis now entails the characteristics of both a liquidity trap and credit squeeze. Green investments would improve European competitiveness in the long run, while supporting growth and employment creation in the short term, in particular through the multiplier effect of investments in energy efficiency. The net benefits of investments in energy efficiency in buildings, low carbon energy supply, and energy and transport networks, is 55 billions euros (260 billions of investment costs, minus 315 of energy savings) over 2010 - 2050; their average incremental investment cost their average incremental investment cost is 2% per year of 2008 GDP. A significant proportion of these investments could be front-loaded. Funds can be raised by recapitalizing European and national public banks, such as CDP and ICO in Italy and Spain respectively; pooled guarantees for specific investment programs by national public banks in crisis countries; or unspent funds from the EU budget. They can be invested via a number of instruments: credit lines to private banks for building refurbishment programs; preferential loans for larger-scale renewables or infrastructure projects; or green bonds issued by municipalities, private companies or banks, with appropriate credit enhancement from European instruments. Appropriate risk sharing between the EU and national level, the public and private sector, can leverage additional private funds and ensure sound project selection and implementation.