200 billion Marshall-2 plan to feed the EU bureaucracy

200 billion Euros is the size of the new European "growth" plan prepared by Brussels bureaucrats. First the Spanish newspaper El Pais published the information and after that some other rumors confirmed it. Even the slang name appeared - a Marshall-2 plan. The European Commission (EC) officially denied the existence of such plan, but as we remember most of such announcements by EC lately has been proven not true.

Evaluated in real money (for instance gold) the original Marshall plan was 2 times bigger than the current project-plan. It had a value of $13 billion that was equal to 325 million troy-ounces of gold at that time. Today the 200 billion Euros mean about $265 billion or 166 million troy-ounces of gold.

Although denying the EC has interest of such spending as it will be the main institution to control the spending. And indirect evidence of existing the plan is the coincidence of its priorities with the European Commission priorities. The Marshall-2 will be focused on infrastructure, renewable energy and high technologies. In fact, if accepted this plan will be just an enhancement of EU policies that exist even at the moment. I.e. it will be just more money for Brussels to spend.

It is deeply doubtful if such plan can help EU to confront the crisis. 200 billion is too small sum compared to the EU GDP of 12,6 billion. May be some optimistic Keynesians can predict a multiplicator of 4, so this 200 billion to create a new GDP of 800 billion. This will mean 6% growth of GDP in EU. But must recent Keynesian experiments showed no such results. The billions that Obama and Bush poured in economy created no growth. For instance the US budget deficit is $1,4 trillion, while the GDP growth is about 2%, or $300 billion new GDP. The same is with some EU countries that imposed anti-crisis plans (for instance France) and received no result. In fact it happened the opposite - Germany with no Keynesian adventures and with fiscal discipline has a real growth.

Generally even if some Keynesian effect do exist, it is going weaker in more opened economies as much of injected money go abroad. So in current global economy Keynesian stimulating is not working. So if in EU is achieved the US effect of 1 dollar growth on every 5 dollars injected, so we will have about 40 billion Euros in new GDP, or 0,2% growth.

But for me it is doubtful even this. The EU system of spending money is very slow. So if we have 200 billion Euros in cash now, they will go to real projects in a 1 to 2 years time. The procedures are very complex and enormous bureaucracy exists. After the money go, it will be needed another 1-2 years to wait for the result of the investment. So in fact such a program does not address the current crisis situation. It is just an occasion used by EU-bureaucrats to request more money.

There is one more argument against too optimistic expectations of Marshall-2. The areas the money is to be invested are very suspicious. The so called "green energy" is nothing than an EU-inspired economic bubble that is part of current problems and is not  a decision. Green, or renewable, energy means investing if energy sources that are extremely expensive and when start working the customers are obliged by law to buy this energy. The solar panels and wind generators produce so expensive energy that in fact their influence is against the economic growth. More expensive energy means higher expenses for business and lower growth. So by injecting money in such areas in fact we will oppress the growth. Green investments mean only more government spending on subsidies and higher energy prices for people and business. This bubble is about to explode soon with or without new money in.

The so called "high technologies" or "state of art" technologies are another funny EU idea. It is experimented for years with no result. This is a policy that tries to compensate the lacking private investments in high technologies. But as every such government spending - not connected directly with business it results just in financing projects with good contacts and better lobbying in EU. Europe is much behind USA and Asia in high technologies, as the real effective high technologies are developed by the private sector.

The only part of Marshall-2 that can eventually create any growth is the investment in infrastructure. But it is not clear what part of money will be for this, as generally the Commission is changing its priorities from infrastructure to "green". This is well seen in mid and long budget plans. So it is possible in Marshall-2 such priorities to be used. I.e. the "infrastructure" to be much lower part and a symbolic share than the "green" and "state of art" projects.

It is important also what exactly type of infrastructure will be built. Roads are good investment but problematic indebted countries always has enough roads. So infrastructure may mean something different and even - not exactly real infrastructure.

It is not clear what was the real influence of the original Marshall plan. Some historians think the European recovery after WW2 is mostly due to own efforts of countries and not to the US money poured as financial aid. But at the moment a similar plan will be much less effective. The money is twice less, the economy is much more opened and the areas of potential investments are much more suspicious. So generally it looks as this is a new money for bureaucrats plan, and not money for growth plan...

May 1st 2012

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