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The economic and financial crisis in Europe has led to a dwindling of the options for funding infrastructure projects. While funding conditions have deteriorated, a huge amount of investment needs to be made in infrastructure. The Project Bond Initiative (PBI) developed by the European Commission and the EIB is an instrument that is intended to help free up the investment logjam. The primary objective of the PBI is to persuade private-sector institutional investors to fund infrastructure projects.
In the current debate and the numerous initiatives surrounding the improvement of tax collection and cooperation on cross-border (investment) income it is vital to differentiate between two phenomena: one is the fight against (illegal) tax evasion (mainly on investment income) and the other is the legal, (often) so-called 'aggressive' tax planning via profit shifting. Efforts to establish the automatic exchange of information for tax purposes as the European and/or international standard are relatively advanced. 'Aggressive' tax planning, which enables the de facto tax exemption of profits, cannot be addressed by extending the scope of the exchange of information alone, however.
The idea of Banking Union has a sound economic rationale and would, if it were implemented in a consistent fashion, substantially strengthen financial stability in Europe and in the euro area in particular. However, the design and implementation of the EU Banking Union and its constituent components suffer from two very fundamental contradictions. On the one hand, there is schizophrenic attitude of member states with regard to the necessary degree of supra-nationality to preserve a financially stable internal market for financial services. And on the other, there are the contrasting expectations and motives of member states with regard to Banking Union. Member states and other European law makers still have the chance to put Banking Union on a sound footing. The chance should not be wasted.
It makes sense for the debt-stricken countries of the euro area to partly rely on privatisation efforts to consolidate their public budgets. Over the past few years, however, the privatisation process has proceeded sluggishly. Among the countries discussed here – France, Greece, Italy, Portugal and Spain – Portugal in particular has consistently and successfully relied on the divestment of government property. All in all, the privatisation receipts that can be generated in the foreseeable future should not be overestimated. For example, political opposition still has to be overcome mainly with regard to the privatisation of services of general interest. In addition, public-sector companies, facilities and buildings are in many cases in need of restructuring or renovation if they are to be of any interest to private investors.
The prospects for an ambitious partnership agreement between the EU and the US are better than ever. An agreement would increase growth and employment in both regions. The greatest economic opportunities lie in improved cooperation in the regulation of markets for goods and services. Governments, parliaments and most interest groups on both sides are in a positive mood; the resistance to an agreement has thus far been limited to criticism of some details. The greatest political difficulties are likely to arise in the areas of agriculture and data protection.
Last week it passed almost unnoticed that the van Rompuy Cabinet presented details on bilateral reform treaties as a new form of economic policy coordination in the euro area. The Fiscal Compact shows, however, that treaty-based reforms require that the underlying agenda is respected beyond the short term by the community of euro-area states.
Even though there seem to be fewer acute risks for the euro area, with risk premiums for the crisis countries having fallen, the currency union remains mired in recession. This is probably also due to the very high level of political and economic uncertainty. At least in that respect, things seem to be looking up.