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This outlook provides a focused assessment of the state of public capital in the major European countries and identifies areas where public investment could contribute more to stable and sustainable growth. A European Public Investment Outlook brings together contributions from a range of international authors from diverse intellectual and professional backgrounds, providing a valuable resource for the policy-making community in Europe to feed their discussion on public investment. The volume both offers sector-specific advice and highlights larger areas which should be prioritized in the policy debate (from transport to social capital, R&D and the environment). The Outlook is structured into two parts: the chapters of Part I respectively explore public investment trends in France, Germany, Italy, Spain and Europe as a whole, and illuminate how the legacy of the 2008 Global Financial Crisis is one of insufficient public investment. Part II investigates some areas into which resources could be channelled to reverse the recent trend and provide European economies with an adequate public capital stock. The essays in this outlook collectively foster a broad approach to and definition of public investment, that is today more relevant than ever. Offering up a timely and clear case for the elimination of bias against investment in European fiscal rules, this outlook is a welcome contribution to the European debate, aimed both at policy makers and general readers. As with all Open Book publications, this entire book is available to read for free on the publisher’s website. Printed and digital editions, together with supplementary digital material, can also be found at www.openbookpublishers.com

Public investment went through a prolonged contractionary phase over the past decade. Between 2008 and 2016 public investment in the European Union declined from 3.4 % of GDP to 2.7 %. Despite a slight rebound in 2017 and 2018, public investment still stands at only 2.9 % of GDP, 15 % below its pre-crisis levels. Fiscal consolidation pressure was at the core of the decline in public investment. This is witnessed by particularly strong falls in public investment in countries that experienced a...

Using a new survey, we show that the dispersion of marginal products across firms in the European Union is about twice as large as that in the United States. Reducing it to the US level would increase EU GDP by more than 30 percent. Alternatively, removing barriers between industries and countries would raise EU GDP by at least 25 percent. Firm characteristics, such as demographics, quality of inputs, utilization of resources, and dynamic adjustment of inputs, are predictors of the marginal products of capital and labor. We emphasize that some firm characteristics may reflect compensating differentials rather than constraints and the effect of constraints on the dispersion of marginal products may hence be smaller than has been assumed in the literature. We also show that cross-country differences in the dispersion of marginal products are more due to differences in how the business, institutional and policy environment translates firm characteristics into outcomes than to the differences in firm characteristics per se.

Infrastructure investment in Europe has been adversely affected by the economic crisis, undermining both the immediate recovery and longer-term growth potential. This paper discusses recent trends before focusing on how transport infrastructure - arguably the hardest hit sector during the crisis - contributes to regional growth. It shows that firms in regions with a more developed transport network are better placed to benefit from positive growth opportunities than firms in other regions. This advantage is most pronounced in times of economic stress, making a good transport infrastructure a key ingredient for economic recovery. This indicates one channel through which the activities of the EIB can foster growth and enhance competitiveness in Europe.

New Europe banking is one of the most promising markets in the world. The EU convergence process has guaranteed a fast realignment to EU legal and regulatory standards, thus reducing systemic risk. In the forthcoming years, real economic convergence will allow a long period of fast growth, while low banking penetration, as well as complete underdevelopment of a number of market segments and products, suggest strong development opportunities. Starting from the late '80s, by recognising important development opportunities, a number of international banks, mainly coming from the eu market, started to operate in the region, considering it as a second home market where to grow. Seven international banking groups are today leader in the region. Among them, UCI has acquired a leading role, with a widespread presence in the market and being among the top player in most of its countries of operations. The New Europe is a long term strategy for the group, as testified by the role of the region in total assets and net profits. If the main rationale for the presence in the market is to exploit growth and development opportunities, the aim of sustaining Italian enterprises operating in the region is also a priority.

In the wake of the crisis, the capacity of many banks to lend to relatively high-risk sectors such as SMEs and young, innovative firms is seriously impaired by capital constraints and a strong deterioration in the quality of the assets on their balance sheets. Looking forward, it is vital that economic recovery in Europe is not constrained by an impaired banking sector. This paper provides an overview of the drivers of the stagnation of bank lending in Europe and discuss four main areas of opportunity for mitigating potential bank lending constraints: the further development of direct capital market financing alternatives for firms, the further development of securitisation, wider use of credit guarantee schemes and actions to address high ratios of non-performing loans.

Retail lending grew very fast in the New Europe region in the last years, prompting a debate on whether such a rapid growth can be considered sustainable. This paper investigates the main determinants of retail lending growth throughout the region. It tries to identify episodes of credit boom and analyzes the possible correlation between such booms, consumption booms and a country external account position. Estimating an aggregate consumption function, under the assumption of liquidity-constrained households, the paper finds that current trends in household credit markets largely reflect an equilibrium phenomenon, in which household credit increases rapidly from extremely low initial levels, in the context of a relaxation of liquidity constraints. The rate of growth of credit responds to changing market conditions on the supply side and to good prospects for income growth. In such an environment, loosening credit market conditions can have sizable effects on consumption, which, in some cases may create macroeconomic imbalances, both in terms of current account deficits and inflationary pressures.

1) Financing Firms in East European Countries: An Asymmetric Information and Agency Costs Approach, by Debora Revoltella 2) Seven Years of Financial Market Reform in Central Europe, by Peter H. Haiss and Gerhard Fink.

In this chapter we examine the recent trends in the banking sector in sub-Saharan Africa based on information from banks’ financial statements and from a unique survey of selected large banking groups operating in the region.

This chapter takes stock of trends and strategic issues affecting banking groups in sub-Saharan Africa (SSA). Besides publicly available data, including from the IMF and the World Bank, this chapters relies on the results of the third edition of the EIB’s survey of banking groups in SSA.