EU brainstorm ways of bringing billions of euro into its ailing economy

The European Union tried to find ways on Saturday to bring billions of euro into its slow economy without falling deeper into debt. Possible options include the creation of a pan-European capital market and a joint EU fund worth €700 billion.

The EU’s economy is still struggling to recover from the worst financial crisis in a generation. The EU economy grew by just 0.1% last year and around 25 million EU citizens are unemployed, almost double as many as in the United States.

EU finance ministers have asked the European Commission, the EU executive, and the European Investment Bank (EIB) to come up with a range of projects that would create growth.

“We have given a mandate to the Commission and the EIB to swiftly present an initial report on practical measures that can be taken, on profitable investment projects,” Italian Economy Minister Pier Carlo Padoan said.

European ministers are expected to discuss the projects and possible ways of financing them during a meeting in Luxembourg in October.

There are as yet no details on the actual projects. However, finance ministers discussed four proposals as to how to finance them.

Italy proposed a ‘pan-European market’ which will allow smaller companies to raise capital. This would be part of a new EU capital-marking union, expanding on the eurozone banking union.

Poland proposed creating a joint EU fund worth €700 billion that would be able to finance through leveraging its own capital. The fund would be under the umbrella of the European Investment Bank, the bank owned by European governments.

A French-German paper proposed boosting private investments, while incoming European Commission President Jean-Claude Juncker called for a  €300 billion investment program.

“We don’t have a magic wand but we need growth, we need to stimulate demand without taking on debt,” French Finance Minister Michel Spain said. “We need the right mix of public and private money.”

The eurozone economy will grow again in the third quarter of this year but full-year growth will remain below 1%, European Central Bank Vice President Vitor Constancio said.

European companies rely on banks for 80% of all loans, but banks are reluctant to lend money to them following the recent financial crisis. In Italy, Europe’s fourth-largest economy, bank credit to companies has decreased by over 70 billion since mid-2011 and is still shrinking.

This is a problem that in turn leads to unemployment, since small companies provide two thirds of the private-sector jobs in the EU. Moreover, indebted countries like Italy and France can’t afford to spend much public money on financing private companies.