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Last Updated: Wednesday, 1 October, 2003, 14:20 GMT 15:20 UK
Transport is key to growth, EU says
Computer generated image of planned Sicilian bridge
Sicily's planned straits bridge may get the green light
The European Commission has thrown its weight behind a controversial plan to boost economic growth in the European Union (EU) by pouring money into transport.

The plan is the latest in a series of unilateral and multilateral initiatives aimed at Europe's stagnant economy.

It calls for a sustained increase in spending on transportation infrastructure.

Commission President Romano Prodi said that an increase in public investment of 1% of gross domestic product could boost economic growth by up to a percentage point per year.

And spending 220bn euros (154bn; $256bn) to finish 29 designated projects over the next two decades could lead to the creation of 400,000 extra jobs a year, he said.

Controversy

The plan is likely to prove contentious, since many European governments say money should either be saved or poured into research and development, rather than spent on construction projects.

Even economists who are in principle in favour of government spending in order to boost growth question the wisdom of the plan.

"One problem is financing," BNP Paribas European economist Luigi Speranza told BBC News Online.

"I don't think it is clear yet how this would be financed."

In addition, Ms Speranza said it would be "dangerous to use investment in infrastructure as a countercyclical policy" because such projects tend to be lengthy affairs, and as such their effect on growth would be severely delayed.

In terms of job creation and growth, "it would be too little too late," she said, though she would welcome greater investment in Europe's infrastructure.

One Europe

For Brussels, the plan has the attraction of moving towards a major EU goal - integrating road, rail and other transport networks around the region.

The Commission has always argued that transport bottlenecks, arising from the fact that infrastructure is planned differently in different countries, cramp Europe's potential for growth.

As a result, it has encouraged a number of projects, some of gigantic size.

Under the new initiative, some of these will be accelerated - notably a much-disputed bridge linking Sicily with the Italian mainland, and an expensive rail tunnel under the Pyrenees.

Brussels plans to put some of its money behind the plan, raising from 10% to 30% the ceiling for EU participation in the funding of key projects.

Disagreements in prospect

What will come of the scheme is far from clear, however.

The plan accords with one recently proposed by Italy, which currently holds the EU presidency, and which has benefited hugely from European transport subsidies.

But France and Germany are likely to oppose any requirement to spend more on transport, especially since their citizens are unlikely to benefit directly.

The two countries recently proposed a different economy-boosting scheme, under which money would be channelled to a far broader range of projects, including transport but focussing more on hi-tech infrastructure.

And some economists, especially in more Eurosceptic countries, have argued that the best way to stimulate the European economy is to reduce government spending and slash red tape, thereby perhaps allowing a more entrepreneurial economy to flourish.


SEE ALSO:
New EU growth plan unveiled
18 Sep 03  |  Business
Most countries 'flouting EU rules'
13 Oct 03  |  Business
Germany drafts 'risky' budget
09 Sep 03  |  Business
French PM pledges tax cuts
03 Sep 03  |  Business
France admits huge deficit breach
01 Sep 03  |  Business
Slack EU economy 'must reform'
31 Jul 03  |  Business


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