A European Public Investment Outlook

A European Public Investment Outlook Floriana Cerniglia and Francesco Saraceno (eds)
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Even without the COVID-19 recession, the public sector role in generating investment, employment and growth would be a crucial question for economic policy. This volume brings fresh analysis to explain the importance of public investment, and the opportunities it offers. The editors should be praised for extending their attention well beyond standards to social investment as well as the ecological transition. The book will also be helpful for those who want to assess the added value of the European Union in the field of public investment.
László Andor, Secretary General (FEPS), Senior Fellow (Hertie School of Governance)


Let’s stop being penny wise and pound foolish.   Read the carefully argued set of essays contained in this book, and you will understand why increasing public investment is a high priority. 
Olivier Blanchard, Fred Bergsten Senior Fellow, Peterson Institute; Robert Solow Professor of Economics Emeritus, MIT


The recovery of Europe requires a strong investment stimulus. The excellent book by a group of distinguished European researchers shows why such a push is needed and how it should be implemented.
Peter Bofinger, University of Wuerzburg; former member of the German Council of Economic Experts 


As this important book clearly documents, in the last decades aging European societies have seriously disinvested in their future by cutting public investment and growth enhancing public expenditure. A tragic mistake, as the Covid crisis clearly illustrates. We need to start over again. This book provides both a detailed state-of-the-art analysis of the situation and a number of thought provoking suggestions, based on rigorous research. A compulsory reading for all European policy makers and for whoever is interested in the future of our societies.
Massimo Bordignon, Catholic University of Milano and European Fiscal Board


During the Great Recession, the policy reaction especially of countries under stress had one thing in common: cutting public investment. Preventing the pandemic to turn into the Great Fragmentation will require shifting to a different priority set. Higher public investment will be needed not only to kick start the recovery, but also to increase the resilience of countries in the medium term and help foster the green and digital transition. This timely book provides the conceptual and empirical framework for approaching public investment at national and European level. It is a valuable contribution to a policy debate which will shape the growth model of Europe in the years to come.
Marco Buti, Head of Cabinet of the European Commissioner for the economy 


This insightful and thorough  book could not be more timely . In order to  regain a more just and sustainable growth, Europe urgently needs a massive plan of public investments
Giovanni Dosi, Professor of Economics , Sant'Anna School of Advanced Studies


This is a very timely publication. As we live through a large health crisis caused by a pandemic and the resulting economic crisis, there are many questions about the role of the State and in particular the role of public investment. The book reviews the evidence on public investment trends in European countries and provides some insightful frameworks to think about the future.
Antonio Fatás, Portuguese Council Chaired Professor of Economics at INSEAD 


This book is focused on Europe but has much wider global resonance. It broadens the definition of public investment to show its centrality for dealing with the critical challenges of our times, and highlights the high social, economic and human costs of underinvestment. As we all re-examine the principles on which our economies are based, this book will provide an essential guide.
Jayati Ghosh, Professor of Economics, Jawaharlal Nehru University, New Delhi


Public investment has always been at the core of economic development. The fact that public investment as a share of GDP in the EU dropped by almost a quarter since the outbreak of the global financial crisis should be a wake-up call. The European Public Investment Outlook provides a unique tour d'horizon of the state of play and major challenges of a much neglected but key element of economic policy. This rich compendium should be our companion during the years of recovery from the COVID-19 crisis.
Mario Holzner, Executive Director, The Vienna Institute for International Economic Studies (WIIW)


The collective book "A European Public Investment Outlook" is an important contribution by European economists from various institutions on the harmful effects of the austerity policies of recent years on European public infrastructure, backed by numerous statistics, and a salutary call for a return to a more dynamic policy of public investment in a context of health crisis that has demonstrated the need for effective public infrastructure.
Matthieu Montalban, University of Bordeaux


Public investment should be an important part of the policy response to heal the deep scars that Covid 19 is leaving on the European economy. The key will now be to prioritise investment spending so as to modernize Europe's economy. The authors of this thought-provoking book provide many facts and rigorous analysis that can help policy makers navigate the difficult trade-offs ahead.
Guntram Wolff, Director, Bruegel 



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. 


A European Public Investment Outlook
Floriana Cerniglia and Francesco Saraceno (eds) | June 2020
Open Reports Series, vol. 9 | ISSN: 2399-6668 (Print); 2399-6676 (Online)
224 pp. | 53 colour illustrations |  7" x 10" (178 x 254 mm) | June 2002
ISBN Paperback: 9781800640115
ISBN Hardback: 9781800640122
ISBN Digital (PDF): 9781800640139
ISBN Digital ebook (epub): 9781800640146
ISBN Digital ebook (mobi): 9781800640153
ISBN Digital (XML): 9781800640160
DOI:10.11647/OBP.0222
Categories: BIC: KFFM (Investment and securities),  K (Economics, finance, business and management), 1QFE (European Union); BISAC: BUS036000 (BUSINESS & ECONOMICS / Investments & Securities / General), BUS032000 (BUSINESS & ECONOMICS / Infrastructure), BUS051000 (BUSINESS & ECONOMICS / Public Finance).

Contents

Preface Download
Franco Bassanini, Alberto Quadrio Curzio and Xavier Ragot

Acknowledgements
Author Biographies

Introduction Download
Floriana Cerniglia and Francesco Saraceno


Part I — Outlook

1. Europe Needs More Public Investment Download
Rocco Luigi Bubbico, Philipp-Bastian Brutscher and Debora Revoltella

2. Public Investment and Capital in France Download
Mathieu Plane and Francesco Saraceno

3. Public Investment in Germany: The Need for a Big Push Download
Sebastian Dullien, Ekaterina Jürgens and Sebastian Watzka

4. Public Investment Trends across Levels of Government in Italy Download
Floriana Cerniglia and Federica Rossi

5. Trends and Patterns in Public Investment in Spain: A Medium- and Long-Run Perspective Download
José Villaverde and Adolfo Maza


Part II — Challenges

6. In Search of a Strategy for Public Investment in Research and Innovation Download
Daniela Palma, Alberto Silvani and Alessandra Maria Stilo

7. Social Investment and Infrastructure Download
Anton Hemerijck, Mariana Mazzucato and Edoardo Reviglio

8. From Trans-European (Ten-T) to Trans-Global (Twn-T) Transport Infrastructure Networks. A Conceptual Framework Download
Paolo Costa, Hercules Haralambides and Roberto Roson

9. Ecological Transition Download
D’Maris Coffman, Roberto Cardinale, Jing Meng and Zhifu Mi

10. The Contribution of European Cohesion Policy to Public Investment
Francesco Prota, Gianfranco Viesti and Mauro Bux Download

List of Illustrations
List of Tables

Philipp-Bastian Brutscher is Senior Economist in the Economics Department of the European Investment Bank (EIB) where he is principally responsible for the EIB Investment Survey, a large-scale survey of corporate investment activities. Philipp acts as the focal point for the Department's analytical work on business and infrastructure investment activities. He holds a Master’s and PhD degree from the University of Cambridge.

Rocco Luigi Bubbico is Policy Advisor in the EIB Permanent Representative’s Office in Brussels. His research interests are in public investment, regional and urban development and transition to a zero-carbon economy. Previously he worked in the Directorate-General for Regional and Urban Policy of the European Commission. He holds a PhD from the University of Manchester and a Master’s degree from the University of Bologna.

Mauro Bux (MSc in Economics of Public Policy, Barcelona Graduate School of Economics; PhD in Economics, University of Salento) is a research fellow at the Regione Puglia and teaching assistant in public finance at the Department of Economics of the University of Salento (Italy). His scientific research experience, both theoretical and applied, has so far focused on issues related to the evaluation of public policies, optimal taxation and the impact of EU-funded public investments.

Roberto Cardinale is a Visiting Lecturer at the Bartlett School of Construction and Project Management where he recently completed his PhD with Professor D’Maris Coffman on the governance of transnational energy infrastructure projects, including the unbundling of transnational supply chains, the partial privatization of state-owned enterprises, energy market de-regulation under the European Union’s competition policy. His research has been published in Energy Policy and Structural Change and Economic Dynamics. During his postgraduate study at Università Cattolica del Sacro Cuore, he visited Sungkyunkwan University (Korea) and Galatasary University (Turkey) to gain an international perspective on state-owned enterprise, which was deepened by a further visit to Renmin University China during his doctoral education.

Floriana Cerniglia is Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di Ricerche in Analisi economica e sviluppo economico internazionale) She is the Co-Editor-in-Chief of Economia Politica, Journal of Analytical and Institutional Economics. She did her PhD at the University of Warwick (UK) and her research interests are in Public Economics, mainly tax and spending assignment across government levels. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects.

D’Maris Coffman is a Professor in Economics and Finance and the Head of Department of at the Bartlett School of Construction and Project Management at UCL. Her interests span infrastructure, construction, real estate and climate change. She is the Managing Editor of Structural Change and Economic Dynamics and is on the advisory board of Economia Politica. Before coming to UCL, she spent six years as a fellow of Newnham College, University of Cambridge, where she variously held a junior research fellowship (Mary Bateson Research Fellowship), a post as a college lecturer and teaching fellow, and a Leverhulme ECF. In July 2009, she started the Centre for Financial History, which she directed through December 2014. She did her undergraduate training at the Wharton School in managerial and financial economics and her PhD in the School of Arts & Sciences at the University of Pennsylvania.

Paolo Costa is Contract Professor of Transport and Logistic Economics at the Ca’ Foscari University of Venice. He is also currentlyChairman of the Board of Directors of SPEA Engineering s.p.a., Member of the Supervisory Board of Nice and Cote d’Azur Airport of Nice, Member of the General Council of Fondazione di Venezia, editorialist at Corriere del Veneto and Founding Partner of C+3C Systems & Strategies s.r.l. Between 1980 and 2003 he was Full Professor of Economics, Economic Planning, Transport and Regional Economics, Tourism Economics at the Universities of Venice (IUAVand Ca’ Foscari); he also taught at the Universities of Padua, Reading (UK) and at New York University (USA). Rector of the University of Venice Ca’ Foscari (1992–1996). In his past career he was Vice President of the University of the United Nations in Tokyo (1995–1999). He served as Italian Minister of Public Works and Urban Areas (1996–1998), Mayor of Venice (2000–2005), Member of the European Parliament (1999–2009) and Chairman of the European Parliament Committee on Transport and Tourism (2003–2009). He had been President of the Venice Port Authority (2008–2017). As an International consultant, he served at the OECD, the International Transport Forum at OECD, the European Commission, Italian Ministry of Infrastructure and Transportation.

Sebastian Dullien is Research Director at the IMK – Macroeconomic Policy Institute and professor for international economics at HTW Berlin – University of Applied Sciences. He has worked extensively on macroeconomic imbalances in the euro area and especially Germany’s contributions to these imbalances. Prior to being appointed at HTW Berlin in 2007, he has worked as an economics editor at the Financial Times Deutschland, the German language edition of the FT.

Hercules Haralambides is Professor in Maritime Economics and Logistics since 1992, having taught at eight universities (and in six different countries), the most prominent of which being Erasmus University Rotterdam and the National University of Singapore. Currently he is Distinguished Chair Professor at Dalian Maritime University (China) and Adjunct Professor at Texas A&M University (USA). Hercules is the founder of the Erasmus Center for Maritime Economics and Logistics (MEL) (www.maritimeeconomics.com) and also the founding Editor-in-Chief of the quarterly journal Maritime Economics & Logistics (MEL), published by Palgrave-Macmillan (www.palgrave.com/41278). He has written and published over 300 scientific papers, books, reports and articles in the wider area of ports, maritime transport and logistics and has consulted governments, international organizations and private companies all over the world including, for a series of years, the European Commission. In the period 20112015, he was President of the Italian port of Brindisi and at the end of that period (2015) he established "Haralambides & Associates”: a global maritime think-tank engaged in executive education and strategic policy analysis. In 2008, he was decorated with the Golden Cross of the Order of the Phoenix, by the President of the Greek Republic.

Anton Hemerijck is Professor of Political Science and Sociology at the European University Institute (EUI) in Florence. Having trained as an economist and political scientist, he obtained his doctorate from the University of Oxford in 1993. Between 2001 and 2009, he directed the Scientific Council for Government Policy (WRR), the principle think tank in the Netherlands, while holding a professorship in Comparative European Social Policy at Erasmus University Rotterdam. Before that, he served as a senior researcher at the Max Planck Institute for the Study of Societies in Cologne. Over the past two decades he advised the European Commission and several EU Presidencies on European social policy developments. Important book publications include A Dutch Miracle with Jelle Visser (1997) and Why We Need a New Welfare State with Gosta Esping-Andersen, Duncan Gallie and John Myles (2002), and the monograph Changing Welfare States (2013). His most recent book publication is the edited volume The Uses of Social Investment (2017).

Ekaterina Jürgens studied International Business at the HTW Berlin and Economics at the University of Cologne, and currently works as a research assistant at the Macroeconomic Policy Institute (IMK).

Andreas Kappeler is an Economic and Policy Analyst in the Directorate General for Economic and Financial Affairs of the European Commission. His research interests are in infrastructure investment, public finance and macroeconomic imbalances. Previously, he worked as Economist at the EIB and OECD. Andreas holds a PhD from the Munich Graduate School of Economics (LMU Munich) and a Master's Degree from the Toulouse School of Economics.

Adolfo Maza is Associate Professor of Economics (University of Cantabria). Adolfo received his PhD degree in Economics from the University of Cantabria in 2002. Later on, he completed a postdoctoral stay at the University of Berkeley. His main areas of research include regional economics, economic integration and globalization, labour market, migration and energy economics. He has published more than fifty papers in various international scientific journals included in the Journal Citation Report (JCR) databases. He has also participated in numerous international Congresses and Meetings. He was awarded the "Young Researchers Prize" by the Spanish Regional Science Association. He has acted as a reviewer for numerous scientific journals, as well as a reviewer for international funding agencies such as the National Science Foundation (USA) and the Austrian Science Fund.

Marianna Mazzucato (PhD) is Professor in the Economics of Innovation and Public Value at University College London (UCL), where she is Founding Director of the UCL Institute for Innovation & Public Purpose (IIPP). IIPP is dedicated to rethinking the role of public policy in shaping both the rate of economic growth and its direction – and training the next generation of global leaders to build partnerships that can address mission-oriented societal goals. She is winner of the 2014 New Statesman SPERI Prize in Political Economy, the 2015 Hans-Matthöfer-Preis, the 2018 Leontief Prize for Advancing the Frontiers of Economic Thought and the 2019 All European Academies Madame de Staël Prize for Cultural Values. She was named as one of the "3 most important thinkers about innovation” by the New Republic, and is on The Bloomberg 50 list of "Ones to Watch” for 2019. Her highly-acclaimed book The Entrepreneurial State: Debunking Public vs. Private Sector Myths (2013) investigates the role of public organizations in playing the "investor of first resort” role in the history of technological change, and asks fundamental questions about how to share both risks and rewards. Her 2018 book The Value of Everything: Making and Taking in the Global Economy (2018) brings value theory back to the centre of economics in order to reward value creation over value extraction. It was a 2018 Strategy & Business Book of the Year and was shortlisted for the 2018 Financial Times and McKinsey Business Book of the Year prize. She advises policy makers around the world on innovation-led inclusive and sustainable growth. Her current roles include being a member of the Scottish Government’s Council of Economic Advisors; the South African President’s Economic Advisory Council; the OECD Secretary General’s Advisory Group on a New Growth Narrative; the UN’s Committee for Development Policy (CDP), SITRA’s Advisory Panel in Finland, and Norway’s Research Council. Through her role as Special Advisor for the EC Commissioner for Research, Science and Innovation, she authored the high impact report on Mission-Oriented Research & Innovation in the European Union, turning "missions” into a crucial new instrument in the European Commission’s innovation programme (Horizon).

Jing Meng is a Lecturer in Economics and Finance at Bartlett School of Construction and Project Management at UCL. She works on the nexus of climate change and air pollution policies: environmental economics, energy innovation and sustainable consumption and trade policies. Jing's recent research focuses on the impact of international trade on the distribution, climate and health impacts of black carbon. Jing received her PhD degree in Environmental Geography from Peking University, and holds a BA degree in Building Environment and Energy Engineering from Huazhong University of Science and Technology. Jing is a Guest Editor of the Journal of Environmental Management, and an editorial board member of the Journal of Cleaner Production and Global Transitions. She is also a fellow of the Cambridge Centre for Environment, Energy and Natural Resource Governance at the University of Cambridge. She has published over sixty papers in peer-reviewed journals, such as Nature Climate Change, Science Advances, Nature Geoscience, Nature Plants, and Nature Communications. She was awarded the "2018 Top 50 Earth and Planetary Sciences Articles” in Nature Communications and "2017 Best Early Career Articles” in Environmental Research Letters.

Zhifu Mi is a Lecturer in Economics and Finance at the Bartlett School of Construction and Project Management at UCL. He has published over fifty papers in peer-reviewed journals, such as Science Advances, Nature Energy, Nature Geoscience, and Nature Communications. He is the Executive Editor of the Journal of Cleaner Production. He currently leads the project on Uncertainty Analysis of Carbon Capture, Utilization and Storage (CCUS) funded by The Royal Society (IECNSFC181115), and co-leads the Finance & Economics Working Group for "The Lancet Countdown: Tracking Progress on Health and Climate Change”. He was awarded the 2018 World Sustainability Award for his leading research in the methodological developments and applications of carbon footprint. He was also honoured on the Forbes 30 Under 30 Europe in recognition of his innovative research in the economics of climate change. His research was awarded the "2018 Top 50 Earth and Planetary Sciences Articles” in Nature Communications, "2017 Best Early Career Articles” in Environmental Research Letters, and "2016 Highly Cited Original Papers” in Applied Energy.

Daniela Palma is a Senior Researcher at ENEA (the Italian National Agency for New Technologies, Energy and Sustainable Economic Development) in the areas of Economy of Innovation and Sustainable Economic Development, including themes of Regional Analysis. She graduated with honours in Statistics and Economics on issues of International Economics at the Sapienza University of Rome, and holds a PhD in Applied Economic Analysis from the Sapienza University of Rome. She was Visiting Research Fellow at the National Center for Geographic Information and Analysis of the United States National Science Foundation at the University of California at Santa Barbara. Since 1999 she has been coordinating the activities of the ENEA Observatory on Italy in the International Technological Competition.

Mathieu Plane is Deputy Director of Analysis and Forecasting Department at the OFCE, the Research Center in Economics of SciencesPo Paris. He is in charge of economic forecasts for the French economy and works on economic policy issues. He has written several articles in scientific journals and has participated in several reports for public institutions. He teaches at Sciences-Po Paris and at the University of Paris Pantheon-Sorbonne. He was, in 2013–2014, economic advisor to the Minister of Economy, Industry and Digital sector. He speaks and writes regularly in media and newspapers. He has recently published, in collaboration with other authors of the OFCE, "Budget 2019: Purchasing Power but Deficit”, "Saving(s) Growth. Economic Outlook for the French Economy 2019–2021 " and "French Economy 2020" by Editions La découverte, Reperes collection.

Francesco Prota (PhD in Agricultural and Environmental Economics, University of Naples "Parthenope”; MPhil in Environmental and Sustainable Development, University of Glasgow) is Associate Professor in Economics at the University of Bari "Aldo Moro” (Italy). His research interests include regional economics and international economic integration; development economics; public policy evaluation; innovation economics. Francesco is the author of several articles in economics journals, including World Development, Regional Studies, Papers in Regional Science, Journal of International Development, Development Policy Review, Economics Letters, European Planning Studies and Economia Politica, Journal of Analytical and Institutional Economics. Besides serving as referee for international journals, he is Associate Editor for Regional Studies, Regional Science and for L’Industria, Review of Industrial Economics and Policy.

Debora Revoltella is Director of the Economics Department of the European Investment Bank since April 2011. The department comprises thirty economists and provides economic analysis and studies to support the bank in defining its policies and strategies. Before joining the EIB, Debora worked for many years on CESEE, first in the research department in COMIT, later as Chief Economist for CESEE in UniCredit. Debora holds a PhD in Economics and worked as adjunct Professor at Bocconi University. She is member of the Steering Committees of the Vienna Initiative and the CompNet, an alternate member of the Board of the Joint Vienna Institute and a member of the Boards of the SUERF and the Euro 50 Group.

Edoardo Reviglio is Head of International and European Projects at "Cassa depositi e prestiti" (CDP), Rome. He is Adjunct Professor of Economics at LUISS Guido Carli in Rome and President and faculty member of International University College of Turin. He has been a member of the Council of Economic Advisers of the Italian Ministry of Economy and Finance. He is one of the co-authors and chairman of the Working Group on finance of the Prodi report on investing in social infrastructure. He has a considerable and recognized experience in academic and policy research and has been representing CDP in international institutions (UN, G20, G7, OECD, EU) and worked extensively with them. He is on the Board and Scientific Committee of several think tanks at national and international level. He received his BA, Summa Cum Laude, from Yale College; was Senior Fellow at Department of Mathematics of Yale University; and Research Associate at the Department of Mathematics of Imperial College, University of London. He is the author of many scientific and policy publications. His fields of interest include: public finance, banking and finance, law and economics, and economic history.

Roberto Roson is Associated Professor in Economic Policy at Ca'Foscari University Venice, Full Professor at Loyola Andalusia University and GREEN Senior Research Fellow, Bocconi University Milan. He is the author of several articles published in international scientific journals and books. He has coordinated several applied research projects, and acted as consultant for many organizations, such as European Commission (JRC), United Nations and FAO, the World Bank. He is Scientific Director of the "CF Applied Economics" Centre for applied research and analysis. His research interests deal primarily with environmental economics, computational models for simulation of economic policies, and industrial organization in the services.

Federica Rossi is currently post-doctoral research fellow in Economics at Politecnico di Milano and she collaborates with Università Cattolica del Sacro Cuore in Milan (Italy). Federica received her PhD in Economics from Università della Svizzera italiana (Lugano, Switzerland) in 2018. Her research interests include topics in the area of regional economics and public investment.

Francesco Saraceno is Deputy Department Director at OFCE, the Research Center in Economics of SciencesPo Paris. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality and macroeconomic performance and European macroeconomic policies. He has published in several international journals. In 2000–2002 he was member of the Council of Economic Advisors for the Italian Prime Minister's Office. He teaches international and European macroeconomics at SciencesPo, where he manages the Economics concentration of the Master of European Affairs and in Rome (Luiss). He is Academic Director of the SciencesPo-Northwestern European Affairs Program. He is member of Confindustria`s Scientific Committee, and of the Scientific Board for the LUISS School of European Political Economy. He is active in the institutional dialogue, and in the public debate, on the EU. He advises the International Labour Organization (ILO) on macroeconomic policies for employment.

Alberto Silvani is a science policy analyst in the field of innovation, technology transfer, assessment and evaluation. He spent his professional life mainly at CNR (National Research Council of Italy), acting as research director, with both research and management responsibilities. His academic teaching career includes University of Cassino (Management of innovation) and University of Milan (Technology Transfer and Evaluation). He was national expert for four years at the European Commission in Brussels. He is national delegate in the European Network of Research Evaluation (EvalNet). He is member of the scientific committee of CRANEC at the Catholic University of Milan. He works with MET (Monitoraggio Economia Territorio), a consulting company providing studies and analyses on industrial policy.

Alessandra Maria Stilo has a degree in business economics and has worked for the National Research Council of Italy since 2007. Her main focuses are: research project management, technology transfer, research policies and science policies at the national, European and international levels. She is a PhD candidate at the University of Urbino Carlo Bo and for her research project on researcher’s mobility and migration she spent ten months as visiting scientist at the European Commission – Joint Research Centre (JRC) in Seville (Spain).

Gianfranco Viesti is Full Professor of Applied Economics in the Department of Political Sciences of the University of Bari. His main research interests cover local and regional development and policies, industrial and innovation economics and policy, international trade, European economic policies. His latest book (in Italian) is Verso la secessione dei ricchi? Autonomie regionali e unità nazionale (2019).

José Villaverde is Full Professor of Economics (University of Cantabria). He received his PhD degree in Economics from the University of País Vasco. He has been visiting Professor at many universities in Denmark, England, Taiwan, China, United States, Belgium, Chile, Poland, Czech Republic, Ecuador and Argentina. The scope of his current research interests encompasses international and regional economics, economic integration and globalization and labour market. He has authored several books and published more than 150 papers in refereed journals. He has also participated in many international Congresses and Meetings He has acted as a consultant of the World Bank and the European Commission. He has also served as a reviewer for numerous scientific journals in the field of Economics.

Sebastian Watzka heads the unit "European Macroeconomic Developments” of the Macroeconomic Policy Institute (IMK – Institut für Makroökonomie und Konjunkturforschung) in the Hans-Böckler Foundation. He studied economics at the University of Cambridge and received his PhD in economics from the European University Institute (EUI) in 2007. Before joining the IMK he was working as Assistant Professor at the Seminar for Macroeconomics at Ludwig Maximilian University (LMU) Munich.

Part I — Outlook

1. Europe Needs More Public Investment
Rocco Luigi Bubbico, Philipp-Bastian Brutscher and Debora Revoltella

The initial chapter by Rocco Luigi Bubbico, Philipp-Bastian Brutscher, Andreas Kappeler and Debora Revoltella from the European Investment Bank (EIB) outlines the experience of Europe as a whole. The picture is as follows: between 2008 and 2016 public investment in the EU 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 such decline in public investment especially in countries that experienced a strong pressure to tighten their budgets. The negative effect of fiscal consolidation was in many cases amplified by a re-prioritization of public outlays away from investment towards current expenditures. Infrastructure investment was disproportionately affected by the decline in public investment. EIB estimates show that overall infrastructure investment declined by about 25% between 2008 and 2016, with the government sector accounting for the lion’s share of this fall. From a sectorial perspective, investment in transport and education infrastructure experienced the strongest decline. The chapter clearly documents that the fall in government infrastructure investment does not reflect a saturation effect, the annual infrastructure investment gap is estimated to be about €155 bn and that construction of new infrastructure seems to continue to produce large positive economic spillover effects. This chapter advises, as a policy lesson, sound project selection: preparation and implementation are the keys to reversing the negative trend in investment activities in the EU, besides overcoming funding constraints. Obviously, to ensure the efficient use of available funds, sound infrastructure governance is also a key factor.

2. Public Investment and Capital in France
Mathieu Plane and Francesco Saraceno

In chapter 2, Mathieu Plane and Francesco Saraceno take up the case of France, where public investment has seen contrasting trends in recent decades. Although it was rather dynamic until the 2000s, a real inflection took place at the turn of 2010 when the government turned to austerity, and a large part of fiscal adjustment was achieved by reducing capital expenditure. Their chapter starts by looking at the evolution of general government net wealth from the late 1970s. While still positive, the consolidated net wealth is today at an all-time low. Indeed, after reaching a record level in 2007 (58.1% of GDP) it has lost 45 points of GDP in the space of eleven years. Plane and Saraceno then focus on the evolution of the stock of non-financial assets held by the general government. Most of this is non-produced (land), and it has fluctuated greatly because of changes in prices. The stock of fixed assets, which represents the accumulation of public productive capital, has been much more stable, and it is owned mostly by local governments. The authors then focus on flows (investment), to conclude that, with the exception of intellectual property rights, all components of public investment are today at historic lows and it is "civil engineering works" that have experienced the greatest decline. For the last three years, public net investment was negative, meaning that France does not accumulate public capital anymore. In fact, since 2009 the increase of debt has not been used to finance new investment but mostly current expenditure. Finally, the chapter analyses, by means of a multi-sector macroeconomic model, the impact on growth in different macro sectors, of a permanent increase of public investment. Based on this analysis, the chapter concludes with an assessment of the public investment needs of the French economy, and, like other chapters of the Report, pleads for the introduction of a Golden Rule of public finances aimed at preserving capital expenditure.

3. Public Investment in Germany: The Need for a Big Push
Sebastian Dullien, Ekaterina Jürgens and Sebastian Watzka

Chapter 3, by Sebastian Dullien, Ekaterina Jürgens and Sebastian Watzka, reports on German debates about public investment. As with France, underinvestment by the public sector over the past two decades has led to a severe deterioration of the public capital stock. Moreover, demographic change, decarbonization and digitalization pose significant challenges for the German economy which imply additional public investment needs. A detailed sector-by-sector overview of investment requirements concludes that investment requirements add up to at least €450 bn over the next decade. Through a macroeconomic simulation, it is shown that a debt-financed increase of public expenditure of this magnitude would be compatible with keeping the debt-to-GDP-ratio below 60% and would have a positive impact on potential growth.

4. Public Investment Trends across Levels of Government in Italy
Floriana Cerniglia and Federica Rossi

Chapter 4, by Floriana Cerniglia and Federica Rossi, addresses the case of Italy. They start from the premise that this country, over the last decade, has experienced the worst economic crisis, which has had a huge impact on the already weak public finance conditions. Italy had to implement extraordinary actions to contain and reduce its public debt. Public investments have been curtailed the most, with respect to other functional areas of expenditure. The chapter provides an overview of major trends in public capital expenditure, including local and national public companies, which in Italy are significant contributors to public investment. The chapter considers also the breakdown of public investment by levels of government. Since the reform of the Italian Constitution in 2001, the interactions between levels of government in Italy have become increasingly challenging. Coordination issues between the central government and sub-national governments in running current and capital expenditures as well as the financing of local expenditures (both current and capital) remain unsolved problems, which most obviously impact the time required to make an investment. Moreover, Italy’s regional divide remains large, and sadly, it continues to grow. The issue of having shares of public investments in North-Central Italy and the Mezzogiorno, that proportionally reflect the population in those areas, has been a serious political concern these last years. Finally, the chapter discusses some legislative and bureaucratic factors that keep investments in Italy from taking off and hinder the transformation of resources into actual construction sites. The authors conclude by an assessment of some policy prescriptions for the relaunch of Italian public investment.

5. Trends and Patterns in Public Investment in Spain: A Medium- and Long-Run Perspective
José Villaverde and Adolfo Maza

In chapter 5, José Villaverde and Adolfo Maza discuss the case of Spain, which, like Italy, has experienced the most acute economic crisis since the end of the Second World War. Because of that, the country had to face some important constraints in its public finances and public investment experienced a severe blow after the outbreak of the crisis. Before the 2008 Global Financial Crisis – namely during the period 2000–2007 – Spain was the country that registered the second highest increase in public gross fixed capital formation among the five biggest European countries (France, Germany, Spain, Italy and the UK), a rate (6.8% per year) that was also much higher than that of the EU (2.3%) and the euro area (2.6%). However, over the next period, 2008–2013, the situation changed completely: public investment dropped on an annual basis at a rate close to 11%; thus, Spain suffered the most acute decline in public investment by far among the among the big five. It also emerges that public investment in Spain has been very volatile and pro-cyclical over time (with large increase periods during boom times and huge falls during recessions); investment in infrastructures always represents the main component of public investment. This implies a policy agenda towards a more anti-cyclical stance and a rebalancing of types of investments, for instance the necessity to increase the share devoted to information and communications technology (ICT).

Part II — Challenges

6. In Search of a Strategy for Public Investment in Research and Innovation
Daniela Palma, Alberto Silvani and Alessandra Maria Stilo

Chapter 6, by Daniela Palma, Alberto Silvani and Alessandra Maria Stilo, analyses the role of research and innovation as key drivers of economic growth, and as an object of renewed concern in the European policy agenda. In this regard, however, special attention has been paid to the role played by public funding with respect to the now more than ever complex evolution of technological innovation and the need for the productive structure to be supported to continuously capture the potential of new technologies. Starting from a well-established ground of most recent analyses carried out on main R&D indicators by major institutional organizations, the authors present a work aimed at bringing out the nature of "system infrastructure” of European research activity, calling for the need to assess to what extent the resources dedicated to R&D and the relative spending modes are able to turn into an effective development lever, starting from the structural characteristics of the entire research and innovation system. They claim that, in order to overcome the existing differential between EU countries in research and innovation performances, rebalancing public funding, while orienting intervention towards common initiatives, is not enough. The implementation of a new course of public investment research policies should instead envisage a renewed orientation of the strategies consistent with the new course of missions/objectives formulated at the European level and, at the same time, point to a coordination with policies aimed at increasing the innovative potential of the economic system, in relation to the characteristics of the productive specialization of each country.

7. Social Investment and Infrastructure
Anton Hemerijck, Mariana Mazzucato and Edoardo Reviglio

Anton Hemerijck, Mariana Mazzucato and Edoardo Reviglio, in chapter 7, offer an original perspective: the most competitive economies in the EU spend more on social policy and public services than the less successful ones. However, the twenty-first century knowledge economies are ageing societies and require European welfare states to focus as much – if not more – on ex-ante social investment capacitation than on ex-post social security compensation. The growing needs for social services will require new and updated social infrastructure. According to a report on social infrastructure in Europe coordinated by former President of the European Commission Romano Prodi in 2018, the minimal gap is estimated at €100–150 bn per annum and represents a total gap of over 1.5 tn in 2018–2030. Long-term, flexible and efficient investment in education, health and affordable housing is considered essential for the economic growth of the EU, the well-being of its people and a successful move towards upward convergence in the EU. But how do we finance the great new needs with such a pressure on public finances? The chapter suggests innovative financial solutions using institutional and community resources to lower to cost of funding of social infrastructure. One such solution is the creation of a large European Fund for Social Infrastructure, owned by State Investment Banks (SIBs) and institutional long-term investors, which would fund its operations by issuing a European Social Bond. In this endeavour, a central role must be played by the EIB and by State Investment Banks. The authors discuss the potential role of these "mission-oriented” SIBs in social innovation by changing their mission. They should not simply "compensate market failures” but also become institutions that "shape the market” and become major providers of sustainable long-term and patient finance to deliver public value.

8. From Trans-European (Ten-T) to Trans-Global (Twn-T) Transport Infrastructure Networks. A Conceptual Framework
Paolo Costa, Hercules Haralambides and Roberto Roson

Paolo Costa, Hercules Haralambides and Roberto Roson, in chapter 8, look back at the genesis – in Europe – of the transnational transport infrastructure which has long coincided with the Ten-T network, developed – sometimes as a weak Keynesian stimulus – as a tool for strengthening the cohesiveness and economic efficiency of the internal market. Following the enlargement of the EU, Ten-T has been evolving from 1996 to 2013, and has been encouraging modal shifts from road and air to rail, inland navigation and short-sea shipping, in order to achieve higher environmental sustainability and combat climate change. However, during these notable efforts, little attention has been paid to the external dimension of European connectivity. Along with addressing a number of technical disruptions affecting transport and its infrastructure, the new wave of Ten-T revision – due by December 2023 – must depart from what has thus far been an introverted view of Europe as a single market (something that has often penalized European competitiveness) to an extroverted orientation of the Union as a key player in a global market. The growing economic centrality of Asia since China’s accession to the World Trade Organization (WTO); China’s strong interest in the Mediterranean Basin as the "super-hub” that connects four continents; and the eastward shift of the European economic barycentre: all of these developments indicate possible solutions for addressing the "geographical obsolescence” of the current Ten-T. In parallel, innovation-driven disruption of the worldwide maritime freight transport network and its infrastructure necessitates the streamlining of port nodes and rail networks around the world, in a way that at the same time addresses efficiently the current "technological obsolescence” of big parts of European infrastructure, predominantly of ports. The authors argue that new Ten-T network evolving into a Twn-T (Trans-Global) one ought to no longer be the product solely of European decisions: dovetailing Ten-T with China’s "Belt and Road Initiative - BRI" will not only be unavoidable but also, rather, a most welcome development.

9. Ecological Transition
D’Maris Coffman, Roberto Cardinale, Jing Meng and Zhifu Mi

The global climate emergency is the main concern of chapter 9, by D’Maris Coffman, Roberto Cardinale, Jing Meng and Zhifu Mi. Anthropogenic climate change is widely understood to be the greatest existential threat to human societies in the coming centuries. The Intergovernmental Panel on Climate Change (IPCC) was established in 1988 to coordinate a global response to the coming crisis. The IPCC’s publication of the Special Report on Global Warming of 1.5 °C (SR15) in October 2018 has helped to galvanize public opinion and has given rise to unprecedented climate activism. State actors now recognise a need for immediate action. Broadly speaking, possible responses to climate change fall into three categories: mitigation, adaptation and remediation. Mitigation means measures to reduce carbon and methane emissions or to enhance carbon sinks; adaptation means measures that ameliorate the effects of climate change on human populations; and remediation means intentional measures to counteract the effects of greenhouse gas (GHG) emissions, including global warming and ocean acidification. There are inevitable trade-offs between the costs of mitigation and those of adaptation over decadal time horizons. Nevertheless, with all three responses, large-scale infrastructure investment is required, with varying degrees of involvement by state actors, multilateral organizations, other non-governmental organizations (including religious groups) and, most significantly, private capital markets. In the current climate, multilateral development banks (MDBs) have taken a leading role. The EIB particularly is in the process of rebranding itself as a Climate Bank for Europe following Emmanuel Macron’s call. The authors then explore the investment opportunities that arise as a result of the growing urgency of the low carbon transition.

10. The Contribution of European Cohesion Policy to Public Investment
Francesco Prota, Gianfranco Viesti and Mauro Bux

The Cohesion Policy is the EU’s main investment policy and – in the wake of the 2008 Global Financial Crisis – the European Regional Development Fund and the Cohesion Fund became the major sources of finance for investment in many countries. Francesco Prota, Gianfranco Viesti and Mauro Bux, in chapter 10, review how this policy has evolved over time in terms of financial size and geographical coverage. Firstly, in the programming period 2000–2006, the centre of gravity in Structural Funds allocation shifted from the Southern regions too the Eastern regions of Europe. What is interesting is that, looking at the expenditure composition by types, 'transport infrastructure' and 'environmental infrastructure' are the main expenditure items. The investments in transport infrastructure financed by the Cohesion Policy have changed the accessibility of EU regions. In particular, many regions in Eastern Europe have significantly benefitted from the Cohesion Policy financed transport infrastructure investments in terms of improved accessibility. Also, as result of the 2008 crisis, the Cohesion Policy has been the major source of finance for public investment for many Member States of the European Union. In 2015–2017 it represents around 14% of the total; this figure is larger than 50% in some small Central and Eastern European countries, in Portugal and Croatia; larger than 40% in Poland; larger than 30% in most of the other Central and Eastern European countries. In the EU-15, the figure is lower in most Member States (7% for Spain, 4.4% for Italy and 2.5 % for Germany). However, it has reached 20% of total capital expenditures in Convergence regions in Spain, 15% in Italy and 10% in Germany.