ISSUE 2014/02 FEBRUARY 2014 IN SICKNESS AND IN HEALTH: PROTECTING AND SUPPORTING PUBLIC INVESTMENT IN EUROPE

• The long-term decline in gross public investment in European Union countries mirrors the trend in other advanced economies, but recent developments have been different: public investment has increased elsewhere, but in the EU it has declined and even col-lapsed in the most vulnerable countries, exaggerating the output fall. • The provisions in the EU fiscal framework to support public investment are very weak. The recently inserted ‘investment clause ’ is almost no help. In the short term, exclusion of national co-funding of EU-supported investments from the fiscal indicators consi-dered in the Stability and Growth Pact would be sensible. • In the medium term, the EU fiscal framework should be extended with an asymmetric ‘golden rule ’ to further protect public investment in bad times, while limiting adverse incentives in good times. During a downturn, a European investment programme is needed and the European Semester should encourage greater investment by member states with healthy public finances and low public investment rates. Reform and har-monisation of budgeting, accounting, transparency and project assessment is also needed to improve the quality of public investment. Francesca Barbier