Investments that are growth-enhancing, that generate employment and that improve the sustainability of the economy are good and desirable. However, even before the crisis hit, the European Union suffered form a lack of optimal levels of investments in infrastructure, green energy and energy efficiency measures and small and medium sized enterprises. This was driven by a number of factors inherent to these kinds of desirable investments for example high upfront costs and long payoff periods in the case of infrastructure investments and a lack of policy certainty on carbon price for green investments. An additional problem was misallocation of resources by the financial sector because of excessive short-termism and crowding out by speculative investments.
The crisis exacerbated the paucity of investments flowing to these desirable categories. However, policy makers have been handed a unique opportunity to address many of these deficiencies for example through a more informed reform of the financial system and through the introduction of new and innovative sources of financing. This Policy Brief for the European Parliament identifies the main obstacles that impede desirable investments in the real econmomy and puts forward a set of concrete suggestions on how to tackle these and stimulate more investments in infrastructure, energy effeciency, green energy and SMEs.