Intangibles and green investments for restarting growth

Economic Growth Theory reveals that long-run growth is primarily dependent on intangible investments in rich countries, no longer on physical investments. A multiplier analysis shows that the short and medium-run demand as well as employment creation is larger for intangibles like education (to a larger extent at the national level, but also at the community level). It therefore makes sense to primarily use the new European Fund for Strategic Investment (EFSI) for innovation, education and green investment to combat climate change. We furthermore propose to complement the new fund by promoting, using and stretching the flexibility clause of the Fiscal Pact for additional expenditures for intangibles (silver bullet proposal). The priority of intangible investments should hold for the EFSI as well as for the national expenditures. This emphasis should not exclude investments in the upgrading of material infrastructure, which closes bottlenecks in energy or railroad nets with high demand and supply effects, but the projects have to be very different from the first round of submissions to the EFSI, which focussed on traditional large transport projects, and included nuclear and coal plants. The upcoming guidelines for the Funds place a higher emphasis on intangibles, but do not exclude traditional physical investments and it has to be expected that national governments and interest groups will heavily lobby for the traditional type of investments which will have a long time lag and low effects on growth and employment