How do investments promote economic growth?

Create a solid basis for economic growth 

MEPs passed new banking regulations, supported a plan to stimulate investment in Europe's economy, strengthened economic policy coordination and proposed measures to tackle tax evasion.

On May 31, the EU Commission will publish a reflection paper that sheds light on the future of economic and monetary union. Read here what the EU Parliament has already done in this area and find out more about the further steps that MEPs are calling for.

Strengthen the system to prevent negative effects on taxpayers

The 2008 financial crisis highlighted the weaknesses of banks and public finances in Europe. Many governments ran budget deficits even in the previous boom years, but the situation worsened as tax revenues began to decline and banks needed public and taxpayers' support to survive.

To ensure better banking supervision and reduce costs for taxpayers and the economy, MEPs adopted legislation that the European Central Bank directly supervises over 100 of the largest banks in the euro area. Another major concern was that retail investor deposits be guaranteed up to 100,000 euros and that taxpayers should be the last to pay for bank failures. For this reason, the EU created a joint authority, the Single Resolution Board (SRB), to deal efficiently with potential bank failures.

Parliament also tightened the capital requirements for banks: they have to hold more and better quality capital. This is intended to reduce the impact of future shocks. Further changes to these provisions are in progress.

The European Union also took steps to ensure the coordination of economic and financial policies within the EU. The lack of coordination meant that some countries were faced with financial instability and had to borrow at higher interest rates. For this reason, the so-called European semester was introduced. It is an annual cycle in which the EU Commission formulates policy recommendations for each member state, which are then adopted by the governments in the Council of Ministers and implemented at national level. Parliament was actively involved in the preparation of the necessary legislative packages, known as the "Six-Pack" and "Two-Pack".

The fight against tax evasion is also an important concern for the EU Parliament. Tax evasion is one of the reasons for the tight budget revenues in the Member States. Parliament set up various committees to investigate and come up with suggestions on how to close loopholes that would allow businesses and individuals to evade paying their fair share of taxes.

Mobilize investment to boost the European economy

The banking troubles and large budget deficits meant that for a period little, both public and private, was available to stimulate economic growth. That is why in 2015 the EU launched an ambitious three-year investment plan that uses EU guarantees to trigger public and private investments of EUR 315 billion in promising projects.

The plan has worked relatively well so far. The plenary will vote in June on the extension of the European Fund for Strategic Investments (EFSI). Investments in the European economy amounting to 500 billion euros are to be mobilized by the end of 2020. Innovative small and medium-sized enterprises (SMEs) in particular should benefit from the plan.