Merkel-Hollande Push Said to Spur EU Investment-Loan Plan

(Updates with German-French document on asset-buying in sixth paragraph, 2012 investment program in
ninth.)

Sept. 9 (Bloomberg) -- Germany and France are poised to take the first step toward a European
investment program, as the euro areas two biggest economies seek to resolve differences and spur
growth without resorting to stimulus spending, government officials said.
The proposals, which enlist the European Investment Bank for loans to companies, aim to pave the way
for a 300 billion- euro ($388 billion) investment plan outlined in July, according to three euro-area
government officials who asked not to be named because the document is in draft form. Germany and
France plan to present the initiative at a meeting of European finance ministers in Milan, Italy on Sept. 12.
Germanys emerging endorsement marks an attempt to shift the debate away from austerity and
acknowledge the European Central Banks efforts to prod governments into action to combat low inflation
and a weak economic outlook. Its also intended to deter ECB President Mario Draghi from resorting to
purchases of sovereign bonds and asset-backed securities to increase bank lending, a move viewed with
anxiety in Germany.
Draghi threw the kitchen sink at German Chancellor Angela Merkel, Jacob Funk Kirkegaard, a senior
fellow at the Peterson Institute for International Economics in Washington, said in an interview after the
ECBs policy decisions on Sept. 4. Draghis message was plain: my backs to the wall -- do something to
push fiscal stimulus now or watch me buy bonds.

No Stimulus

With Merkel opposed to fiscal stimulus, German backing for the investment plan requires avoiding
pledges of cash and any suggestion that pressure on France and Italy to make their economies more
competitive is easing, one official said.
At the same time, the French and German governments arent interested in providing state guarantees for
Draghis asset- purchase program announced last week, according to a draft document obtained by
Bloomberg News.
The separate proposal on investment is part of preparations for European Union leaders to discuss
growth at a special summit on Oct. 6 and sign off on an investment-boosting plan by the end of the
month. Without citing specific projects, the joint paper will refer to an investment gap in Europe in areas
such as transportation, broadband and energy, one official said.
The Luxemburg-based EIB would be the favored conduit for investment loans, as outlined in the 300
billion-euro ($388 billion) proposal to re-industrialize Europe that designated European Commission
President Jean-Claude Juncker presented in July, according to the officials.

Earlier Attempt

Juncker plans to outline the program by February. It would follow a 120 billion-euro growth boost pledged
in 2012 that was based on a 10 billion-euro increase in the EIBs capital and assumptions about how
much investment that would unleash.
Germany and France are working on joint proposals to strengthen investment, German Finance Ministry
spokeswoman Marianne Kothe said yesterday, declining to comment on details. French government
officials didnt return calls seeking comment.
Pressure on governments is increasing as Frances economy failed to grow in the last two quarters and
the government scrapped plans to cut the budget deficit to 4 percent of output this year. Italy is in its third
recession since 2008 and Germanys economy shrank by 0.2 percent in the second quarter.
Both sides also plan to back national efforts to attract private investors, such as Germanys bid to harness
insurance- industry capital to finance infrastructure projects, the officials said. Cross-border cooperation
between national development banks or funds would also be conceivable.

German Model

Merkels government touts German development bank KfW Group, the countrys third-biggest lender by
assets, as a possible model for other countries. KfW has aided in loans to Greek companies in the wake
of the debt crisis, though such an engagement isnt envisaged in other euro-area countries for now.
KfW development loans are working well in Greece, Ralph Brinkhaus, the finance spokesman in
parliament for Merkels Christian Democratic Union, said in an e-mailed reply to questions. It makes
sense to build up a European development bank model. If supporting companies with tailor-made finance
is needed, development banks are the right way.

--With assistance from Rainer Buergin in Berlin.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Helene Fouquet
in Paris at hfouquet1@bloomberg.net; Birgit Jennen in Berlin at bjennen1@bloomberg.net To contact the
editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Tony Czuczka, Ben Sills