Europe doesn't invest for the future

Worries about government underinvestment in the euro zone may be misplaced. While many member states should probably put more money into infrastructure, a new study by DIW, a think tank in Berlin, shows that a protracted dearth of private-sector investment threatens the Continent's long-term economic potential.

Europe's capital stock, the underpinning of its wealth, is aging at a worrying pace. Since 1999 the ratio of annual investment expenditure to gross domestic product was 0.5 percentage point lower than the level necessary to keep the capital stock in good shape and to foster future growth, DIW calculates.
The euro crisis has made things worse. In hard-hit countries like Greece, Ireland, Portugal and Spain private investments has dropped as much as 40 %, with few signs of a substantial recovery. For the entire euro zone, the annual shortfall is 180 billion euros, or 246 billion dollars.
Curing the problem is more difficult than diagnosing it. After all each private company makes its own investment decisions. If so many of them have been cautious for so long, there must be something structurally unattractive about the euro zone's investment environment. 
Governments could help with generous tax breaks for capital expenditure. A temporary. Pan-European investment fund funneling cheap credit to companies would be an even more important initiative.  DIE reports that access to credit, not the cost of borrowing, is often the biggest obstacle.
The problem requires big thinking from European policy makers - and big spending. A 90 billion dollars investment fund, half of the annual shortfall, looks like a minimum to have any noticeable effect.
Of course, such measures would weigh on government's budgets. Austerity hawks in Germany and else-where might be unhappy, but the DIW study also has a hard lesson for fans of government spending. Kick-starting private spending will do more for the economy than old-school expansionary fiscal policy.