BRUSSELS (Reuters) - New European Commission President Jean-Claude Juncker is preparing a 300 billion euro ($375 billion) investment plan he will present as a cornerstone of efforts to revive an ailing economy.
But history suggests the program risks becoming an exercise in financial engineering rather than a conduit for the new money the region needs to help boost output and create jobs.
A flagship project of the new European Union executive, the investment scheme is due to be unveiled before Christmas. It is still being finalised and few details have been made public.
If all the money it promises is raised and spent, it could provide the 28-nation EU with roughly an additional 0.7 percent of GDP in investment per year over three years.
"It is significant," said Carsten Brzeski, economist at ING bank in Frankfurt. "You would expect some kind of a multiplier effect from investment on jobs and purchasing power and it would increase the growth potential. The downside is that public investment can take years before it gets started."
But even more than "when?", the big question hanging over the plan is "how much?".
The 300 billion euros is an overall target for both the public and private money that the Commission hopes to mobilize.
The Commission itself does not have any money and is funded through annual EU budgets that must be balanced.
Of the region's 28 governments, only Germany seems to have public finances strong enough to significantly increase investment. But in its drive to have a balanced budget, Berlin is not keen to spend more.
So the Commission plans to use what little public money is available to lure bigger private funds into projects that would otherwise seem too risky or with too low a rate of return.
"Our aim is to 'crowd in' private money for big infrastructure projects in the energy sector, transport, broadband or research and development. The private sector cannot take all the risks," Commission Vice President Jyrki Katainen told Reuters.
Potential investors will want to know how much the EU will provide, and whether it will be new funds or re-labeled money already accounted for in various EU spending schemes.
"If it is additional money, it would be OK, but I fear that it will be funds taken from other places in the EU budget," said Christoph Weil, economist at Commerzbank.
Very little new money ended up in the 120 billion euro "growth and jobs" compact that EU leaders approved at the start of 2012, which failed to prevent a recession and was followed by two years of falling investment.
It was made up of existing EU structural funds and a 10 billion euros capital boost for the European Investment Bank so that it could potentially lend 60 billion more over three years.
The new scheme looks likely to utilize similar ideas.
Juncker said in July it would be financed "through the targeted use of the existing structural funds and of the European Investment Bank (EIB) instruments already in place or to be developed".
Katainen told Reuters the capital of the EIB, which is owned by EU governments, could be raised again.
Structural funds that poorer EU countries receive could be leveraged in a similar way as with EU project bonds, under which EU cash becomes a first loss guarantee (???) on a debt issue from private investors, he said.
Economists are doubtful about leveraging, which failed to calm markets when used to theoretically boost the size of the euro zone bailout fund during the sovereign debt crisis.
Making loans cheaper for investors also makes little sense at a time when, with European Central Bank rates at close to zero, cheap money is already available, ING's Brzeski said.
What would make a difference is impetus for more euro zone integration, minimizing the risk that the euro currency could again be at risk of collapse in future.
"The 300 billion investment plan will really have to be coherent, with very little wishful thinking and the leverage part should be small. It has to be realistic and convincing," Brzeski said. "If it is mainly leveraging, it would be a disappointment."
Reporting By Jan Strupczewski, editing by John Stonestreet