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Policy Contribution

Private long-term investment in uncertain times

The economic and financial crisis in Europe is affecting the financing of long-term infrastructure investment.

By: Date: December 19, 2012 European Macroeconomics & Governance Tags & Topics

There are multiple clearly identifiable channels: reduced demand for long-term investment, a tightening prudential framework for lending, upward adjustment of risk perception, complex transition of the financial system, and increasing macroeconomic, sovereign and regulatory risk.

Some of the identified channels are potentially dangerous spillovers from the crisis that entail the risk of a downward spiral (eg increasing regulatory risk), while others are efficient market responses (eg reduced investment demand, correction of pricing of risk). Consequently, public policy instruments should not address the accessibility of long-term finance per se, but should explicitly target the critical channels.

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