Europe crisis takes toll on infra investment

Piles of government debt and asphyxiating austerity are squeezing the life out of infrastructure activity in the region.

The effects of a sluggish economy and huge deficits have forced European governments to significantly cut back on public spending and infrastructure budgets, resulting in key projects being downsized, postponed or cancelled, a joint report by the Urban Land Institute (ULI) and Ernst & Young has found.

“As a barometer of current activity, some interviewees estimated that the size of the European market for PPP [public-private partnership] deals had shrunk by 50 percent since the economic downturn,” ULI, a global non-profit education and research institute, said in a statement.

While funding “is the single biggest issue facing Europe’s infrastructure markets,” according to Joe Montgomery, chief executive of ULI in Europe, the effects have not been consistent across the region. European Union (EU) member states in the south-east have fared worse than their counterparts in the north, according to the findings presented in “Infrastructure 2013: Global Priorities, Global Insights”.

In Spain, many road and rail projects have been put on hold for the foreseeable future, while severe budget cutbacks are hurting local projects and rural areas where road conditions remain poor. “Spain’s big-budget infrastructure expansion has slowed down significantly as a result of the austerity measures taken to secure EU bailouts,” according to ULI.

Italy has had to delay plans to upgrade existing infrastructure in the southern region including a suspension bridge that would connect Sicily to the mainland. However, one project that remains on track is a high-speed rail line connecting Turin, Italy to Lyon, France. The first phase of the project, which will cost $11 billion, will start in 2014. Once completed in 2021, the line is expected to reduce travel time between Paris and Milan to four hours from seven hours currently.

France, albeit in a better position than its southern neighbours, has its own set of fiscal constraints to address, which have resulted in setbacks in infrastructure development. Nonetheless, the government continues to forge ahead with expanding the country’s high-speed rail lines, building routes from Tours to Bordeaux and from Bretagne to Pays de la Loire, as well as a high-speed airport link in Paris. Two new projects that have been approved include a motorway concession between Bordeaux and Bayonne and a 96-kilometre canal connecting Germany’s Rhine-Scheldt waterway to the Seine.

Facing less pressure – both economically and practically – is Germany. “Forecasted population declines, mean the country does not require significant infrastructure expansions and can ride out current economic conditions without losing ground if projects need to be delayed,” according to ULI.

In addition to having some of the best rail and road networks, Germany is also the only EU member – along with Belgium and Slovakia – to report growth in the first quarter of 2013. Its state of finances therefore allows it to invest in upgrading existing road networks, including some highways that are reaching the end of their 50-year life-cycle. Other projects underway include the Stuttgart 21 high-speed rail that will add another 56 kilometres to a cross-border route connecting Paris to Slovakia’s Bratislava; major airport expansions in Munich and Frankfurt; and the new Berlin-Brandenburg Airport opening in the fall of this year.

Despite the difficulties that each country may face separately, the EU continues to invest in transportation-related projects that improve connections between member states. “However, […] it may become increasingly difficult to deliver upfront financing to meet the $1.9 trillion investment goals through 2020,” ULI said, citing the report.