In the Shadow of the Euro Crisis: Foreign Direct Investment and Investment Migration Programmes in the European Union

Abstract

European Union (EU) Member States have long competed to attract Foreign Direct Investment (FDI) as well as other forms of foreign investment through a panoply of incentives targeted at companies, ranging from new infrastructure to worker training. This form of regulatory competition, both against third countries and against other EU Member States, became fiercer in the wake of the global financial crisis and the subsequent Euro crisis, which have prompted a sharp drop of inward foreign investment in Europe, in a broader context of negative and low growth rates, a sovereign debt crisis, and a precipitous decline of outflows of FDI worldwide. Given the starkly reduced FDI inflows after the 2008 financial crisis and the subsequent Euro crisis, we explore the design of investment migration programmes as another investment incentive in the toolkit of EU Member States, albeit targeted at individuals instead of companies. We hypothesize, firstly, that investment migration programmes have flourished as a result of a match between supply – i.e. the goods which Member States can offer through investment migration programmes – and demand for these goods especially on the part of new investors from third countries. Secondly, the production of supply has been incentivized by the recent great economic downturn which saw many EU Member States search for foreign capital inflow, while EU membership imposed constraints on them to incentivize FDI. In section 2, we briefly revisit some of the major themes of the financial and economic crisis in Europe, and the Eurozone in particular, including FDI inflows, showing how EU membership constrains the options for the Member State’s attempts to attract foreign investment. In section 3, we show that European investment migration programmes may be regarded as an additional tool in the EU Member States’ toolkit to attract foreign capital. In section 4, we situate the proliferation of investment migration programmes in the context of the Euro crisis. Section 5 concludes.