Debt woes sap Europe's big-dream investments

[August 12, 2010]  PARIS (AP) -- A rebuilt Prussian palace in Berlin. High-speed rail from Lisbon to Kiev. A new visitor center for Britain's Stonehenge. They're just some of the big-ticket European projects put on hold by the continent's government debt crisis.

Deep in debt after decades of borrowing too much and still running big deficits from the recession, European countries are scaling back some of expensive building and high-speed transport projects that over the decades have given life on the continent much of its glitter and convenience.

In particular, the dream of a connected high-speed rail network across Europe looks increasingly distant. Rail visionaries have envisioned a vast, unified network based on north-south and east-west axes, linking such cities as Lisbon to Kiev and London to Budapest, and expanding the extensive French and German rail systems to embrace more of the continent.

But Portugal is freezing construction of its strand needed to tie it together, while Hungary is slashing train routes, not laying new ones. The maker of France's sleek, high-speed TGV trains, Alstom, is in the meantime racking up contracts in China, the Persian Gulf, and the United States -- not Europe.

Home to many of the world's richest economies and some of the world's most visited tourist sites, Europe is far from collapse. But with Greece taking a trip to the verge of bankruptcy earlier this summer, and other governments running big deficits because of the financial and economic turmoil of the past three years, officials are looking for places to cut back.

And putting off the costly road, rail and construction projects is proving easier to get past voters than job cuts, pay cuts or tax hikes.

Some economists warn that European governments ignore their enviable infrastructure at their peril, and urge them to join forces and invest long-term or risk erosion of Europe's global stature -- and the railways, historic buildings and restored city centers that make it such a lovely place to visit and live.

"Our trains used to be the most admired in the world. Our roads, our system, was among the most advanced," said Olivier Deleu, who advises French legislators on transport policy. "Today, there is little motivation to invest in this. After years of budgetary policy that is questionable, we have reached a turning point."

In Berlin, the government has suspended plans to rebuild a high-profile Prussian-era palace in the heart of the capital. The Baroque Stadtschloss palace was damaged in World War II and razed by East German Communists to make way for their parliamentary building, which in turn was torn down due to asbestos. The rebuilding is a project rich in symbolism of reconciliation and renewal.

But it will cost euro552 million, including euro440 million from the federal budget. The start of construction is delayed from 2012 until 2014.

In Britain, one of the first things the new Conservative government did was ax or suspend 24 projects worth a total of 10 billion pounds (US$15 billion) agreed in the final months of Gordon Brown's administration.

Plans halted include a proposed 25 million pound (US$38 million) visitor center for the famous prehistoric monument Stonehenge, in southern England, where last month thousands gathered to mark the summer solstice in a treasured annual ritual.

In Ireland, three emergency budgets in two years have cut infrastructure spending 35 percent annually to euro5.5 billion in 2010. That's meant slowdowns on Ireland's entire program for building roads, schools and public transportation. The biggest casualty has been plans to build a subway link between central Dublin and the city's lone airport.

The private sector, too, is losing the drive to invest in brick and steel. Plans for what would have been Ireland's tallest building -- with new recording studios for supergroup U2 on top -- were scrapped in 2008 because of slumping property market.

Since World War II, generations of European policymakers have built up deficits by spending billions on infrastructure and generous social welfare systems. They mortgaged the future, gambling that growth would keep pace with, or outpace, the debt. It hasn't, and Europe's next generation is facing a staggering bill unless governments cut spending somewhere soon.

"The debt crisis didn't provoke these problems, but it is making them more difficult," Francois Rachline, director of the Institut Montaigne, said in an interview.

Infrastructure, while it doesn't sound alluring, is crucial to any economy. Germany's government is spending euro14.8 billion for infrastructure investment this year, including euro5.7 billion on the Autobahn and local highways. Some 175,000 people work for France's SNCF rail authority, which is spending euro5.1 billion to maintain its 2,000 kilometers of TGV high-speed train service this year.

Infrastructure spending can be good economic stimulus. While the payoff takes time, the money is mostly used to purchase domestic goods and raw materials and pay salaries in the home market.

President Barack Obama made infrastructure a key part of the U.S. stimulus package, including $8 billion for high-speed rail projects. Germany earmarked euro13.3 billion for infrastructure in its stimulus package last year.

Economist Simon Tilford at the Center for Economic Reform said the cumulative impact of several years of predicted weak growth "will be considerable over the next decade, 15 years," especially in physical infrastructure and education.

"What I fear is that the cuts will be made in the wrong places," he said, and hurt "many of the things that make Europe a good place to do business and have a high standard of living."

[Associated Press; By ANGELA CHARLTON]

Associated Press writers Melissa Eddy in Berlin, Shawn Pogatchnik in Dublin, Barry Hatton in Portugal, Derek Gatopoulos in Athens, Pablo Gorondi in Hungary and Harold Heckle in Madrid contributed to this report.

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