Juncker to rally divided, post-Brexit EU, push investment

By Alastair Macdonald

STRASBOURG (Reuters) - The president of the European Commission, Jean-Claude Juncker, will try to rally support for the European Union, a project battered by the UK Brexit referendum and divided over the way forward when he makes his annual State of the Union address on Wednesday.

Among policies he will propose to the European Parliament in Strasbourg will, EU officials said, be a major extension to the European Fund for Strategic Investments (EFSI), as well as a new fund to foster the private sector in Africa as way of curbing emigration to Europe, along with initiatives to promote the expansion of high-speed Internet and a single market in digital services.

In setting out the Commission's plans for the first time since the UK voted to exit the EU on June 23, Junker is likely to highlight the British referendum as a warning that the EU faces a battle for survival against mounting nationalism in Europe.

He will argue for the benefits of the Union as a mechanism for maintaining peace and evening out economic hardships, stressing a positive agenda to try and reconnect with voters disillusioned by years of austerity and fearful of terrorist violence and mass immigration.

But the Juncker address will offer few clues to the negotiations with London that the EU insists cannot start until Prime Minister Theresa May formally sets starts a two-year countdown to British departure. A summit of the 27 EU leaders in Bratislava on Friday is also unlikely to shed much light on the Brexit issue.

Instead, Juncker will warn that the remaining EU governments should narrow their differences on addressing many problems facing their economies and societies. Aides to the former Luxembourg premier say he believes the divisions are as great as he has known them in three decades at the heart of EU politics.

With Germany and France both facing major elections in the coming year, major changes in the Union are unlikely, but EU officials are concerned that left-right political tensions over fiscal policy in the euro zone or divisions over taking in refugees will jeopardise the cohesion of the bloc.

Junker will also urge states to complete the setting up of a European Border and Coast Guard, a project driven by last year's chaotic arrival of over a million migrants and refugees, and propose new cooperation among EU armies, as well as pushing for an acceleration of capital markets union.

EFSI SUCCESS CLAIM

Claiming success in fostering investment by the application of seed capital and guarantees from the EU and national governments, the Commission will propose doubling the size and duration of the European Fund for Strategic Investment (EFSI).

Set up last year to run for three years until 2018 with a target of mobilising 315 billion euros of investment, Juncker will confirm the aim of doubling the amount and extending EFSI for three further years. Its target is based on 21 billion euros of EU money being leveraged 15 times by other investors.

However, as the EU's current, seven-year budget programme ends in 2020, the total target will rise to 500 billion euros for five years and the Commission will call on member states to add to their contributions.

Juncker is also expected to announce several billion euros of EU funding for a similar investment scheme in Africa that would seek to leverage some 40-90 billion euros there, partly to encourage Africans to remain at home and not travel to Europe.

The address is due to begin shortly after 9 a.m. (0700 GMT) and will be followed by interventions from lawmakers.

(Reporting by Alastair Macdonald; editing by Clive McKeef)