A report from the New Economics Foundation examines the challenge of harmonizing the European Green Deal with bloc financial rules.
After the introduction of reformed fiscal rules, only nine of the European Union’s 27 member states will be able to afford enough to meet the investments needed to meet the bloc’s climate targets, according to a new report. The report warned.
Findings released on Friday New Economics FoundationBritish think-tank presents the longstanding conundrum of the European Green Deal. It’s a way to free up the billions of dollars needed to decarbonize the entire economy while adhering to legally binding ceilings on fiscal deficits and government debt.
Finding that balance seems to be a privilege reserved for a very few, research shows.
Denmark, Ireland, Latvia and Sweden became the only EU member states with the necessary financial headroom to meet the bloc’s comprehensive climate targets and fully respect the terms of the Paris Agreement, while Bulgaria, Estonia and Lithuania , Luxembourg and Slovenia manage to reach their goals. The former but not the latter.
This leaves some of Europe’s largest economies such as France, Italy, Spain and the Netherlands woefully short of resources to meet the climate agenda in time.
Under the Green Deal, the EU has set an ambitious goal of reducing greenhouse gas emissions by 55% by the end of 2010. Estimate It calls for a staggering 520 billion euros of additional investment on an annual basis.
The New Economics Foundation uses the €520 billion figure as a baseline estimate, but also takes into account additional investments in social infrastructure and the digital transition, which together contribute to the EU’s Gross Domestic Product ( equivalent to 2.3% of GDP).
The report then takes a closer look at the EU’s fiscal rules. The rule requires all member states to keep their fiscal deficit below 3% of GDP and their government debt below 60%.
Dating back to the late 1990s, these thresholds represent years of heavy spending to mitigate the worst effects of the COVID-19 pandemic, Russian aggression in Ukraine, skyrocketing inflation and record energy prices. As a result, it is now exceeded in many countries. .
European Commission announced this week A long-awaited proposal to reform the rules, based on a medium-term structural plan for capitals to negotiate with Brussels to gradually consolidate their finances. The review aims to give governments greater ownership and flexibility, but the latest proposals make it clear that debt levels will be visible at the end of the four-year plan, regardless of a country’s specific circumstances. It introduces a set of mandatory benchmarks that guarantee low.
An analysis by the New Economics Foundation found that neither current rules nor proposed reforms are sufficient to inject enough oxygen into climate change investments, with a majority of member states calling for a Green Deal and fiscal oversight. I am in need of an adjustment.
In fact, five countries – Austria, Cyprus, the Czech Republic, Malta and crucially Germany – are struggling to attract minimal green investment and stay below deficit limits.
Meanwhile, the remaining 13 member states, which account for 50% of the bloc’s GDP, are unable to balance climate and fiscal challenges. Even states like Poland, Romania and Slovakia, whose debt levels are already below 60%, will need even greater financial support to transform their carbon-intensive economic models and will be short.
“These governments will have to choose between cutting public spending, increasing taxes, or making insufficient green investments,” said co-author of the report Sebastian Mann. ‘ said.
Mang talks about the “contradiction” between the “real economics” of climate change and governments being forced to reform society at large and the EU’s “overly restrictive” fiscal rules. rice field. debt.
In response to the report, a European Commission spokesperson denied the existence of such discrepancies and declined to comment on “any simulation” of the proposed reforms.
“The very raison d’etre of our proposal to reform the economic governance framework is to put two objectives on par. On the other hand, it is about increasing sustainability, and comprehensive reforms and investments that promote common EU priorities, such as the European Green Deal,” a spokesperson said on Friday.
The EU has previously said that “most” of the €520bn needed to cut emissions by 55% will come from the private sector.
“Public investment is central to scaling up,” Mang said.
“We must not be afraid to recognize the crucial role public investment plays in creating and shaping markets for a fairer and more sustainable economy.”
While acknowledging that the European Commission’s reforms on a country-by-country basis are moving in the “right direction”, Mang suggested two important changes to the draft text.
The first is the so-called “Golden Rule”, a legal exemption that limits spending on climate projects from debt and deficit accounting. And second, a permanent facility funded through common EU debt for all countries, especially those with high debts, to secure a line of credit to pay for their environmental transition. .
The committee has already rejected the first proposal. claiming The second, which it said was “too controversial” and meant new borrowing, GermanyNetherlands, Denmark, Finland.