EU’s new fiscal rules impede fight against climate change: report

The new EU rules for national debts and deficit would hamper member states’ ability to make the public investments needed to effectively combat climate change, a new study commissioned by the Greens/EFA group in the European Parliament found.

Speaking at a press briefing on Tuesday (30 January), Philippe Lamberts, co-president of the Greens/EFA group, stressed that the fiscal rules currently being negotiated in ‘trilogue’ discussions between the European Commission, Parliament, and Council would render it “legally impossible” for the bloc to achieve its goal of full decarbonisation by 2050.

Echoing earlier comments, he accused the EU of being run by “religious fundamentalists” following “suicidal” policies.

The rules, which European trade unions have vehemently condemned, include individual ‘expenditure paths’ for each EU country to reduce debt and deficits to the limits given in the EU treaties.

As proposed by EU countries’ finance ministers, they would also require member states with public debt-to-GDP ratios above 90% to reduce their debt burden by one percentage point on average per year, while EU countries with debt-to-annual GDP ratios between 60% and 90% cut their debt ratios by 0.5 percentage points on average annually.

Thirteen of the EU’s 27 member states currently have debt-to-annual GDP ratios above the 60% target set in the ‘Stability and Growth Pact’, the previous set of budget rules; the EU’s total debt-to-annual GDP ratio is 83.5%.

However, according to a new study by the Rousseau Institute, a French think tank commissioned by the Greens/EFA group, member states will almost certainly have to issue substantially more debt to finance the green transition over the next quarter-century.

In particular, the report found that additional public investments worth €260 billion per year, or 1.6% of Europe’s annual GDP, are needed for the bloc to reach its net-zero objective by 2050. The study added that extra private investments amounting to €100 billion per year will also be required. 

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Ahead of a vote in the European Parliament on new debt rules for EU countries, the Greens co-president Philippe Lamberts warned against the “end of the European Union as we know it” in a worst-case scenario where renewed austerity gives rise to populists and too little military spending lets Putin win the war in Ukraine.

Many investments ‘not profitable’

Guillaume Kerlero de Rosbo, one of the study’s lead researchers, stressed that significant public funding is needed because many of the required investments “are not profitable enough” for the private sector to finance alone, particularly in the building renovation and heavy industry sectors.

“The invisible hand of the market won’t do the job alone,” Kerlero de Rosbo said, adding: “In the short term, member states will need financial margins to take actions, and that’s why we think that the ongoing reform on the European fiscal rules do not allow this extra investment to be made.”

Kerlero de Rosbo’s remarks were echoed by Lamberts.

“[The rules are] are suicidal,” Lamberts said. “Suicidal. There is no other word that would characterise them best. And I am going to be in the trilogue tonight between the Council and Parliament [where we will] basically [discuss]: How are we going to cut two legs and one arm and then go about facing the challenges of the 21st century?”

He added: “Yes, we need private investment. Absolutely. But it’s a fallacy to think that, indeed, the extra investments will just come from the private sector… Without massive public support, the renovation wave will not happen. And that runs totally counter to the neoliberal ideology that says that the state is inefficient and markets know best.”

While the study assumes almost three-quarters of investments for climate neutrality to come from governments, many mainstream economists, however, expect much higher ratios of private investments to reach the EU’s climate targets.

“We cannot operate a system where we continually rely on massive public debt because we will not be able to sustain this for long as a European Union,” Veronika Grimm, member of the German Council of Economic Experts, said in December, adding that “then we will be hit by sovereign debt crises long before we are climate neutral”.

Instead, she called to mobilise more private investments, including from richer households, by increasing the price of oil and gas through higher carbon prices – a move initially rejected by the Greens in the European Parliament and still dividing the group.

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The French Greens in the European Parliament are expected to reject the proposed extension of the EU’s carbon market to transport and heating fuels when the matter comes to a vote in Strasbourg on Tuesday (18 April).

‘An ideologically blinded accountant’

During the briefing, Lamberts made repeated historical analogies to the present moment.

At one point, he reiterated a claim made earlier this month in comments to Euractiv and EUObsever that the EU’s current leaders resemble the “sleepwalkers” who led “Europe into the abyss” of the First World War.

At another, he compared the fight against climate change to the Allies’ efforts to defeat Nazi Germany during the Second World War – and highlighted the absurdity of policymakers adhering to fiscal strictures when confronted with challenges of existential significance.

“Just imagine that this discussion would have happened under the constraint of the European fiscal rules,” he said.

“Well, the Chancellor of the Exchequer would have gone to Churchill saying, well, you know, as much as you may like to continue the fight, you have to give up because of fiscal rules [even though] it is vital, vital for societies, vital for the economy, vital for the future. Sorry, but you cannot look at reality with the eyes of [an] ideologically blinded accountant.”

Debt rules will affect the most vulnerable, EU trade union chief warns

The new EU rules for national debts and deficits will limit member states’ ability to act on climate change in a socially fair manner, the secretary general of the European Trade Union Confederation (ETUC), Esther Lynch, told Euractiv in an interview, warning against a return of austerity across the bloc.

[Edited by Jonathan Packroff / Alice Taylor]

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