Commission: Why its Stability Pact proposals are boosting green growth – Economic Post

Commission: Why its Stability Pact proposals are boosting green growth – Economic Post

New EU rules limiting public borrowing would prevent all but four European countries from investing enough to meet their Paris climate commitments and limit global warming to 1.5 degrees Celsius, according to a study by the New Economics Foundation ( NEF), published today. These countries represent barely 10% of the bloc’s GDP.

In order to meet the EU’s more restrictive climate targets of cutting emissions by 55% by 2030, the proposed borrowing rules would leave 13 countries, representing half of the bloc’s GDP, unable to invest enough.

Stability Pact: finance ministers study EU proposals

Green inequality

The NEF report argues that without changes to EU lending rules or new funding at EU level to support member states with higher debt and deficits, green industrial policies are likely to lead to more great economic inequality between countries. He also argues that it will prevent a large proportion of member states from being able to invest enough to keep pace with other major global economies such as the United States and China.

The Commission’s proposals for the new Stability Pact – What it says about deficit and debt

The research finds that under the new rules, the EU will see a larger gap between countries that have the fiscal space to increase climate investments and those that do not. Report finds that only Ireland, Sweden, Latvia and Denmark could practically increase public investment by 3% of GDP and stay within EU spending limits, allowing them to meet Paris commitments for the climate. However, countries like France, Italy, Spain and Belgium could not achieve even modest increases in investment without a significant reduction in other public spending or a significant increase in taxes to trigger the necessary climate spending. .

Commission proposals

The report’s authors report that this week the European Commission proposed legislation to introduce new lending rules. The legislative proposal is close to what the Commission announced in November, but includes several other borrowing restrictions and debt reduction proposals. Since March 2020, EU lending rules have been suspended in response to the Covid-19 pandemic and the Russian invasion of Ukraine. The suspension will be lifted at the end of the year. Despite individualized debt reduction trajectories for each member state, the proposed new rules still require member states to significantly reduce their medium-term debt and set a strict limit on deficit spending. In response to recent US legislation, the European Commission proposed the Green Deal program in February, which includes green production targets, a temporary relaxation of state aid rules and a redefinition of funds for sovereign wealth funds. common Europeans.

The report believes that the European Commission should follow the example of the United States by setting binding conditions for companies receiving public funds. This should include calls for decarbonizing supply chains, limiting dividend payments and executive compensation, and reinvesting profits to address the climate crisis. Governments should retain a stake in companies that receive public funds in order to recoup their investment and incentivize companies to reduce their carbon emissions.

The report also concludes that the Commission should champion the bloc’s climate goals by excluding climate-related spending from EU borrowing rules and establishing new joint EU borrowing for inclusive climate policy.

The NEF report finds that under the proposed EU lending rules:

Only four countries, accounting for barely 10% of EU GDP, could practically spend enough to meet the most ambitious targets set in the Paris climate agreement to limit global warming to 1.5°C: the Sweden, Ireland, Denmark and Latvia.

Five countries could increase their spending at least enough to meet the more limited agreed EU climate targets, but not the spending needed to meet the Paris climate agreement: Luxembourg, Bulgaria, Lithuania, Slovenia and Estonia.

Five other countries could increase spending enough to meet EU climate targets, but are currently classified by the Commission as medium debt risk countries and could face spending constraints: Germany, Austria, Slovenia, Cyprus and Malta.

13 countries, representing 50% of EU GDP, would not be able to invest enough to meet even the EU’s limited climate targets without exceeding debt or deficit limits. These countries are: France, Italy, Spain, the Netherlands, Poland, Belgium, Finland, the Czech Republic, Portugal, Greece, Hungary, Romania and Croatia.

“The EU has the opportunity to develop an industrial strategy that paves the way for a green and fair economy that everyone in Europe can benefit from. But the EU has been hindered in two ways. First, with its own strict lending rules, which limit its potential and may increase economic inequalities between member states. And secondly, to propose a green industrial strategy without climate or social requirements on companies receiving public money”, commented Sebastian Mang, analyst at the New Economics Foundation (NEF) and added: “The European Commission should take inspiration from America’s book and allow more borrowing for climate action, alongside tough terms for companies with government support.

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