STOCKHOLM – A few days after the presentation by the European Commission of the proposals for the reform of the Stability Pact, a report by the New Economics Foundation has expressed doubts on the ability of many countries to achieve the climate objectives of the Paris Agreement, in a context in which fiscal rules remain restrictive.
The research, developed by a British research institute founded in 1986 and dedicated to “social, economic and environmental justice”, underlines an aspect already highlighted by some political forces in the European Parliament.
The ambitious community strategy in the environmental field runs the risk of being very costly at national level and would require the creation of new financial instruments at European level. The objectives of Brussels’ proposals are to impose a consolidation of public finances, while promoting new investments in the meantime. Notes Sebastian Mang, one of the authors of the report: «The proposals are more restrictive than expected. In addition to a minimal fiscal adjustment, the draft legislation includes the obligation to keep public spending below potential growth”.
Multi-speed Europe
According to the New Economics Foundation, just four countries, equal to 10% of Europe’s GDP, would be able to spend enough to meet the targets set in theParis climate agreement, in order to limit global warming to 1.5°C. These are Sweden, Ireland, Denmark and Latvia. Only five other countries – Luxembourg, Bulgaria, Lithuania, Slovenia and Estonia – have budget margins to reach the less ambitious European targets.
Also according to the research, 13 countries would be unable to invest enough money to achieve even the most limited climate goals of the European Union without breaching debt or deficit limits. These are France, Italy, Spain, the Netherlands, Poland, Belgium, Finland, Slovakia, Portugal, Greece, Hungary, Romania and Croatia.
Three possibilities for the EU
In fact, and on the basis of these premises, the European Union would have three possibilities. The first is to revise the budget objectives in a less restrictive sense. The second is to make climate targets less demanding. The third is to shift the financial burden to the European level (note: Italy has clear difficulties in spending the money already available). In this context, the New Economics Foundation proposes that governments maintain an equity stake in companies that receive public money, to recover their investments and influence companies to reduce carbon emissions.