According to a study, the new European debt rules planned by the EU Commission can inhibit investments in climate protection – and thus lead to competitive disadvantages. According to the New Economics Foundation (NEF) analysis presented on Friday, many countries in Europe will not be able to invest in green industrial policies without having to cut other spending or increase taxes. The experts criticized that the climate targets could not be achieved as a result.
The inequality in the EU continues to grow: If some countries could invest significantly more than others, the differences in economic power would become even greater in the future, the scientists warned.
Only four EU countries could increase GDP
The background is the so-called Stability and Growth Pact, which prescribes upper limits for the EU countries. The Commission presented reform proposals on Wednesday, according to which heavily indebted European countries should be given more flexibility in reducing their debt.
According to the proposal, the previous goals of limiting debt to a maximum of 60 percent of economic output and keeping budget deficits below 3 percent will remain in place. Due to the Corona crisis and the consequences of the Russian attack on Ukraine, the rules were temporarily suspended until 2024.
Under the new proposed rules, only four EU countries, Ireland, Sweden, Latvia and Denmark, would be able to increase public investment by three percent of gross domestic product (GDP) and thus meet the Paris climate targets without breaking the debt rules . 13 countries, which collectively generate half of the EU’s GDP, could not increase investment by 1 percent without cutting elsewhere or raising taxes.
Germany could therefore increase its spending nearly enough to reduce emissions more quickly. However, since the Federal Republic is assessed by the Commission as a country with a medium debt risk, restrictions could possibly apply here.
“Austerity is in the way”
NEF expert Sebastian Mang said: “The EU and Germany have the opportunity to be global leaders in overcoming the climate crisis and green industrial policy and thus bring good jobs to Europe. But austerity policies stand in the way.” The governments of other major economies, such as the US, China and Japan, acted differently. Mang suggests exempting green investments from debt rules as a possible improvement.
Germany, the new proposals do not go far enough. In the months-long debate about new rules, the Ministry of Finance had spoken out in favor of relatively strict minimum requirements for debt reduction. This is problematic if Europe wants to survive in the international competition for green industry and jobs and ensure that all member states can benefit from it, it said.
For the analysis, the experts examined different scenarios of spending increases to meet the need for green spending until 2027. This was based on assessments by various think tanks, the International Monetary Fund and the European Commission. In order to meet the requirements of the Paris climate agreement, they used a scenario in which the EU spends a total of three percent of GDP on climate spending.
