In a cross-party debate organised by the European Environmental Bureau and CAN Europe, five members of the European Parliament discussed how to best balance environmental, social and fiscal sustainability. The debate highlighted areas of convergence and divergence among political parties.
MEPs in the panel agreed that we need forward-looking EU fiscal rules, fit for future challenges; that the quality of public spending is crucial; and that we will need more investments in climate action – even if there may be disagreement on how much public and private finance can and should respectively contribute to close the green funding gap.
This blog is a recap of the event but does not necessarily reflect the ideas and demands of CAN Europe and the European Environmental Bureau. Find further resources at the end of this article.
Panelists seem to agree that the Commission’s Orientations and the Conclusions adopted by Member States’ Ministers of Finance in March 2023 go in the right direction. They largely reflect the July 2021 position of the European Parliament. Changing the speed of debt reduction (the 1/20 rule) and the use of unobservable variables (move to an expenditure rule) were welcomed, while having medium-term national fiscal trajectories was also considered a positive step.
However, the debate showed that the reform contemplated will be insufficient to allow Member States with a relatively high debt to make the investments needed in the green and just transition. Therefore, most of the panelists agreed that additional fiscal space will have to be generated through a permanent EU fiscal capacity and a new EU fund. The question, however, is how a new EU debt would be paid back, stressed Ludek Niedermayer (European People’s Party). Niedermayer also stressed that most of the investments needed for decarbonisation should come from private finance, and that we need to find ways to better mobilise these funds.
Whether to build-in more flexibility for Member States to deepen their debt and deficit in the EU fiscal rules themselves was contentious, with Niedermayer expressing satisfaction that there will be no proposal to exclude some expenses from the calculation of the deficit (so-called golden rule). Other panelists considered that there is no economic justification behind the 3% deficit-to-GDP and 60% debt-to-GDP rules and that these rules are “stupid” and need to be scrapped . Philippe Lamberts (European Greens) in particular expressed concern that “Churchill would have surrendered in 1940 if such rules [limiting public spending] would have been in place then”. He stressed that Europe faces many challenges with the Russian war at our doorstep, and climate change threatening us. Therefore, it is impossible to say that we are back to ordinary times, despite the end of the pandemic. The EU economic governance framework needs to be fit for addressing long term threats and needs. The challenge, he said, is to make sure we can make the public investments needed without compromising the solidity of public finances. He also added that to make the rules fit for purpose, we need to use different economic models as the classical ones have a track record of not matching the reality.
Margarida Marques (Socialists & Democrats) concluded that we have two options. Either we increase flexibility in the EU fiscal rules to allow Member States to spend more even if it increases their public debt, or we keep strict EU fiscal rules and allow for investments outside the rules through an EU fund and an EU debt. She said she would like more flexibility built into the rules. She considers, however, that we will also need EU permanent fiscal capacity to support investments and reforms and the implementation of the Country-Specific Recommendations (CSRs). It would also constitute a useful macro-economic stabilisation mechanism in the face of future shocks. The sovereignty fund should be part of such a new EU fund, she added.
Manon Aubry (The Left) reminded that while we need rules to coordinate Member States’ economies, it is also important to ensure that the Semester does not end up promoting neo-liberal policies as studies have shown it did in the past, i.e. cuts in pensions, social protection or healthcare. We therefore need other social and environmental criteria than the debt and deficit caps from the Maastricht Treaty to assess Member States’ public finances. Aubry concluded that we need more public drive to carry the transition, and that we are at a perfect time to change the EU fiscal rules.
All panelists agreed that the quality of public spending is crucial and ending useless or environmentally harmful spending is a necessity. However, Niedermayer considered that it comes down to how priorities are reflected in national spending decisions. Eva Maria Poptcheva (Renew Europe) referred to the need and possibility to decouple GDP growth and CO2 emissions. She therefore stressed the role that the Do No Significant Harm Principle could play to ensure that investments and reforms are good for the climate and the environment, and reminded the importance of the taxonomy. Potcheva also stressed the importance of State aid to support companies’ competitiveness, but also the risk of a fragmented approach within the EU, with some countries with more capacity to provide state aid to their industries than others. Poptcheva alluded to the role that environmental conditionalities going with State aid could play, though she also stressed the need to make sure European businesses are competitive, i.e. not putting too many conditions on them.
To conclude, Fiscal rules will not solve everything… But they are a very important piece of the puzzle!
A plenary debate on the reform of the EU economic governance will be held on 17 May 2023 as part of the beyond-growth conference in the European Parliament.
To learn more about CAN Europe’s position, read:
Seven EU economic governance reforms for a stronger, greener and more resilient Europe
How to stop the never-ending nightmare: New report tracks fossil fuel subsidies in the EU
From Maastricht to Paris: Why climate change should be considered in a reformed EU fiscal framework