Reform of the EU economic governance Missing the mark on climate is not an option

The Orientations proposed by the European Commission in November 2022 to reform the EU economic governance, if not improved, risk deepening the climate crisis. While they make austerity less brutal and give more leeway for Member States to invest, they do not propose anything to ensure that this fiscal leeway will be used to tackle climate change and implement a just transition. They also miss linking the European Semester with green budgeting processes at national level, which means that fossil fuel and other environmentally harmful subsidies could continue to thrive, and even expand.

Human-induced climate change is the largest, most pervasive threat to the natural environment and human societies the world has ever experienced.1 Climate change is relevant to the EU economic governance:

– By encouraging indiscriminate GDP growth to reduce the debt to GDP ratio, the European economic governance framework is promoting an economic model which is not aligned with a 1.5°C trajectory and EU climate commitments. A vague requirement that Member States align their fiscal-structural plans with their future National Energy and Climate Plans (NECPs) is utterly insufficient to ensure this will effectively drive the European economy away from fossil fuels, endless natural resources extraction and environmentally harmful technologies.

– Climate change threatens the sustainability of public finances, as such it is a source of systemic risk for the sustainability of public deficit and private and public debt.Public and private investments now in the just and green transition at scale would reduce future climate risks and their cost for the public purse.

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