European Union Fiddling Their Own Rules to Fund the Climate Revolution

Spread the love

Guest essay by Eric Worrall

EU rules designed to prevent out of control spending are in tatters, as top EU officials conspire to circumvent their own fiscal rules and breach debt limits, to fund the green energy transition.

EU budget offers debt loophole to battle climate change

Policymakers are trying to turn the economy green while keeping EU finances in check.

BY BJARKE SMITH-MEYER January 14, 2022 6:45 pm

The EU’s €1.2 trillion war chest — also known as its long-term budget — has emerged as a possible workaround on how to finance the expensive fight against climate change despite carrying heavy debt from the pandemic.

Failing to plug that green hole would see Europe fall short of its own green goals and risk damaging its credibility as a global force for climate action. The EU budget could be the solution to avoid that dilemma, according to the head of the International Monetary Fund.

Under normal circumstances, governments must cap their budget deficits to 3 percent of GDP and try to limit their debt to 60 percent under an EU fiscal framework called the Stability and Growth Pact, or SGP. Those rules have been on ice since March 2020 to ensure governments could battle the pandemic without fear of punishment from Brussels and enact stimulus programs that pushed debt levels up to uncomfortable heights.

Golden rule loses shine

The EU budget could neutralize that threat by providing capitals with a cash pot they can request money from by presenting spending plans with specific targets that Brussels can police. “It’s such an obvious candidate,” one of the EU officials said on the condition of anonymity, as no decisions have been made. “Carbon dioxide doesn’t care about borders.”

It might also be an attractive alternative to another approach — floated by some think tanks — that would introduce a “golden rule” that omits green investments from the SGP’s deficit cap. That pitch is losing traction amid fears that it would encourage greenwashing.

“Everything magically becomes green,” said Marco Buti, who heads the cabinet for Economy Commissioner Paolo Gentiloni, on Wednesday during an online debate on the deficit.

Read more:

Stagflation and hyper-inflationary pressures do not care about what is in the hearts of the bureaucrats who sign the cheques, it does not matter if bureaucrats believe they have the best of intentions, when they parachute too much money into the economy.

The road to hell is paved with good intentions.

The ongoing collapse of the Turkish Lira right on the border of the European Union, is a clear and present lesson on how easily ordinary people can lose confidence in a fiat currency. Those fiscal rules were created for a reason.

via Watts Up With That?

January 17, 2022