Analysis: EU debt rules can disrupt achievement of climate targets

According to an analysis, the new European debt rules planned by the EU Commission stand in the way of achieving climate goals.

Analysis: EU debt rules can disrupt achievement of climate targets

According to an analysis, the new European debt rules planned by the EU Commission stand in the way of achieving climate goals. The rules demanded by the Brussels authority "endanger the public investments that are necessary to combat climate change," according to a study published today by the New Economics Foundation (NEF).

According to the authors' calculations, even the most indebted countries in the EU could spend at least 135 billion euros per year on green investments and still reduce their debt burden in the 2030s. This expenditure is necessary if the member states want to achieve the EU's climate targets.

Green investments good for economic growth

A reform of the debt rules is currently being negotiated in the EU. They impose upper limits on the states. In essence, they envisage limiting debt to a maximum of 60 percent of economic output and keeping budget deficits below 3 percent.

Due to the Corona crisis and the consequences of the Russian attack on Ukraine, the rules in force up to now have been suspended until 2024. In the reform proposals presented in mid-April, the Commission proposed giving highly indebted countries more flexibility in reducing debt and deficits. The positions of the states on this sometimes differ widely.

The rules proposed so far would discourage countries from making green investments that create more value in the long run, the authors wrote: An analysis by the International Monetary Fund (IMF) shows that green investments have an above-average positive effect on economic growth compared to other public investments have.

The severity of the climate crisis visible to all

Building on this, the authors conclude "that the debt ratio of countries falls even if they make green investments and at the same time run a deficit". Curbing spending to mitigate climate change now means governments will need to spend more money on adapting to the effects of climate change in the future, the authors said. NEF expert Sebastian Mang said deadly heat waves, devastating wildfires and catastrophic ones Floods this summer once again made the severity of the climate crisis visible to everyone. "The EU is missing the big picture by focusing on arbitrary debt reduction targets that constrain green spending instead of boosting green investment." However, Europe urgently needs this in order to convert the economy and invest in climate-friendly public services.

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