Wednesday

8th Dec 2021

Opinion

EU Green Deal is too dependent on private finance

  • Storm clouds over the Berlaymont. The €1 trillion figure for the European Green Deal is 'unfortunately mainly a sales pitch and the result of creative accounting' (Photo: Valentina Pop)
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The European Green Deal (EGD) is often presented as the single-hit solution to the myriad of problems we face in our modern times, whether it's climate, economy, equality, innovation and technology. Following the outbreak of the Covid-19 pandemic, the EGD has now become the primary tool for economic recovery at European level.

While this deal might hold some significant promises (but also risks), a fundamentally weak aspect of the EGD is often overlooked: its financing is not up to making it a game-changer.

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The financing that is to pull the EGD off was announced in January 2020: the Sustainable Europe Investment Plan (SEIP) which aims to mobilise €1 trillion up to 2030.

In practice it is made of several financing pillars, starting from around €500bn from the EU budget which should be the bulk of the SEIP.

It also includes Invest EU, a new guarantee fund providing guarantees from the EU budget to back investments of the European Investment Bank (EIB) and national public banks, as well as several smaller instruments like the new Just Transition Mechanism and the Innovation and Modernisation funds.

What's on the table though is an undersized and wobbly investment plan, as the €1 trillion figure is unfortunately mainly a sales pitch and the result of creative accounting.

It is in fact the amount that the EU wants to leverage from other investors, not the amount that would actually be directly invested. This isn't the first time the European Commission has employed a similar strategy, as it was already the case with the investment targets under the Juncker Plan.

'Bankable' projects

In particular, the SEIP holds a strong bias in favour of the private and financial sector. The focus on bankable projects and leveraging private resources has come at the expense of playing a stronger role in furthering transformative policy orientations.

The approach of turning projects into bankable ones ignores the fact that a majority of the needs for ecological transition will simply not be bankable and offer any return on investment.

The sustainable finance agenda associated with the SEIP also risks reinforcing the financialisation of our economies, at the expense of the real economy and furthering inequalities within and between countries.

Add to this challenges on corporate capture and a lack of transparency and public participation in how investments are decided upon, and it is clear that there are several big question marks concerning the European Green Deal and what the goal of public finance should be.

What we call for is another approach to EU public investments and the financing of the EGD, one working towards the decarbonisation, de-financialisation and democratisation of our economies and societies.

While a lot of attention is being paid to decarbonisation, the other two aspects - de-financialisation and democratisation - are largely ignored.

A new type of public intervention into the economy is needed, one whose primary aim is to de-financialise the economy by progressively re-absorbing wealth fluctuating on private capital markets.

This is where operations backed by public finance led by institutions such as the European Investment Bank or funds managed by the European Commission could make a difference.

Thus the problem is not simply one of having governments reverting to the use of fiscal policies and publicly-owned financial institutions to boost public investments. It is not only a matter of pumping more money into the right investments, but also of how to subordinate the remaining majority of private finance to the logic and functioning of these much needed societal investments.

This is precisely the opposite of what is happening today when European institutions use the leverage of public funding to attract large amounts of private capital and to finance interventions which are managed by and generate wealth solely for private capital markets and not the majority of the population.

Reclaiming private wealth for the common good is urgent, but it should be placed into renewed public investment banks - in particular at local, regional and national level - and mechanisms designed to avoid the mistakes of the past.

The financing pillar of the European Green Deal could for instance fund cooperatives or other actors in the social and solidarity economy sector to set up community-led banks that invest directly in their local and sustainable economies.

It is high time for the EU institutions and European governments to prioritise the real economy over the financial sector, by focusing investments on essential public services and goods and putting social justice at the heart of the European Green Deal.

Implementing strict social and environmental conditions to all funding provided under the Green Deal is also necessary to shield these funds from falling victim to "greenwashing".

These are prerequisites for making any public investment plan under the European Green Deal sustainable and accountable to public interest goals in the long run.

If democratised and re-centred around the public good, the EGD and its financing could become an important opportunity to use public money for a truly just ecological transition that meets the needs of people and their territories. In that struggle, reclaiming public finance has a central role to play.

Author bio

Xavier Sol is director of the NGO Counter Balance, a European coalition of development and environmental non-governmental organisations with extensive experience working on development finance and the international financial institutions (IFIs). Their mission is to make European public finance a key driver of the transition towards socially and environmentally sustainable and equitable societies.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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