134 civil society organizations, trade unions and think tanks based in the 27 countries of the European Union have sent a manifesto for a new European economic governance to the finance ministers of the EU. They call for European budgetary rules to focus on a fair economy that respects global limits. They are supported by 120 academics including Olivier Blanchard. The former IMF chief economist stresses: “We need rules that avoid excesses but without unnecessarily constraining fiscal policy and public investment. The existing rules, introduced in a different context, are no longer appropriate.“
This massive mobilization of civil society and trade unions originating from all Member States reflects an unprecedented awareness: debates among Europeans on public budgets can no longer be focused solely on reducing public debt, but on each country’s contribution to achieving Europe’s social and environmental objectives.
All Member States now face a humanitarian duty to take in Ukrainian refugees. Rising energy prices will require new budgetary measures to support economic activity and employment and to prevent millions of EU citizens from falling into monetary, food and energy precarity. We must also accelerate the development of renewable energies, in particular to rapidly replace the gas, coal and oil that Europe still imports from Russia. We must accelerate the insulation of public buildings, encourage, and help households to insulate their homes and move around without fossil fuels, encourage and, if necessary, help companies to become climate neutral, respect biodiversity and recycle limited natural resources.
To deal with the social and economic consequences of the pandemic, budgetary rules inherited from another time had to be suspended. Reintroducing them before they have been thoroughly reformed would be an insurmountable obstacle to the collective action that now needs to be accelerated.
But the best fiscal rules will not be synonymous with good policies. We have pointed out in an earlier blog and note that Member State governments and administrations have not yet adopted the rigorous methods needed to design, implement, and monitor the fiscal policies necessary for transition. We have also highlighted in a 10-point reform proposal the importance of linking the reform of fiscal rules to the adoption of such methods.
We pay upfront this lack of rigor in the method – or is it mainly a lack of political will? Not only because we will have to speed up the transition in the storm without having yet created a consensus on what is both efficient and fair. But also, because it leaves governments lacking relevant and fair instruments to deal with the massive rise in fossil fuel prices. The rebate at the pump introduced by some countries, including France and Germany, or the reduction in tax rates introduced in most of the Member States over the last months are unfair and counterproductive measures. Unfair because they do not discriminate between beneficiaries according to revenue and needs as determined by the possibility to switch to another transport mode. And they are counterproductive because they do not encourage those who could to reduce their fuel consumption. But it is impossible to improvise in the middle of a crisis an intelligent aid that relieves the short-term income of those who need it most and enables them to become independent from fossil fuel in the medium. It should have been prepared for.
The reform of economic governance will be incomplete if it does not encourage Member States to program budgets and policies rigorously for efficiency and democratically for justice. This is the sense that must be given to this unprecedented mobilization of civil society.