Achieving climate transition and European social investment objectives, or respecting budgetary rules, we will have to choose. A study by the European Trade Union Confederation (CES), published Monday March 8, points out that the return of European budgetary rules goes directly against the official objectives of the European Union (EU) in terms of environment, health , education and housing.
It concludes that only three EU countries (Denmark, Sweden, Ireland) would be able to make the huge investments needed while meeting official budgetary targets. All others, including countries “virtuous” like Germany or Austria, will be faced with a lack of public investment. In total, there will be a shortage of at least 300 billion euros of investment per year from 2027.
“Adopting the proposed budget rules would result in fewer hospitals, fewer schools and less affordable housing, while pressure in these three areas is only growing,” exclaims the general secretary of the ETUC, Esther Lynch. She denounces “arbitrary limits demanded in the name of outdated economic doctrines”.
The budgetary rules, initially created by the Maastricht Treaty of 1992, provide for a maximum deficit of 3% of GDP and a debt of 60% for European countries. Suspended during the Covid-19 pandemic, they were renegotiated in 2023 and are slightly more flexible than before. They must be definitively adopted in the coming weeks and their full application will begin in 2027, with a transition period between now and then. Concretely, a country which has a debt greater than 90% of GDP will have to reduce it by 1% per year. For a debt between 60% and 90% of GDP, it will have to be reduced by 0.5% per year. However, after the Covid-19 pandemic and enormous social spending, many European countries have very deteriorated public accounts. These rules imply a reduction in their spending (or an increase in their tax revenue).
Badly off central European countries
Problem: these restrictions come exactly at the time when Europe is facing an investment wall. For the climate transition, the EU having committed to reducing its greenhouse gas emissions by 55% by 2030, the financial effort is estimated at 2.6% of additional GDP per year, according to the Institute for Climate Economics, almost two-thirds of which must come from public investment. As for social investment needs, they amount to 1.3% of GDP per year, according to official calculations by the European Commission, the majority coming from the need to strengthen health systems and care of addiction. The ETUC does not talk about it, but we should also add the need for defense spending, because of the Russian invasion in Ukraine.
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