Ihe French Finance Minister, Bruno Le Maire, was afraid of a possible downgrading by the rating agency Standard and Poor’s of the financial rating of the French State. He has just tackled one of the recommendations of the Pisani-Ferry report, which consisted in financing the “investment wall” necessary to achieve our climate objectives through additional debt and/or an additional tax. The President of the European Central Bank, Christine Lagarde, still seems favorable to the continuation of the rise in interest rates. This will increase the debt burden of public and private players, reduce their borrowing capacity.
It is however clear that the current inflation has no monetary origin and that it is in the real economy that solutions must be found. The European Commission, under pressure in particular from our German neighbours, is proposing ” news “ budgetary rules that confine the increase in public expenditure within arbitrary and surreal accounting limits for those who know the reality of the budgets of European countries. These rules leave no flexibility to increase vital expenditure to mitigate CO2 emissions.2thereby reducing our dependence on largely imported fossil fuels and adapting to ongoing climate change.
In summary, the monetary and budgetary levers that should be massively mobilized in the face of an existential crisis are not only not, but, even worse, will make its resolution even more difficult. The rise in interest rates will degrade the profitability of energy renovation operations of housing and buildings and more generally will degrade those of transition investments.
Budget rigor will reduce the investment capacity of the State and local authorities. It will reduce public aid to private operations that need it in a context where negative externalities, such as CO2 emissions2, are heavily underpriced, which does not at all deter fossil fuels and their use. It will also obviously lead to a reduction in social benefits while it is well established that the transition must be perceived as socially just.
DIY is not enough
This situation is not unique to France. When the Recovery and Resilience Facility – opportunely decided to respond to the Covid-19 crisis – will be exhausted, at the latest in 2026, investments in the transition risk having to be reduced in many countries.
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