Europe will manage to find, between public finances and markets, only 1/3 of the resources needed to implement the priorities set out in the strategic agenda for the next 5 years
The funding gap is sharper for the green transition
The funding available to meet the commitments set out in the EU’s strategic agenda for 2024-2029 is only 30% of what is needed. And the gap is alarming when it comes to the green transition. This is supported by a report by Finance Watch, which warns: Europe is marching rapidly towards an investment crisis.
“Climate change alone will require the EU to invest between 5% and 10% of its GDP yearly for the next few decades. Avoiding these investments is not an option: would risk future social and economic disasters at a cost many times greater than the investments mentioned above”, emphasizes the NGO.
Nevertheless, the public finance architecture on which Europe relies is incapable of meeting these needs. The key point in this case is the rules governing public spending. Which, without profound reforms, bind the hands of the Seventy-seven. Even if investments are very likely to guarantee “exceptional returns”.
“The paradox of today’s situation is that many voices, including most officials, express both concern that EU Member States are not dedicating sufficient resources to climate change mitigation and adaptation, and at the same time, public budgets do not respect the EU’s principles of stability and growth. The deficit and debt rules of the Covenant are two incompatible orders,” the report reads.
The other pillar for financing the green transition is the use of markets. But neither is the situation better here, Finance Watch estimates. “It can only work in part,” the report argues. The positive is that massive use of public and private funding, fueled by better integration of the EU’s financial markets, “would give citizens’ savings greater opportunities to contribute positively”.
But if you estimate the total investment needs of the EU and assess how much, in fact, the markets can contribute, considering the mechanisms governing the allocation of private capital, “even with extremely optimistic assumptions, capital markets may cover only one-third of the investment needed to meet the EU’s essential financial needs”.