As much as a trillion euros are needed, and the coffers of the EU countries are empty. There are proposals for new taxes

The “Green New Deal”, i.e. the goal for the European Union and its 27 member states to be climate neutral by 2050, is the largest project of the current European Commission under the leadership of Ursula von der Leyen. This will require up to one trillion euros (one thousand billion euros) of investment annually.

Even in good times, this is a huge task. But times are not good. Russia’s attack on Ukraine showed Europeans that they need to spend more money on their security, and there are additional bottlenecks in the form of energy supply shortages, inflation, shortages of skilled labor and poor economic conditions.

With 20 eurozone members sharing a common currency, the room for maneuver for further spending is even more limited. Their clear rules apply: Debt cannot exceed 60 percent of gross domestic product, and there is an upper limit for the state budget deficit of 3 percent of GDP.

Reformed stability rules

These limits were suspended during the coronavirus pandemic, but have been reinstated in the meantime. Countries that do not comply face penalties. The reform of February this year did not change this. What is new is that the regulations now allow EU countries to be more flexible. Each country can negotiate with EU authorities when and how it will restore order to its finances.

After months of negotiations, the reform of the stability rules was a typical EU compromise, but nonetheless a good one, says Greek Minister of Economy and Finance Kostis Hatzidakis. However, he warns against the difficulties associated with it.

– It is financial markets that force countries to be financially prudent. Those who ignore it will have to learn the same thing that we, Greeks, have learned in the past decade, he said during the Economic Forum in Brussels in May.

Since 2010, Greece was so in debt that it could no longer borrow money on financial markets, resulting in bailout packages with harsh austerity measures and a loss of its financial sovereignty.

Climate versus debt

However, not everyone believes that caution in spending money should play the main role nowadays. Tea Jarc from the European Trade Union Confederation argues that spending to fight climate change is not irresponsible consumer spending, but necessary investment.

– If we are not prepared to make the necessary investments and instead impose austerity measures on ourselves, then the Green New Deal is obviously not a priority at all, she said in Brussels.

Similar discussions are taking place in every EU member state on other issues, from necessary military spending, through the restructuring of the health care and pension systems, to the digitization of the economy. So what should you do?

Lack of a single capital market

One way to reduce the burden on the public sector is to increase investment in the private sector. But here too, Europeans realize that they have lost contact with their leaders.

In terms of population (450 million) and economic output (EUR 17 trillion per year), the EU is a giant. But when it comes to mobilizing private capital, it is only a dwarf. – It is truly a shame that we still do not have a fully developed common capital market in Europe – complains Polish economist and MEP Danuta Huebner. – The American capital market is twice as large. Ours is fragmented and lacks fluidity.

The main reason for this is that each EU country sets its own rules, from savings to taxation. – In public discussions, we will not find a single European politician who would be against the single European capital market, says the EU Commissioner for Economy, Paolo Gentiloni, from his own experience.

– But when EU finance ministers meet, even the smallest steps in this direction are extremely difficult to take. Because each EU country wants to stick to its own traditions and rules, its own supervision over the capital market and its own savings tools – he explains.

Joint debt?

Another source of money could be joint loans taken out by EU member states. They were first tried during the coronavirus pandemic to finance part of a large economic stimulus package. Now calls for the EU to take on debt are getting louder, including from the Commissioner for the Economy. Only the name has changed: we are no longer talking about Eurobonds, but about “common tools to achieve common goals”.

– Five years ago it couldn’t even be discussed; in the EU it was considered a crazy idea, says Paolo Gentiloni. – Now it is possible and it is high time for us to use common tools for common investment purposes – he adds.

However, some EU countries, including Germany, the Netherlands and Finland, strongly oppose such demands. They fear that their creditworthiness may suffer if they become indebted to the EU.

Wealth tax

Julia Cagé, professor of economics at the renowned Institute of Political Science in Paris, therefore advises that when looking for sources of financing, we should not forget about those who have much more money than others: the rich and super-rich in Europe.

Her proposal is a tax on large fortunes levied directly by the EU. This would make it difficult for Croesus to avoid it. “We have to do it at European level because there won’t be many people who really want to leave the EU for this reason,” Julia Cagé told DW.

– Of course, many rich people would prefer not to pay this tax. But if it meant losing EU citizenship, the situation would certainly be different, she said. Therefore, sanctions, controls and efficient financial administration are needed. “We should really take this seriously,” she added.

Progressive tax on CO2 emissions

Wealthy people should also contribute more to the costs of fighting climate change. – Many studies, including those conducted by the World Inequality Lab, have shown that the rich burden the environment much more than the poor, says Julia Cagé. Increasingly larger cars, houses, yachts and planes lead to much higher CO2 emissions.

An environmental tax that increases as carbon footprints increase would allow the wealthy to contribute more adequately to financing the energy transition; analogous to a progressive income tax, in which tax rates increase with income, as Julia Cagé claims.

This would be a step towards greater justice in terms of climate costs. According to the French professor, this would be a signal to the less privileged that the fight against climate change is not just a project of urban elites, as is often believed. This results in an increase in the influence of populists, often right-wing.