Will the European Green Deal survive COVID-19?

Will the European Green Deal survive COVID-19?

Simon De Cesare, MBB President

This Opinion Piece featured on The Sunday Times of Malta, on 31st May 2020

EU climate policy has gained more traction in recent years, particularly since the 2016 Paris COP21 Agreement, which is an international contract that outlines ambitious commitments for signatories to meet targets that address the climate crisis.

The European Green Deal is the flagship initiative of the Von der Leyen Commission, which outlines a roadmap of initiatives that need to be implemented during this legislature to keep up with the EU’s international climate commitment. The Commission refers to it as the growth strategy that will transform the economy and society to a more sustainable path.

In fact, it will deal with every aspect of public policy, including the reuse and recycling of products, smart mobility, cleaner energy production, efficient buildings, sustainable farming, green fiscal measures and digital skills.

Through a dedicated sustainable investment plan linked to the Green Deal, the Commission estimates that at least a trillion euros would need to be mobilised through the EU budget in the next programming period 2021-2027, as well as through other public and private investments at member state level.

The Green Deal strategy was drafted and published last December on the back of a European economy considered to have recovered from the 2008 financial crisis, with a moderate average EU growth of two to three per cent in the last five years, and a steadily falling unemployment rate down to an EU average of 6.7 per cent in 2019.

And then came COVID-19. Economies shut down over­night and economists predict that this crisis will exceed the depths of the 2008 financial crisis, making it the worst crisis since the economic depression of the 1930s.

After two months of economic paralysis and with timelines for a vaccine not predictable, member states are gradually restarting their economies, albeit with seve­ral restrictions and the need to adapt to a new normal based on social distancing.

It is evident that it will take years to reach the economic pace experienced recently, with the risk assessment of provisional investments requiring revaluation, and public investment priorities stretched to more fronts.

The obvious question in view of the new economic reality is: will the European Green Deal survive COVID-19?

With the world economy expected to shrink by three per cent and the euro area by seven per cent in 2020, the European Green Deal may not be the EU’s most immediate priority, but nevertheless, the long-term climate challenges are here to stay.

The question is not whether or not this deep economic and societal transformation is needed, but how to make it successful.

The Green Deal, therefore, remains an important strategy to charter the course towards a sustainable future, and more importantly now, in times of COVID-19, the EU will need to find ways of fighting multiple crises in parallel, something which is probably unprecedented at this magnitude.

Undoubtedly, at first this will take a lot of bickering and negotiations among member states.

Some leaders, from carbon intensive dependent countries such as the Czech Republic, Poland and Hungary have openly questioned the Green Deal’s relevance in times of COVID-19 or requested that specific initiatives from the strategy to be scrapped.

But on the other hand, the EU should not be shortsighted, and many leaders continue to believe that there is no turning back on the transition to a green economy. As the European Commission’s First Vice President Frans Timmermans recently stated, the current pandemic and resulting economic challenges should guide us to break with old habits, and build a circular, sustainable, and highly competitive economy instead.

One must acknowledge how­ever, that neither the EU nor national governments will be able to stimulate the economy on their own. The role of the private sector EU-wide is critical for the European economy to succeed, by accelerating investments and getting people back to work.

The EU will therefore need to find a way of preserving its roadmap to meet long-term climate objectives, even if it means tweaking the timeline of certain proposals, and to also find the financial resources to bring the economy back on track.

The private sector understands its responsibility to deliver on sustainability commitments, but this could only be done with the right support and by ensuring a competitive European economy.

The upcoming revision of the EU Budget proposal for 2021-2027 and plans for an EU Recovery Fund will be crucial to help businesses bounce back, only if they are ambitious in size and smart in its delivery.

Meanwhile, from a national economic point of view, this is the time for public spending. Governments must continue injecting liquidity into the economy and into businesses, and now this is more possible thanks to the escape clause from the EU’s Stability and Growth Pact, which will not constrain any amount on fiscal expenditure.

Also, state aid during this time is opportune to make good for damages incurred by the crisis, but also to shape the development of certain economic activities.

In this sense, public investment will not only be important to fuel the recovery, but also to signal priority sectors to potential investors.

State aid flexibility during this time should, of course, not be to spend blindly, but rather to be used smartly to tailor recovery packages that reflect national and EU climate ambitions, particularly to finance research as well as to stimulate the take-up of efficient, renewable energy, and green technology solutions.