Europe's Green New Deal is good, but who will fund it?

Some are warning that investment in future growth will suffer as such vast funds are shifted.

By Jon Van Housen & Mariella Radaelli

Published: Mon 24 Feb 2020, 6:00 PM

Last updated: Mon 24 Feb 2020, 8:50 PM

It may be a 'new deal', but is it doable? The European Union wants to go on a virtual war footing in the battle against climate change, vowing to spend some ?1 trillion to go carbon neutral by 2050.
But the exit of Britain - finally - has blown a ?75 billion hole in the EU budget. As a summit on the next seven-year EU budget failed to reach an agreement last week, many are wondering if EU Commission President Ursula von der Leyen has mapped out a battle plan that is indeed ambitious and politically correct, but woefully naive. Even if a trillion euros can be found, is it enough to permanently wean countries, mostly in the east, off coal dependency? Do developed nations in the west really want to drastically cut their energy use?
Some are warning that investment in future growth will suffer as such vast funds are shifted. Others are wary of a global downturn in tourism and production due to the coronavirus outbreak.
Leaders of EU member countries clashed sharply last week over the 2021-2027 budget, arguing about tenths and hundredths of percentage points. It might seem like putting too fine a point on it, but those small fractions mean big money.
The budget is the most tangible expression of key issues for EU members over the next seven years and their willingness to sign the checks that keep the vast EU bureaucracy running. The starting point for last week's failed talks was spending 1.074 per cent of the bloc's combined gross national income (GNI), or ?1.09 trillion.
Disputes over hundredths of percentage points have led to specialists and even careers that keep EU and government officials busy. And they will keep beavering away at their posts after leaders failed to agree on Friday. A new summit will have to convene in the weeks ahead, but no one yet knows exactly when.
The 27 leaders of member states spent two days in a standoff over the budget with a significant gap between countries that are net recipients of funds and the wealthier member states who are keen to rein in spending.
The so-called 'Frugal Four' - Austria, Denmark, the Netherlands and Sweden - believe the next budget should amount to 1 per cent of the bloc's GNI. Germany, the biggest economy and net contributor in the EU, is aligned with them but has signalled it could be more flexible.
German Chancellor Angela Merkel said the difference between member states was too big to reach conciliation and talks will have to resume. At the other end of the budget battle is the EU Parliament, which wants a spending level of 1.3 per cent. The commission originally proposed a 1.11 per cent ratio and later shaved off a few hundredths of a point.
While the budget battle might seem a tempest over a distant deadline, current actions on the environment are crucial if indeed there is to be a 'Green New Deal'. To be carbon neutral by 2050, the EU cannot stop at reducing CO2 emissions by 40 per cent by 2030 as currently planned. It will need more reductions made more quickly because there would simply not be enough time to go to zero in the following 20 years.
The European Commission is proposing to raise the Europe-wide reduction target to 50 or even 55 per cent by 2030, but that is getting pushed back from not only the new eastern kids on the block but also longtime locals, Germany and Italy. Countries with a particularly strong car industry have a huge stake due to radical emission reduction targets in the transport sector and for mobility as a whole.
It remains unclear how the burden of an accelerated emission reduction in the EU would be distributed. The Polish government argues that under every conceivable transformation scenario for climate neutrality, the costs for Poland will be twice as high as the EU average. Are big EU climate advocate countries willing to give central and eastern European nations more money?
Which brings up another rub: Money to finance the climate battle could be shifted from so-called 'cohesion funds' used to bring poorer countries nearer to the quality of life of advanced EU nations. As well, agricultural subsidies, long a backbone of the EU, could be scaled back, which could have big internal political implications in several EU countries.
The Green New Deal is still on the drawing board yet tensions are already apparent. It could not only divide the EU into east and west but also create internal divisions, coalitions and new areas of conflict within countries. There are vast vested interests whose status is largely dependent on maintaining the status quo in energy production and use.
As Europe's signature, huge, once-in-a-generation initiative - its 'man on the moon' project - the Green New Deal could be the defining moment for the EU. Can it marshal such a massive, globally leading effort, showing true cohesion between such different countries and cultures?
Time will tell, but the first important step in that leap for mankind - the budget debate last week - does not offer the most promising prognosis.
Jon Van Housen and Mariella Radaelli are editors at

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