Fiscal discipline and the green energy transition

The government emerging from the polls, whatever it may be, will face an external environment that, in addition to adapting its work, is characterized by intense contradictions. One of the most obvious is the area of ​​fiscal policy. On the one hand, Brussels is urging member states to return to budgetary discipline. Even incorporating the proposal to make the targets more flexible, adapting them to each country’s situation, containment efforts seem inevitable for more indebted economies like ours. At the same time, Brussels is showing concern about the effects of climate change and calling for a massive investment effort of around 2% of European GDP until 2030.

These goals may coincide in the long term:Decarbonization will help relieve pressure on energy prices Some of the food which is beginning to become scarce as a result of the drought will, therefore, generate the activity and general resources needed to reduce the deficit. But in practice, the transition to that long term presents complex dilemmas in the current framework of European governance. According to a highly commented report by Pisani-Ferry on the green transition, it is possible to reduce fiscal imbalance and increase green investment at the same time, but this will require drastic measures to cut other expenditures or raise taxes for the middle class, which are hard to afford in our democracies.

It is also possible to postpone the goal of reducing the deficit at the expense of the markets willing to buy the debts issued by each country, In addition to those consumed by the European Central Bank under its liquidity drain policy. In any case, this possibility is politically unlikely. Another option might be to ease carbon removal targets, exacerbating climate stress and leaving the bulk of the effort to future generations.

Coherence, however, can come from a Extending the next generation program aimed at green investment and financing it from pooled resources. This option, which appears to be the path favored by Commissioner Paolo Gentiloni, would alleviate the environmental fiscal dilemma, although not completely solve it, because the debt pooled falls indirectly on the member states. But, above all, the Pisani-Ferry report reveals the minimum conditions for the effectiveness of such a European program: public investment must go hand in hand with greater legal predictability, as well as harmonizing incentives for private investment in technology that serves environmental goals. It is also appropriate that this policy be formulated at the level of the federation as a whole, rather than simply accumulating national projects – a shortcoming suffered by the next generation -. Therefore, in addition to agreeing on a well-designed strategy, member states must accept the transfer of part of their economic and financial sovereignty to Brussels.

Such a move towards greater integration encounters known reluctance within Europe, but the differences between the ‘frugal’ core and the ‘consuming’ periphery have faded. Southern Europe is no longer necessarily seen as a liability, neither from the point of view of economic growth nor of budgetary discipline: according to data for the first quarter released this week by Eurostat, Portugal shows a surplus and Spain’s deficit falls below the European average or even that of Germany itself. In our case, we still have a long way to go to consolidate the result, with debt still weighing in at 112% of GDP, which is among the highest in the EU. But tables can turn. This, together with the urgency of the energy transition, makes it possible to approach the reform of European tax rules in a different way. Thus, this is an opportunity and a responsibility that will define our economic strategy.


According to the latest data published by Eurostat, government accounts showed a deficit equivalent to 1.9% of GDP in the first quarter (with seasonally adjusted data), compared to 3.2% for the eurozone as a whole. This result could come in part from the uptick in Spanish growth at the beginning of the year, so it is worth waiting to determine whether or not this is a structural improvement. Public spending represents 45.2% of GDP (4.2 percentage points below the European average). Revenue on their part amounted to 43.2% of GDP (three points less).

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