Green transition: ECB and budgetary authorities should face their responsibilities

(EurActiv, 10 Dec 2018) Reforming the rules for coordinating budgetary and economic policies in the eurozone is a necessity to conciliate economic, social and climate objectives, write Ollivier Bodin and Michael Vincent.

Ollivier Bodin is an economist. Michael Vincent is an expert in financial regulation and a member of the economic observatory of the Jean-Jaurès Foundation. This op-ed is published in partnership with the Jean Jaurès Foundation and the European Foundation for Progressive Studies (FEPS).

The 2018-19 European Semester, which coordinates the economic policies of EU member states, has just been launched, providing an opportunity to question the contribution of monetary and budgetary policies to the ecological transition.

A recent speech by Benoît Cœuré, member of the Executive Board of the European Central Bank, signals a quiet revolution in the conduct of monetary policy.

According to Cœuré, monetary policy is apparently affected by global warming in three ways.

  • Firstly, new kinds of economic shocks are emerging whose identification and understanding pose serious problems. In addition, there is uncertainty as to the economic effects of regulations adopted to mitigate and adapt to climate change.
  • Secondly, climate change increases the frequency of natural disasters whose impact may require monetary policies outside the norm.
  • Thirdly, climate change leads to major and lasting changes in physical and human conditions, notably migration flows, whose effects on economic activity and prices will be difficult to determine.

The Central Bank’s primary mandate is monetary stability. It is not on the front line to fight against global warming. However, Cœuré suggests that while pursuing its main objective, the Central Bank can make an important contribution through its policy of directing certain green financing towards “green” investments.

By identifying climate change as a major risk for the eurozone, Benoît Cœuré is drawing a new responsibility for the ECB that is clearly of a political nature. The ECB’s consideration of this issue is welcome.

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EurActiv, 10 Dec 2018: Green transition: ECB and budgetary authorities should face their responsibilities