The European Central Bank (ECB) has calculated €5.4 trillion over six years as the cost of the “Green Transition” (including digital and defense spending). It recommends easing budget constraints, increasing EU budget funds and—dulcis in fundo—issuing common debt obligations to finance it. Hedge funds and traders are uncorking champagne bottles.
The calculation and the recommendations are contained in a little-noticed paper published in the ECB Blog back on June 27th, signed by ECB officials Othman Bouabdallah (chief economist), Ettore Dorrucci (head of the ECB division dealing with euro area competitiveness and balance of payments, euro adoption, and non-euro area EU Member States and ECB Mission Chief for Ireland) and Carolin Nerlich (Senior Lead Economist in the ECB’s Climate Change Center). The content of the paper is blessed by the ECB. “Posts are authored by ECB staff and Executive Board members,” the Blog says.
Of the estimated €5.4 trillion investments needed for the period 2025-2031, “the lion’s share has to be borne by private firms, investors and households. But a substantial share—around €1.3 trillion, in our calculations—will have to be funded via public sources,” the paper says.
The paper admits that EU budget and deficit rules are an impediment to a larger commitment by member countries, even under the flexibility conceded by the revised rules and with recommended cuts to “unproductive” expenses (i.e. austerity). Therefore, they suggest a series of measures at the supranational level, including: 1. The EU budget must be increased; and 2. A fully-fledged Capital Market, that is, a new EU common debt issue.
