Public debt and money for a political ecology in the European Union

Résumé 0

The pandemic crisis has displayed the lack of precautionary measures and health infrastructure in most advanced countries, not forgetting how little help has been granted to poor countries. In the face of a worldwide ecological crisis, there has been no global cooperation. In addition, in 2020, catastrophic events due to climate change have accelerated. Public finances have been called upon to support the economy and to engineer a much hoped-for short-term recovery on the one hand, and to put financial systems in order to deal with climate change in the coming crucial decade on the other.Our work tries to address this dual challenge. First, it handles the crucial problem of debt sustainability in a theoretical framework that emphasizes the discounted ratio of future primary balances rather than the level of debt. Simulations of the theoretical model used are provided for the four largest countries of the euro zone to show the conditions in which public debt could be sustainable during the crisis and the subsequent recovery.Moving to the longer-term challenge of handling climate change, societies must confront the irruption of climate-related risks that are plagued with radical uncertainty. To deal with this new financial landscape, the institutional structure of finance must be reformed. Furthermore, macroeconomic disequilibria are no longer symmetrical. The threat of a deflationary depression is far higher than inflationary risks. Consequently, central banks need to integrate macro-prudential and monetary policies and to collaborate with fiscal policy. The financial regulatory authorities are developing precautionary macroeconomic scenarios to induce private agents to report the ecological costs of their economic activity and then to reduce those costs under their monitoring.Strategic planning is indispensable for the financing of long-term infrastructure investments that receive insufficient finance from the markets. Three categories of actors stand out for the long-term restructuring of Europe’s financial systems: first, the public development banks networked under a reformed EIB; second, responsible long-term financial investors, who understand that economic damage from climate change negatively influences their long-run financial returns; and third, the European system of central banks that can account for the differentiated impact of climate change within the euro zone.