Incoming EU Commission chief Ursula von der Leyen should take an extra month or two to negotiate a coalition agreement with the European Parliament, including a new finance-climate pact to support the energy transition, says Pierre Larrouturou, adding he will not vote for the new Commission without additional climate cash.
Pierre Larrouturou is a French economist and recently-elected MEP for the Socialists and Democrats (S&D) group in the European Parliament.
- The S&D “have nothing against” von der Leyen “but if we really think the climate is a priority, we have to put our money where our mouth is”. And a European finance-climate pact can bring together the right and left around a common cause.
- The European Court of Auditors says €1,100 billion of private and public money is needed every year until 2050 for the ecological transition – a colossal amount that no national government can finance on their own.
- The good news is that monetary creation has never been as high. The ECB will start creating €240 billion as of November under its new QE programme – a sum that “must go entirely” toward buildings renovation, public transport, green farming and renewable energies.
- Another €100 billion per year can be added to the EU budget with a new EU-wide tax on company profits.
- And transforming the EIB into a genuine climate bank can bring €300 billion more every year, providing every EU country with the equivalent of 2% of their national GDP to support climate loans.
- Doing this is only a matter of political will because all European countries face the same challenge in financing the ecological transition – be it France, Poland, Spain or Germany.
You have tabled a European finance-climate pact. What is it?
First, let’s look at the problem. We can see everywhere in Europe that governments struggle to finance the ecological transition. In France, Nicolas Hulot wanted €7 billion each year to isolate buildings starting with the most precarious. He was told “There is no money” and resigned. In Germany, Peter Altmaier says he doesn’t know how to finance the ecological transition and wants to push back the country’s coal exit to 2038. In Spain, Teresa Ribera has a very ambitious climate strategy but she doesn’t know how to finance it, even if she puts a slice of the Spanish budget into it. And it’s the same in the Netherlands: Mark Rutte sees the ocean level going up, the government was sentenced for its inaction, but Rutte says he doesn’t know how to finance the insulation of buildings or the construction of new dikes.
So, in each country, we see that the problem is the same. And at EU level, it is the European Court of Auditors which released a damning report saying it’s not serious to set a carbon neutrality goal for 2050 which is based on the assumption that a technological miracle will come to solve all the problems by 2043. It’s not serious!
In concrete terms, the European Court of Auditors says that each year, €1,100 billion of private and public investments are needed, starting in 2021, for the coming thirty years. And what matters is to put money on the table as early as 2021, at the start of the next multiannual EU budget for 2021-2027.
Where are you going to find all these billions?
1,100 billion per year for thirty years is a colossal sum of money. But yes, it can be found. It just means that we have to give up the utopia of having 100% private or 100% public funding. And according to us, we must act on four or five levers.
The first lever is to tell banks and insurance companies – private and public – that they must completely stop investing in fossil fuels. We got our inspiration from the FATCA law that Barack Obama passed in the United States at the time to fight against tax evasion. This law says that no bank can have customers in the US if it is not totally transparent vis-à-vis tax authorities on all its activities around the world. And if the company is found to be lying, the fines are so huge that the firm goes bankrupt.
What we are calling for is a FATCA climate law. Since Mrs von der Leyen says the climate is her priority, all the banks and insurance companies working in Europe must become transparent about the activities they finance around the world. Second, we must stop new fossil investments – be it offshore drilling or a new coal plant. The third step is for banks to clean up their balance sheets. In private, leading bank managers recognise that in four or five years, they can get out of fossil fuels and redirect their investments to renewable energies.
The second lever is the finance-climate pact that I proposed some time ago with Jean Jouzel.
It’s a draft European treaty. Europe was born with a treaty on coal and steel, it could be reborn with a pact for climate, biodiversity and employment.
Concretely, we propose two tools. First, money creation. Many people don’t know this, but there has never seen so much liquidity around, so much monetary creation on the financial markets. Mario Draghi has just announced that he will create €240 billion in one year, starting in November. Every two weeks there will be €5 billion injected into the markets – so-called Quantitative Easing. This is just colossal.
In the last four years, the ECB has already created €2.6 trillion. And we have the proof that almost 90% is not going in the real economy but essentially into speculation.
Those sums came in the aftermath of the 2008 financial crisis?
Not only. In 2008, we put €1,000 billion on the table in two weeks. And all the legal problems were solved in a week to avoid the collapse of the banking system. In France, people from the finance ministry spent four sleepless nights creating the legal tools to get the central bank money to the right place.
This means that when there is political will, you can find €1 trillion and solve all the legal problems in two weeks.
What we are saying is that the €240 billion that will be created in a year’s time must go entirely towards the energy renovation of buildings, to develop public transport, to help agriculture transform itself and to develop renewable energies.
This is a very concrete question, and when I spoke to Bruno Le Maire, he had no argument to oppose.
Is it really that simple to direct the ECB’s money creation to climate investments?
Quite simple, yes. What we’re proposing is either to transform the European Investment Bank (EIB) into a European Climate Bank or to create a new subsidiary within the EIB.
What matters is that this bank has a few billion of equity and that it can make credits. And for that, it is necessary that each country has an envelope at its disposal which corresponds to 2% of its GDP each year. So each country would have the assurance to receive each year the equivalent of 2% of its GDP for the energy transition. For France, this would mean €45 billion each year, and for Belgium €9 billion.
In the building or transport sector, for example, this would provide the financial assurances for 20 years, because the European treaty would give the necessary stability to make the investments in the long term – even in the case of a change of government.
The second tool we propose is a climate budget. In addition to these zero-rate loans, you also need subsidies. If we want a law that makes insulation work mandatory – because energy efficiency is the crux of the problem –, we cannot ask each family to pay €25,000 upfront, they wouldn’t have the means to do it. That’s why we must give each household a check corresponding to half the bill. And the second half of the bill, households can pay it through a zero-interest loan.
So we want an annual climate budget of €100 billion, managed by the EU.
Would this come in addition to the EU budget?
Absolutely. If Europe wants to win the climate battle, these three tools are needed: first stop fossil investments and redirect them to renewables, then a climate bank able to release €300 billion worth of loans each year, then a climate budget of €100 billion to be added to the European budget.
With Brexit, it will be difficult to find €100 billion more. EU countries will refuse to dig into their pockets …
Precisely: we believe governments don’t have to put extra money on the table. This is an opportunity to revive an idea that Jacques Delors brought forward thirty years ago – to create a European tax on company profits.
Corporate profits have never been so high, shareholder dividends have exploded over the past thirty years. And in the meantime, taxes on company profits have been halved.
This is called intra-European tax competition. When I was a kid, the tax on company profits was set at 45%, now it has fallen to 19%. Whereas in the United States, since Roosevelt, the tax on profits is set at 38%. It’s pretty ironic that America is taxing company benefits less than us!
That’s why we propose to create a European tax on company profits. The tax would not affect craft workers, citizens and small businesses, only large and medium-sized companies would be asked to contribute 3, 4 or 5%, which would make it possible to find €100 billion for the EU budget.
The conservatives and the EPP will howl, they will never accept this…
Not necessarily. Because they too see that there are repeated droughts and heatwaves. They can also see that climate action can bring the right and the left together around a common cause.
In France, we worked almost full time on it with Jean Jouzel for almost two years. At first there were some who laughed but now, we have four prime ministers with us – two on the right and two on the left: Alain Juppé, Jean-Pierre Raffarin, Bernard Cazeneuve, and Jean-Marc Ayrault. We also have Laurence Parisot, former boss of the French employer organisation MEDEF, Rudy Deleeuw and Laurent Berger, for the European Trade Union Confederation (ETUC).
A few months ago, we were even received by Pope Francis. And at the same time, we have the Freemasons of the ‘Grand Orient’. A caucus of such magnitude is unheard of.
When there is a major crisis, leaders understand that there is a war effort that needs to be funded. Today the question is whether our leaders understand that the climate crisis will become dramatic if we do nothing.
And today is an opportunity: at a time when the whole of Europe is in danger of falling into recession, when the IMF warns us of the imminence of a new financial crisis, we believe that this climate pact can create 5 million jobs. And it is not only me and Jean Jouzel saying that, it is also the experts at the Ministry of Ecology in Paris who say that everything we propose is feasible in less than two years.
In France alone, we could create between 800,000 and 900,000 jobs. For the whole of Europe, that’s five or six million jobs, at a time when unemployment is rising in several countries and Germany is on the brink of recession.
Did you submit these ideas to Ms von der Leyen or Mr Timmermans?
We sent documents to Ms von der Leyen and to Frans Timmermans, who is in the same political group as me. It’s now or never: Europe will disintegrate if there is a new financial crisis and a new surge in unemployment. If in the meantime we don’t do anything to fight climate change, we risk a disaster scenario.
It is now or never: we would like the European Parliament to tell Ms von der Leyen to take a few more months to reach a coalition agreement. In Germany, they took five months to reach a coalition agreement, they met every week on Mondays, Tuesdays and Wednesdays to reach an agreement.
Why not do the same at the European level? We could sit down and give ourselves until Christmas to reach a broader coalition agreement. For my part, I believe we would be proud of it because we arrive at a historical moment: never in the history of humanity have we experienced such a serious situation. None of us have all the solutions, let’s be modest for a while – as an MEP and on behalf of the S&D group, I cannot say I have all the solutions.
Once the hearings of the new European commissioners are over, once we know who is doing what, let’s sit down around a table and agree a collective ambition for Europe – with the new Commissioners and the political groups who want to act together in the European Parliament.
According to you, the European Green Deal as it is currently envisaged does not have the means to match its ambitions?
Let’s talk seriously, we’re among adults here. A few days ago, I was at the French Ministry of Finance. They congratulated me for pushing the idea of European climate bank – everyone now agrees this is necessary.
The problem is that there is 0.0 billion in it. The EIB says it will double its investments for the climate, but it’s only €15 billion a year, at most. That means we will end up cutting in some budgets to do a little more on climate, which will inevitably make people unhappy so it won’t happen.
I would like Mrs von der Leyen and Mr Dombrovskis to understand that we are not joking, that we are not there to do greenwashing. We’re not asking them to find a magic wand, but our children will never forgive us if we lose another five years in our fight against the climate crisis.
So you will not support this Commission unless there is additional funding for the climate?
Absolutely. What we say is “no guarantee, no vote”. This is not a personal problem – we don’t have anything against Mrs von der Leyen or Frans Timmermans.
But it’s just too easy to attack Trump or Bolsonaro for their inaction on climate change if we don’t do anything ourselves. At least Trump is consistent: he says he does not care about climate change. While European leaders are unanimous: they all say that we must act for the climate.
So if we really think the climate is a priority, we have to put our money where our mouth is. When Kennedy wanted to send the Americans to the moon, people told him he was crazy. Well, in four years he multiplied the budget of NASA by fifteen, created 400,000 jobs and seven years later he won the race to the moon.
Maybe saving the planet is even more important than going to the moon.
In terms of parliamentary dynamics, does the entire S&D group follow your line? And do you have support from the other groups in the European Parliament?
There is already a climate bank, which is a victory for the S&D group. It is also very good that Frans Timmermans has the Green Deal portfolio. But it is Mr Dombrovskis who has responsibility for the climate bank and it is Mr Hahn who keeps the budget. And in Mr Hahn’s mission letter, the word climate is not even mentioned. So we wonder if it’s a priority or not.
It is the entire S&D group that is asking for guarantees on financing the Green Deal.
And the other political groups, do they support you in this?
There are positive signs. On the 2020 budget, which is certainly less important, we did a good job with Renew Europe, the Greens and the EPP, which agreed to put €2 billion more than expected on the climate.
It wasn’t easy: some in the EPP told us at the beginning that we had to be reasonable. This is amazing because in the private sector, top managers keep talking about the need for ambition and putting money behind their plans – I spent eleven years at Accenture so I know how it works. I don’t see why things should be any different in politics.
When it comes to the EU budget, four political groups in the European Parliament voted together on the 2020 finances. We proposed €4.5 billion more funding than what the Council proposed and €3 billion more than what the Commission put on the table. So that shows things can move forward, even though this was a smaller file.
Some MEPs – I’m thinking about the Poles – will in principle support an increase in the climate budget, because they will be the first beneficiaries.
I spoke recently with Michał Kurtyka, Polish secretary of state for energy and former president of the COP24 in Poland. He told me that he supports the climate pact because most Poles do not want to breathe polluted air.
The question in Poland, like everywhere else, is how to finance the transition. When a country has 90,000 people working in the coal industry, it is perfectly understandable that they don’t want them to be unemployed. But if Poland receives funding to insulate buildings, create jobs in public transport and agriculture, then they will support the transition. The question is the same in Germany and Spain where there are still some coal mines in activity.
So even if the problems are not the same everywhere, the question of funding is the same in all European countries. And the good news is that there has never been so much liquidity. No country would be foolish enough to increase the company tax alone, but with a European tax on profits – a federal tax – the European budget can be increased rapidly.
Concretely, on 23 October, will you vote against the von der Leyen Commission if you do not get guarantees on a climate budget?
On 23 October, in my conscience, as a citizen and as a father, I will not be able to vote for this Commission.
I would like Mrs von der Leyen to agree an additional month or two to negotiate a coalition agreement. Otherwise, we are going towards a collective failure.
In 2009, Mr Barroso had to wait until 10 February to get the green light from the European Parliament, and the world did not collapse in the meantime. So it’s better to take two more months and have a good coalition deal rather than go fast and be disappointed in six months.
[Edited by Zoran Radosavljevic]