How the climate crisis is changing Europe’s economic landscape. After four decades, the pandemic and especially the climate crisis have silenced the exponents of fiscal orthodoxy. Keynes is back.

Jon Bloomfield


Despite the disappointments of COP26, it’s important to acknowledge the momentum the climate movement has gained. Denialists are in retreat, while all governments are under pressure to strengthen their climate targets and actions. The climate crisis, the pandemic and the outcome of the German elections are all profoundly changing the prospects for European politics. The neoliberal right doesn’t like it but, after four decades in absentia, Keynesian economics is back.

Orthodoxy shattered

The first big sign came in the summer of last year, when after several months of sharp debate the European Union agreed a €1.8 trillion budgetary and stimulus package focused strongly on ecological and digital transformation.

What is the political significance of this shift? As the economist Jeffrey Sachs crisply expressed it in the Financial Times, ‘I would say the European Commission is carrying out a social democratic programme, not in name … but in spirit.’

Growing recognition of the climate crisis, reinforced at COP26, has combined with the outcome of the German elections in late September. Leaders of the putative ‘traffic-light’ coalition parties—the social-democratic SPD, the Greens and the liberal Free Democrats—have agreed to make major investments in Germany’s creaking infrastructure and to boost public spending for green and digital transition. They are coming under increasing pressure from German business too. In a major report published late last month, BDI, the German industry association, said the next government had to act quickly—triggering large-scale, low-carbon investments and setting the right framework to ensure the country would transform its economy to reach climate neutrality by 2045.

Joint borrowing

How can the coalition partners finance such ambitious plans, when they have already promised not to raise taxes or change Germany’s constitutionally-embedded ‘debt brake’ (Schuldenbremse), which severely limits new public debt? One proposal is to use the state bank, KfW, to finance investments. But more novel is a proposal for joint EU borrowing—via a European Commission bond programme, similar to that which the EU has launched for the recovery fund.

Keynesian road

The BDI director general, Joachim Lang, indicated the association was open to the idea of EU borrowing, to help fund the massive public and private investment necessary to meet German and European climate goals. ‘To meet its climate targets, Germany needs additional investment of €860 billion until 2030,’ Lang said.

The precise outcome of the negotiations on the German coalition programme remains uncertain. Recognition of the depth of the climate emergency is however driving industrialists and centrist politicians down a Keynesian road. The new government is likely to sidestep the debt brake by giving additional leeway to the KfW. But the more dramatic step would be to call for a new, EU-wide bond programme.

The size and shape of such a programme would of course be crucial issues for EU institutions to determine. But agreement on such a move would confirm that the European Green Deal was no one-off transaction—rather a first step towards Europe adopting Keynesian macroeconomic policies.

The return of social democracy

The tectonic plates are moving. The four decades hegemony of neoliberalism and the ‘Washington consensus’ are drawing to a close. As Sachs says, these moves herald a return to social democracy.

Three huge questions arise. First, will this shift be driven by social-democratic parties or, more likely, broader coalitions as in Germany?

Secondly, will the orthodox European right embrace the climate-change agenda

or will it lapse into the climate denialism of the nationalist right, as in the USA?

Thirdly, can the citizens’ and youth movements which have been so effective in foregrounding the environmental crisis find ways to intervene effectively in this battle? They will have to shed reflex, anti-politics populism and recognise the importance of maximising the potential of the European Green Deal.  COP26, for all its shortcomings, highlighted that politics is on the move. For progressives, there is all to play for.

Jon Bloomfield runs a regular blog series on the Green Deal with Professor Fred Steward

The full text of this article is available at Social Europe.

 How the climate crisis is changing Europe’s economic landscape – Jon Bloomfield (

Dr. Jon Bloomfield. Honorary Research Fellow, Institute of Local Government Studies, University of Birmingham.

Policy Advisor on EU Climate Knowledge Innovation Community (KIC) programme; writes on cities, governance and migration as well as climate

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