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

Image: https://www.flickr.com/photos/jmenj/

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 (socialeurope.eu)

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

The Transformative Politics of the European Green Deal

by Jon Bloomfield

COVID 19 has highlighted our fragile relationship to the planet. But it represents a minor challenge compared to the permanent havoc that runaway climate change threatens. Politicians and governments – some at least – are beginning to recognise the scale of the danger. In this article we assess the evolution of policy thinking on how to make climate transitions happen; the potential of the European Green Deal; and how progressives need to shape it and any UK counterpart to meet the challenges of modern society.

The European Green Deal initiative launched in December 2019 arose from a broad coalition spanning the political spectrum. Yet its central thrust of active government offers the prospect of reviving a battered social democracy. Green Deal politics failed to cut through after the 2008 financial crisis. Post COVID19 offers a second chance. There is a greater consensus around the need for active government and public investment to help the economy, underpinned by a recognition of the importance of equity to address issues of inequality and disadvantaged regions. This is moving politics onto traditional social democratic terrain, even when it is German Christian Democracy and French centrism that is taking it there. The politics of climate transition needs to be developed on a broad, cross-party basis but it offers major opportunities for social democracy, if it is able to embrace a pluralist and environmentalist approach suited to the challenges of the 21st century.

So what can a ‘social democracy re-born’ offer?  The starting point has to be a recognition that the climate crisis requires a re-making of everyday politics, on the Left as well as the Right. The 19th and 20th century model of high-carbon, fossil fuel intensive economies where the core task is for ‘man to conquer nature’ has run its course. To safeguard our common future a new low carbon model of sustainable development has to become the ‘common sense ‘of the age. That’s what the policy specialists and architects of the European and the US Green Deal have formulated. Politicians and parties across the spectrum are trying to catch up. The anticipated post-Covid, green recovery programmes in the run-up to COP 26 will show which political forces are best able to translate this thinking into everyday politics and to make low or zero-carbon initiatives the golden thread that runs through their policy proposals.

The elements of active government, collective goods, and social inclusion chime with the social democratic tradition yet it needs to overcome the contradictory baggage of utopianism on the one hand, and industrialism on the other. There are four areas in particular where a shift in social democratic thinking is needed.

Firstly, it needs to adopt a 21st Century modernity. The Green Industrial Revolution should no longer be the metaphor of choice. It speaks to a technocratic, top-down model of traditional Keynesianism.  This conjures images from the past while constricting the imagination of the present and future. The potential of a mix of social innovation and digital revolution to transform ‘soft’ infrastructure needs to be at the heart of green deal proposals.  Currently they play second fiddle to ‘hard’ infrastructure investment. Yet new tech opens new vistas.

Secondly, the potential widespread attractiveness of changes in lifestyle through sustainability transitions should be highlighted.

Thirdly, pluralism has to be at the heart of any effective, green deal movement. Successful sustainability transitions rely on a wide alliance of social actors with a shared vision.

Fourthly, the 21st century world is interdependent. We live in a world where the local and regional overlap and are intertwined with the national, Continental and global.   The interconnections are all the stronger when it comes to tackling a great societal challenge like climate change which is why centralised, top-down methods are not the answer. Rather than reheat an old, mission-driven approach, sustainability transitions need a challenge-led approach where national government specifies the broad direction but acknowledges that experimentation around a diversity of solutions must be nurtured with groups of stakeholders at local and city level.  The classic big national projects find this very difficult. They favour national ‘rollout’ with budgets held in Whitehall and local authorities administering central government decisions. The debacle on the UK’s COVID test and trace programme has served to highlight the limitations of this model of politics. Central to the green deal should be transition programmes which set clear sustainability targets but where budgets are devolved to enable localities to design initiatives appropriate to their needs in partnership with local stakeholders.

Our article indicates the openings here for a pluralist, ecological Left. The run-up to the next global climate conference –COP26- will be a vital period which will show whether parties and governments across the world are prepared to meet the climate change challenge.

Jon Bloomfield HeadDr. 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 change.