Reshaping the European Fiscal Framework – English language letter

17 February 2021

Open letter

An open letter sent in February to European Union leaders asking them to review EU economic governance.

To: President of the European Council, Charles Michel; President of the Eurogroup, Paschal Donohoe;  President of the European Commission, Ursula Von der Leyen; Chair of the Economic and Financial  Affairs Council, João Leão; Commission Executive Vice-President, Valdis Dombrovskis; Commissioner,  Paolo Gentiloni; Commissioner, Mairead McGuinness; Permanent Representatives and Ambassadors  to the European Union, Wilem van de Voorde; Dimiter Tzantchev, Edita Hrdá; Jonas Bergin Liisberg; Michael Clauss; Aivo Orav; Declan Kelleher; Ioannis Vrailas; Pablo García-Berdoy; Philippe Léglise Costa; Irena Adrassy; Maurizio Massari; Nicholas Emiliou; Sanita Pavļuta-Deslandes; Simonas Šatūnas;  Georges Friden; Tibor Stelbaczky; Marlene Bonnici; Robert de Groot; Nikolaus Marschik; Andrzej Sadoś;  Nuno Brito; Luminiţa Teodora Odobescu; Iztok Jarc; Maria Malová; Marja Rislakki; Lars Danielsson.

15 February 2021 

Dear President/ Chair/ Commission Executive Vice-President/ Commissioner/ Permanent  Representatives and Ambassadors,

We are currently in the midst of the greatest health, social, and economic shock of our lifetimes. The  policy agenda set in the emergency and recovery phase in the year ahead will have profound socio economic effects, determining the shape of our economy long after the pandemic is over. At the same  time, we cannot afford to address one crisis whilst ignoring another – by leaping out of the COVID  frying pan into the climate fire. Indeed, there is no vaccine for environmental breakdown.

To be consistent with the Green Deal and a socially just transition, to build up a resilient economy that  works for people, and to decarbonize it within the timespan of only one generation, massive and well designed investments are needed over the long run. A return to business as usual – the revival of failed  austerity policies of the past – is simply not an option. We must build back better, so that all European  member states are stronger coming out of the COVID crisis than they were going in. This year stands  before us as a unique opportunity to do things differently and start a fresh chapter to European policy  making.

Fortunately, the European Commission has launched its economic governance review – which will  review the EU’s main fiscal framework, the Stability and Growth Pact and subsequent fiscal legislation.  As academics, civil society, trade union leaders, and citizens, we are deeply concerned that the current  fiscal framework prioritises debt reduction and balanced budgets over much more important human,  economic and environmental outcomes – like creating well paid green jobs, reducing inequality, lifting  millions out of poverty, and implementing much needed green infrastructure projects. We desperately  need a complete overhaul of the current approach to fiscal policy to reshape our economies and tackle  the unprecedented challenges facing the EU head on.

Lessons need to be drawn from previous policy failures. The set-up of our fiscal framework  transformed the 2008 global financial shock into a self-made economic crisis and an unnecessarily  prolonged recession. It resulted in years of public and private under-investment, hampering our  environmental goals whilst prompting a surge in inequality between and within countries of the Union.  By stifling employment opportunities and household incomes, it is no secret our fiscal framework  helped fan the flames of populism and raised significant questions around the democratic nature of  the European set-up. Ultimately, the irreparable harm left so many ordinary people more vulnerable  to future potential shocks, like the COVID crisis.

The scale of the crisis and severity of the economic downturn forced the temporary suspension of  fiscal rules – simplistic and arbitrary limits for public debt and borrowing. To protect European citizens  and businesses, to support the economy following the pandemic, the Commission deemed – and  Member States agreed – more fiscal flexibility was necessary than permitted under our fiscal  framework. Meanwhile, the NextGenerationEU package and the Recovery and Resilience Facility were  agreed; recognising that the European Union needs a flexible and sizable central budget to address  imbalances between countries and enhanced upwards social and economic convergence.

But the conditions that warranted these temporary measures were true before and will remain long  after the crisis is over. It is therefore vital that the old fiscal framework is not reapplied before new  economic governance and flexible principles to coordinate fiscal policies within the Union are agreed.  Rejuvenating and re-establishing fiscal policy as the primary tool of macroeconomic management  deserves an open and public debate.

Fiscal policy should be an enabler, not the chain that holds economies back. Our fiscal framework  needs to be aligned, not at odds, with stated goals of full employment and environmental protection  laid out in the Treaty of the European Union. Whilst welcome, an enhanced EU level budget alone will  not be enough to meet these goals, national fiscal policy must be empowered too. Indeed, as we  continue to face growing uncertainties, arbitrary numerical fiscal rules are simply not fit for purpose.

Tinkering around the edges with incremental changes will fall wide of the mark. The European  Commission needs to seize the current narrow window of opportunity to spearhead a significant  paradigm and narrative shift. It is all the more urgent to turn fiscal policy from an end to a means, and  think more functionally about what the wider economy, society and the planet we inhabit really need.  Getting policy right in this area is one of the single most important priorities for recovering from  Europe’s greatest peacetime recession and addressing social and ecological challenges.

We realise that the reform will not be simple and completed over night. We ask you to use the  following principles as a bedrock when rethinking the current fiscal framework. We believe that if  these principles are not met – you are going to fail the people and future generations of Europe.

  1. Member States are fiscally enabled and incentivized to flexibly reach the goals of full employment with decent jobs and a socially just green transition, making sure no one is left  behind.
  2. A sizable and permanent community EU budget and borrowing capacity is established for  promoting investment supportive of the Green Deal and a socially just transition.
  3. 3. A coordinated interaction of fiscal and monetary policy is made possible: governments take a  primary role in macro stabilization. The ECB pursues an accommodative stance that supports  democratically decided fiscal objectives, allowing member states to take full advantage of the  fiscal potential afforded to them by monetary policy.

Of course, looking only at the sheer quantity of borrowing is not sufficient. Public spending and  revenues cannot simply be aimed at providing measures to boost GDP growth with no consideration  of the impact on future public prosperity or resilience. Economic and fiscal policy need to be primarily  guided through a lens of broader public good and wellbeing, reducing inequality and meeting  ecological commitments.

Far from making fiscal policy more responsible, the current fiscal framework is the exemplar of  irresponsibility – the EU’s consistent failure to meet its own goals on environmental protection and  full employment are indicative of this. The price of inaction will prove far more costly to governments  and society in the long run. We have high hopes and we are looking forward to an open-minded debate

without prejudice. No stone should be left unturned. You can count on our support in delivering this  transformative agenda, and we look forward to your next steps.

 

Signatories 

 

NGOs, think-tanks and foundations: 

Miatta Fahnbulleh, Chief Executive, New Economics Foundation

Benoit Lallemand, Secretary General, Finance Watch

Silja Markkula, President, European Youth Forum

Jeremy Wates, Secretary General, European Environmental Bureau

Nicolas Hulot, former French Minister for green and social transition, Honorary President, Fondation pour la nature et l’ homme

Jorgo Riss, Greenpeace Europe

Nick Bryer, 350.org

Wendel Trio, Director, Climate Action Network (CAN) Europe

Michael Vincent, President, Greentervention

Barbara Unmüßig, President, Heinrich-Böll-Stiftung, Germany

George Soros, Chair, Open Society Foundations

Robert Johnson, President, Institute for New Economic Thinking

Jakob Hafele, ZOE-Institute for Future-fit Economies

Malcolm Williams, Zero Waste International Alliance

Alain Grandjean, President, Fondation Nicolas Hulot pour la nature et l’ homme

Andras Lukács, Clean Air Action Group

Wojtek Kalinowski, Co-director, Veblen Institute for Economic Reforms

Domantas Tracevičius, Founder, VšĮ “Žiedinė ekonomika”

Dr. Umed Temursho, IOpedia, Spain

Arnaud Schwartz, President, France Nature Environnement

Jeremie Fosse, President, eco-union, Spain

Francisco Ferreira, President, ZERO – Association for the Sustainability of the Earth System (Portugal)

Stanislas Jourdan, Executive Director, Positive Money Europe

Miljenka Kuhar (Director) – Society for Sustainable Development Design – DOOR

David Boyle, Co-director, New Weather CIC

Fernando Ferrando (President) – Fundación Renovables, Spain

Michal Len, Director, RREUSE

Paula Nunes da Silva, President, Quercus ANCN

Fran Boait, Positive Money UK

Laurent Morel, Président de l’Institut Français pour la Performance du Bâtiment

Jordi Ibáñez, Director, Fundación Finanzas Éticas, Spain

Ákos Éger, executive president, National Society of Conservationists – Friends of the Earth Hungary

Konsta Nylander, Chairman, Talousdemokratia – Economic Democracy Finland

Nicolas Dufrêne, director, Institut Rousseau

Shahin Vallee, German Council on Foreign Relations, Head of the Geo-Economics Programme

Leyla Larbi, SumOfUs

Mathis Richtmann, Dezernat Zukunft

Dr. Christoph Gran, ZOE-Institute for Future-fit Economies

Jean-Marc Jancovici, President, The Shift Project

Les Économistes atterrés, France

Morgane Créach, Directrice du Réseau Action Climat, France

 

Trade Unions: 

Luca Visentini, General Secretary, ETUC

Laurent Berger, ETUC President and General Secretary, CFDT, France

Reiner Hoffmann, President of the German Confederation of Trade Unions (DGB-Germany)

Wolfgang Katzian, President of Austrian Trade Union Confederation (ÖGB)

Unai Sordo, General Secretary of the CCOO, Spain

Pepe Alvárez, General Secretary Unión General de Trabajadores de España (UGT-Spain)

Joaquín Pérez da Silva, General Secretary Unión Sindical Obrera (USO-Spain)

Miranda Ulens, General Secretary of the General Labour Federation of Belgium (FGTB-ABVV)

Marie-Hélène Ska, General Secretary, Confédération des Syndicats Chrétiens (CSC-Belgium)

Annamaria Furlan, General Secretary, CISL-Italy

Sylvain Hoffmann, Director, Chambre des salariés Luxembourg

Jarkko Eloranta, President, Central Organisation of Finnish Trade Unions (SAK)

Yannis Panagopoulos, GSEE President, Greece

Plamen Dimitrov, President, CITUB

Inga Ruginiene, President, Lithuanian Trade Union Confederation (LPSK)

Melinda Doszpolyné Mészáros, President, LIGA-Hungary

Imre Palkovics, President, MOSZ-Hungary

László Kordás, President, MASZSZ-Hungary

Csaba Csóti, President of the Forum for the Co-operation of Trade Unions (SZEF) Hungary

Jan Willem Goudriaan, General Secretary of the European Federation of Public Service Trade Unions  (EPSU)

Larry Flanagan, President, European Trade Union Committee for Education (ETUCE)

Agostino Siciliano, General Secretary, FERPA (European Federation of Retired and Elderly People)

Ricardo Gutiérrez, General Secretary, European Federation of Journalists (EFJ)

Yvan Ricordeau, National Secretary in charge of European and international affairs, CFDT, France

Oliver Röpke, President of the EESC Workers’ Group

Javier Doz, President of the EESC’ European Semester Group

Luc Mathieu, General Secretary, CFDT Bank and Insurance, France

Nora Back, OGBL Luxemburg

Pierpaolo Bombardieri, General Secretary, Italian Union of Labor (UIL)

 

Academics and researchers: 

Olivier De Schutter, UCLouvain and UN Special Rapporteur on extreme poverty and human rights

Dr. Philipp Heimberger, Vienna Institute for International Economic Studies

Dr Lars Ahnland, Stockholm University, Sweden

Sergio Rossi, Full Professor of Economics, University of Fribourg, Switzerland

Prof Tim Jackson, University of Surrey

Dr. Dirk Ehnts, Pufendorf-Gesellschaft e. V.

Laurence Scialom, Professor University Paris Nanterre

Benjamin Braun, Max Planck Institute for the Study of Societies

Simon Wren-Lewis, Emeritus Professor of Economics, Oxford University.

James K. Galbraith, The University of Texas at Austin

Professor Stephany Griffith-Jones,IDS, Sussex University and IPD, Columbia University

Professor Steve Keen, Institute for Strategy, Resilience and Security, University College London, UK

Saskia Sassen, Professor, Columbia University, New York

Malcolm Sawyer, Emeritus Professor of Economics, University of Leeds, UK

Richard Murphy, Tax Research LLP and Visiting Professor of Accounting, University of Sheffield

Gary Dymski, University of Leeds

Rens van Tilburg, Sustainable Finance Lab at Utrecht University

Asker Voldsgaard, University College London

Dr Neil Lancastle, De Montfort University, Leicester, UK

Dominik Leusder, London School of Economics

Professor Nigel Dodd, London School of Economics

Dr Lorena Lombardozzi, The Open University UK

Dr Daniela Tavasci, Queen Mary University of London, UK

Professor Felix FitzRoy, University of St. Andrews

Nicholas Haagensen, Postdoc at iCourts, University of Copenhagen

Jens van ‘t Klooster, KU Leuven

Dr Jorge Garcia-Arias, University of Leon, Spain

Dr Nina Eichacker, University of Rhode Island, Kingston, RI USA

Dr. Thomas Marois, UCL Institute for Innovation and Public Purpose

Dr. Phil Armstrong, Gower Initiative for Modern Money Studies

Professor Emeritus Machiko Nissanke, SOAS, University of London

Professor Emeritus François Morin, University of Toulouse

José Bruno Fevereiro. The Open University and Goldsmiths College, UK

Dr. Daniele Tori, The Open University Business School, UK

Andrew Sayer, Emeritus Professor, Lancaster University, UK

Dr Adam Barrett, University of Sussex, UK

Marco Missaglia, Professor of Economics, University of Pavia

Dr Jim Jin, University of St Andrews

Sergio Cesaratto, Full professor, University of Siena (Italy)

Thibault Laurentjoye, Robert de Sorbon Foundation, Paris.

Dr Adrian Bua, De Montfort University

Dr Andy Denis, City, University of London

Josh Ryan-Collins, UCL Institute for Innovation and Public Purpose

John T. Harvey, Professor and Chair of Economics, Texas Christian University

Dr Elisa Van Waeyenberge, co-Head of Economics Department, SOAS University of London

José Pérez-Montiel, University of the Balearic Islands

Prof. Leonard Seabrooke, Copenhagen Business School

Duncan Wigan, Professor MSO Copenhagen Business School

Dr Muhammad Ali Nasir, University of Huddersfield

Prof Joscha Wullweber, Witten/Herdecke University

Simon Schairer, ICDD, University of Kassel

Nikolaos Filippakis, Hellenic Mediterranean University

Professor Mehmet Asutay, Durham University Business School

Dr. Matthias Kroll, World Future Council

Prof. Rosaria Rita Canale, University of Naples “Parthenope”

Prof. Gennaro Zezza, University of Cassino

Thorvald Grung Moe, Levy Economics Institute

Prof. Antonella Stirati, Università Roma Tre

Ryan Bellinson, UCL Institute for Innovation and Public Purpose

Prof. Dirk Bezemer, Groningen University

Prof. Nicola Acocella, Sapienza University of Rome

Dr. Andrew M. Fischer, Erasmus University Rotterdam

Etienne Lebeau, Centrale nationale des employés (Belgium)

Dr. Moutaz Altaghlibi, Sustainable Finance Lab, Utrecht University.

Professor Emeritus Hans Schenk, Dept. Economics, Utrecht University

Prof. Irene van Staveren, Erasmus University Rotterdam

Dr. Thiemo Fetzer, University of Warwick

Dr. Matthieu Méaulle, Membre Associé PHARE/CNRS, University Paris 1 Panthéon-Sorbonne

Prof. Jesus Ferreiro, University of the Basque Country UPV/EHU

Prof. Em. Joseph Huber, Martin Luther University Halle, Monetative Berlin

Dr Andrew Jackson, University of Surrey

Andreas Maschke, University of Leeds

Dr Paul Segal, King’s College London

Dr. Michael Paetz, Hamburg University

Dr Graeme Smith, The Open University, UK.

Prof. Roberto Veneziani, Queen Mary University of London

Dr. Janis Brizga, University of Latvia

Jim Richard Surie, MSc, Sustainable Finance Lab

Dr Max Krahé, University of Duisburg-Essen

Professor Martyn Barrett, University of Surrey, UK

Mogens Ove Madsen, Aalborg University

Prof. em. Jesper Jespersen, Roskilde University, Denmark

Dr Jonathan Perraton, University of Sheffield, UK

Dr Maria Nikolaidi, University of Greenwich, UK

Dr Yannis Dafermos, SOAS University of London, UK

Inge Røpke, Professor, Aalborg University, Denmark

Dr. Herman Wijffels, emeritus professor Utrecht University

Plamen Ivanov, University of Winchester

Prof Dr Johannes Schmidt, Karlsruhe University of Applied Sciences

Michael Jacobs, Professorial Fellow, Sheffield Political Economy Research Institute, University of  Sheffield, UK

Michel Dévoluy, Professeur honoraire, Université de Strasbourg

Alexandre Rambaud, AgroParisTech-CIRED / Université Paris-Dauphine

Jean-Michel Servet, professeur honoraire IHEID Genève, Université Lumière Lyon 2

Thomas Lagoarde-Segot, KEDGE BS, SDSN France

Ivar Ekeland, Université Paris-Dauphine

Prof Christophe Revelli, KEDGE BS

Roland Pérez, professeur émérite, Université Montpellier, France

Jérôme Trotignon, Université de Lyon, France

Henri Sterdyniak, Sciences Po, Paris.

Eve Chiapello, EHESS, Paris

Jean-François Ponsot, Pacte-CNRS Univ. Grenoble Alpes

Luis Reyes, Kedge BS

Claude Simon, Professeur émérite, ESCP Business school.

Prof Michael Roos, Ruhr-Universität Bochum, Germany

Dr Hugues Chenet, UCL Institute for Sustainable Resources (UK), Chaire Energie et Prospérité (FR)

Jean-Marie Harribey, économiste, Université de Bordeaux Anne Eydoux, Cnam, Paris

Dr. Virgile Perret, Geneva

Ivar Ekeland, Université Paris-Dauphine