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Finance Watch publishes “10 Principles for a Sustainable Recovery” to strengthen the EU’s Recovery and Resilience Facility

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Brussels, 2 October 2020 – Finance Watch, the public interest association dedicated to making finance serve society, has published a briefing paper to help legislators strengthen the proposed Recovery and Resilience Facility (RRF), which makes up the core of the EU’s EUR 750bn Next Generation EU (NGEU) plan.

“10 Principles for a Sustainable Recovery” argues that the objectives of recovery and resilience in the EU’s recovery plans are in conflict with each other and outlines how legislators can correct this.

Thierry Philipponnat, Head of Research and Advocacy of Finance Watch, said:

“Hopes for a rapid and ‘green’ recovery from covid-19 will be short lived if we just revive an unsustainable economy. The contradiction between the RRF’s recovery objective and its resilience objective can be removed if the EU is willing to anchor its economic governance and recovery instruments in sustainable and just transition, in full coherence with the Paris agreement and the EU’s own Green Deal and sustainable taxonomy.”

Benoît Lallemand, Secretary General of Finance Watch, said:

“The agenda for Monday’s Eurogroup meeting includes a strategic discussion of the RRF. We call on policymakers to use their scrutiny of this instrument to make a course correction and put the EU’s recovery on a sustainable track while there is still time. We hope the paper we are publishing today will help them with this task.”

The paper’s main arguments and recommendations are:

  1. “Resilience” can be understood as the ability to withstand disruption. The major risk of disruption stems from the unsustainable nature of our economies.
  2. The recovery instruments (NGEU and RRF) prioritise economic growth ahead of sustainability, creating a paradox in which recovery to business-as-usual will be unsustainable and therefore not resilient.
  3. The RRF should be reframed to support only businesses that are investing to transition away from unsustainable practices, or that enable other activities to become sustainable, or that are already sustainable. These definitions can be found in the EU’s Taxonomy Regulation.
  4. The RRF should offer no support at all to businesses that are unsustainable by those definitions. This would incentivise transition and avoid waste.
  5. As jobs in unsustainable activities disappear, the people working in them must at all costs be supported with retraining or a guaranteed income at a level that ensures human dignity.
  6. RRF funds should be allocated 30% to sustainable low-carbon activities that are fully aligned with the Paris agreement and the remaining 70% to companies that ‘do no significant harm’ as defined in the Taxonomy Regulation.
  7. To receive their share of RRF funds, member states should submit individual recovery and resilience plans that are fully Paris-compliant and their overall budgets verified as ‘doing no significant harm’, for example in the way they subsidise fossil fuels.
  8. The EU can demonstrate its commitment to sustainability and the taxonomy by requiring all (not just 30%) of the NGEU’s borrowing to be funded with green bonds or taxonomy-transparent bonds. The EU should prevent, for instance, NGEU funds from being used to buy ETS rights.
  9. When the EC resumes its Economic Governance Review, the arbitrary 3% deficit and 60% debt thresholds should be abandoned and sustainability and enhanced social inclusion criteria integrated in the European Semester rules.
  10. Other fiscal restrictions, such as prohibitions on the direct financing of deficits by central banks, should be reassessed in light of recent economic evidence about inflation in order to maximise the funding available for the EU’s sustainable transition.

 

ENDS

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NOTES FOR EDITORS

On Monday, 5 October 2020, the Eurogroup will meet for a strategic discussion on the implementation of the RRF and orientations for fiscal policy, among other agenda items.

The European Commission’s proposal for a Regulation of the European Parliament and of the Council establishing a Recovery and Resilience Facility was adopted by the Commission on 28 May 2020 and is currently making its way through the Ordinary legislative procedure.

The European Commission published “The EU budget powering the Recovery Plan for Europe“, which includes Next Generation EU, on 27 May 2020.

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