10 Principles for a Sustainable Recovery

Report
Finance Watch
Regulation(s) covered in this publication
  • Next Generation EU (NGEU)
  • Recovery and Resilience Facility (RRF)
Download the publication 30 pages, English

On 2 October 2020, Finance Watch 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.

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.
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