Reducing debt while simultaneously boosting investment is the feat that must be achieved in reforming the European debt rules. On Nov. 9, the Commission plans to present its proposal for reforming the Stability and Growth Pact. Christof Roche has found out what rules are up for discussion.
Today marks the end of the Platform on Sustainable Finance‘s mandate for the time being. Leonie Düngefeld looks back on the exciting work of the members and explains how things will – or will not – continue next year.
Also on today’s agenda: The German government’s Expert Commission for Heating and Gas will present its final relief concept. However, the cabinet will not be able to fully follow the approach taken in the interim report. For large industrial companies, it must take into account the new Temporary Crisis Framework adopted by the EU Commission on Friday. Read where Commission Vice President Margrethe Vestager sets stricter requirements in the News.
Control is one of Martin Schirdewan‘s central topics. The European parliamentarian is co-chairman of the German Left Party and thus plays a rare dual role between Brussels and Berlin. Read today’s Profile to find out what other positions he advocates.
The Brussels authority intends to present its communication on the reform of fiscal rules on Nov. 9. Currently, the documents are being coordinated internally, as Europe.Table has learned from Commission circles. The circles expressed confidence that a consensus among the member states could be reached quickly. The governments had been closely involved over the past weeks and months. The necessary legislative package to revise the Stability and Growth Pact could then be presented in the first quarter of 2023. A first discussion in the circle of EU finance ministers is already planned for the December Ecofin, it said.
EU Economic Affairs Commissioner Paolo Gentiloni had most recently underlined the need for revised budget rules at an event in Rome on Oct. 10. He said Europe was facing a challenging winter “as the Russian war continues, energy prices remain very high and inflation is reaching new records”. In addition, the pandemic has left public and private debt significantly higher, he said. The need to rebuild fiscal buffers is clear, he said. However, debt reduction strategies must be realistic if they are supposed to ensure stability and support growth.
“We have two mountains in front of us, a mountain of debt and a mountain of investment, and how we reconcile them is a key challenge we face in reforming our rules,” the EU commissioner said. Authority sources said the basic idea is to simplify the EU’s extremely complex budget rules while tightening enforcement.
To this end, member states are supposed to take more ownership of their debt reduction plans. According to the circles, the Commission’s considerations aim to have the EU authority bilaterally present a four-year plan to an EU member state to put its public debt burden on a credible downward path.
The member country can accept the plan or submit a counter-proposal – with a maximum term of seven years. Gentiloni had stressed in Rome that to ensure greater national ownership, member states could be given more leeway in proposing budgetary paths, provided that common EU principles – not least debt sustainability – were respected.
For example, reform and investment commitments could allow for a longer budgetary adjustment period. This would also be a way “to ensure that fiscal sustainability and growth can be mutually reinforcing,” he said.
According to the sources, with the new approach, the Commission wants to scrap the previous EU rule that required debt ratios to be reduced by one-twentieth per year by member states with debts above the EU ceiling of 60 percent of gross domestic product (GDP). This requirement had proved too rigid, especially since public debt ratios had risen dramatically since the pandemic. The use of a reduction in the structural deficit should also be ended, as this approach was too complex. Instead, the Commission wants to set a net expenditure path over several years in each national macrofiscal pan.
The primary indicator is supposed to be a country’s net primary expenditure, i.e., expenditure excluding the inclusion of unplanned revenues and interest expenses as well as expenditure for cyclical unemployment. The new rules would not affect the EU’s previous reference values, such as the upper limit for a public deficit of three percent of gross domestic product and a debt ratio of 60 percent of GDP, both of which are laid down in the EU Treaty. Once a debt plan has been agreed upon with a member state, there are to be annual progress reviews.
If a country fails to comply with the net expenditure path agreed with the Commission and the Council in the multi-annual plan or other benchmarks, the Commission threatens to initiate budgetary penalty proceedings. In this context, the development of public debt is supposed to be given much greater focus, and proceedings could thus be launched based on a country’s debt ratio, which has not been the case so far, the circles underlined. In the past, the proceedings had been opened exclusively based on excessive new debt of the member states.
The Commission and member states are under pressure to launch a new set of rules, as the current suspension of EU fiscal rules due to the pandemic is on hold until the end of next year. Observers in Brussels, however, believe it is not very realistic to complete the reform of the Stability and Growth Pact by the end of 2023. Berlin, for example, has considerable reservations about leaving the negotiations for the multi-year country-specific fiscal plans exclusively to the Commission and the member state concerned. Christof Roche
The members of the Platform on Sustainable Finance certainly did not expect this kind of turbulence when the advisory body began its work in October 2020. Fifty-seven experts from industry, academia, civil society and the financial sector, including seven directly appointed members from public institutions such as the European Investment Bank or the European Environment Agency, have since advised the Commission on the development of its sustainable finance policy. However, their approach caused a great deal of trouble in some cases.
Four of the platform’s six working groups had begun their tasks directly in the fall of 2020. Two further subgroups will not be established until 2023, as they require available data for their work. Based on a first report of the 2021 platform, the Commission already published a first delegated act setting criteria for the first two taxonomy targets (climate change mitigation and adaptation).
Another legal act addressing the remaining four objectives (sustainable use of water resources, transition to a circular economy, pollution prevention, and protection of ecosystems and biodiversity) is expected next year. A final report from the advisory platform’s technical working group with recommendations for the technical review criteria is still pending. In October, the platform released its report on Minimum Safeguards, as well as a report with recommendations related to data collection and usability of taxonomy reporting requirements.
Already when the first Delegated Act was adopted, several experts expressed concerns and the wish to revise some of the criteria of the act. This is actually also the task of the platform – but there was no time, one hears from members of the platform. All capacities were needed for the development of the criteria for the remaining four objectives of the taxonomy.
Nancy Saich, climate change expert at the European Investment Bank (EIB), tells Europe.Table, “My impression after two years of work in the platform is that the resources needed to develop taxonomy criteria for so many sectors are much greater than first thought.”
There were many more stakeholders to consult, more knowledge to bring to the process; after all, after the first piece of legislation, it was no longer a matter of just two goals, but four. “These goals have been less well considered in the finance world: Climate finance was already pretty well defined globally, but there was no equivalent for the rest of the green sector,” Saich says.
“Of course, not everything went smoothly,” says Thierry Philipponnat, who represents the NGO Finance Watch in the platform, as well. “There were some difficulties. But the work got done.” And the platform’s task, he says, is merely to advise the Commission. The latter is not obliged to then act on the recommendations, he says.
The accusation heard again and again inside and outside the platform: The Commission has not followed its own rules. The Taxonomy Regulation requires the Commission to establish technical assessment criteria that are “based on available scientific evidence.” Moreover, if a risk cannot be determined with sufficient certainty on the basis of a scientific assessment, the precautionary principle applies: Conceivable damage to the environment should be avoided in advance.
As a result of the delegated act, there is now no uniform standard based on the recommendations for the definition of sustainable electricity generation, for example: While all electricity sources are considered sustainable if they emit less than 100 grams of CO2 per kilowatt hour, this limit for electricity generation from natural gas is 270 grams of CO2 per kilowatt hour.
“For example, if you generate electricity in a waste incineration plant, you are not sustainable with 200 grams of CO2 per kilowatt hour, but with gas, you are sustainable with up to 270 grams,” Philipponnat says. “We, as experts of the platform, have pointed out to the Commission that this is not coherent.”
The nuclear issue was not about CO2 limits but about the possibility of significant environmental damage due to nuclear waste and the risk of severe accidents – i.e., disregarding the “Do No Significant Harm” criterion and the precautionary principle of taxonomy.
“There was no real study, no recommendations from the platform,” Philipponnat adds – while the Commission must wait for it before making a decision. Instead, on the evening of Dec. 31, 2021, some members of the Platform happened to see the draft Complementary Act in their email inboxes, asking them to provide comments within a week. The deadline was eventually extended to three weeks, but the Commission’s action had clearly created tension and anger among Platform members.
When the Parliament also voted in favor of the legal act in the summer, this broke the camel’s back for some members of the platform: Five civil society experts left the platform. In September, the WWF European Policy Office, the European Consumers’ Organisation (BEUC), Birdlife Europe and Central Asia, the European Coalition of Standards (ECOS) and Transport & Environment (T&E) wrote to Finance Commissioner McGuinness announcing their departure from the platform.
“Relations between the Commission and the Platform have been very unsatisfactory,” the letter said. It said the Commission had interfered politically in the platform’s work on several occasions. It also would have repeatedly ignored the recommendations of the expert group without providing scientific justification for those decisions. The inclusion of natural gas and nuclear power would also have severely damaged the credibility of the taxonomy.
Another reason for leaving: The organizations fear that the future platform could be restricted in its independence and be more influenced by the Commission. The Commission plans to limit the mandate to the implementation of the current criteria and reduce the number of members. “This could deprive the platform of any possibility to extend its independent recommendations to expand the taxonomy beyond sustainable activities or to social issues,” the experts warn.
In fact, the platform in the upcoming mandate will be smaller than before: In addition to the seven permanent members, there will only be 35 selected members in this round instead of 50. However, most of the work has already been done, says Thierry Philipponnat. So the remaining, very technical part will also need less capacity.
The application process for the new platform, whose mandate is supposed to begin in early 2023, is still open until Nov. 9. The Commission has defined three focal points for the work of the new expert group:
Two additional subgroups to review the regulation and monitor capital flows will begin work for this purpose.
“The new platform will operate in a different context, as the development of the technical screening criteria under the EU taxonomy has progressed significantly and markets have started to use the taxonomy and other sustainable finance rules and tools,” a Commission spokeswoman explained in response to a Europe.Table request. “In this new context, the implementation and usability of the EU taxonomy and the broader sustainable finance framework becomes the key priority.”
All that is now missing is the second report of the technical working group, which sets out recommendations for updating certain technical review criteria and developing criteria for additional activities (including mining activities). In spring, the relevant subgroups of the platform submitted the final report on the social taxonomy and on the environmental transition taxonomy. What will become of these projects remains to be seen. At the request of Europe.Table, the Commission states that it is currently analyzing and reviewing both reports – these provide “suggestions for further reflection” but do not prejudge any decision or action.
However, hardly anyone expects the Commission to act anytime soon (Europe.Table reported). “The political appetite of the Commission to push for an extended taxonomy and a social taxonomy is very low at the moment,” says Thierry Philipponnat. “I regret that, but I think it will not happen in this Commission and this Parliament.”
A train journey between Brussels and Berlin takes just under seven hours. It’s a route that Martin Schirdewan knows well by now: In Brussels, he’s a member of the European Parliament; in Berlin, he’s co-chairman of the Left Party. Since June, the 47-year-old has led the party alongside Janine Wissler, thus playing a rare dual role between Brussels and Berlin.
“I have always been a very political person,” Schirdewan says about himself. He studied political science in Berlin and worked for the Rosa Luxemburg Foundation while still a student. Later he writes for the youth newspaper of Neues Deutschland and the magazine “antifa”. In the Left Party, he has been part of the party executive since 2012, and in 2017 he moved into the European Parliament, where he is part of the Left Party in the European Parliament (GUE/NGL).
Schirdewan’s grandfather is Karl Schirdewan, a former member of the SED Central Committee in the GDR. “The political discussions with my grandparents shaped me,” Schirdewan says, “especially when we had different positions.”
A party chairman who is also a member of the Parliament in Brussels – Schirdewan sees that as an advantage: “I think that can and will be an asset for my party.” Issues such as the energy and climate crises are negotiated in Berlin as well as in Brussels. Schirdewan wants to bring his European perspective to the table. He wants to show what the Left Party in Germany can learn from the other left parties in Spain or Croatia.
Right now, the energy crisis dominates the political debates; usually, Schirdewan describes tax justice as one of his most important topics. He is part of the Committee on Economic and Monetary Affairs, deals with the EU digital tax and the issue of money laundering.
In the EU Parliament, Schirdewan voted against Ukraine’s admission to the EU. In the same resolution, the Parliament also spoke out in favor of supplying weapons to Ukraine and strengthening NATO – the Left Party and Martin Schirdewan are against this. The Left calls for a diplomatic solution and European disarmament.
Schirdewan criticizes the European debt rules and calls for more rights for the Parliament. From the outside, it is often difficult to see how the parliamentary groups are positioning themselves, he says. MEPs should therefore be able to make legislative proposals, says Schwirdewan: “It would be nice if we could not only make smart proposals but also come up with real initiatives.” Jana Hemmersmeier
Reducing debt while simultaneously boosting investment is the feat that must be achieved in reforming the European debt rules. On Nov. 9, the Commission plans to present its proposal for reforming the Stability and Growth Pact. Christof Roche has found out what rules are up for discussion.
Today marks the end of the Platform on Sustainable Finance‘s mandate for the time being. Leonie Düngefeld looks back on the exciting work of the members and explains how things will – or will not – continue next year.
Also on today’s agenda: The German government’s Expert Commission for Heating and Gas will present its final relief concept. However, the cabinet will not be able to fully follow the approach taken in the interim report. For large industrial companies, it must take into account the new Temporary Crisis Framework adopted by the EU Commission on Friday. Read where Commission Vice President Margrethe Vestager sets stricter requirements in the News.
Control is one of Martin Schirdewan‘s central topics. The European parliamentarian is co-chairman of the German Left Party and thus plays a rare dual role between Brussels and Berlin. Read today’s Profile to find out what other positions he advocates.
The Brussels authority intends to present its communication on the reform of fiscal rules on Nov. 9. Currently, the documents are being coordinated internally, as Europe.Table has learned from Commission circles. The circles expressed confidence that a consensus among the member states could be reached quickly. The governments had been closely involved over the past weeks and months. The necessary legislative package to revise the Stability and Growth Pact could then be presented in the first quarter of 2023. A first discussion in the circle of EU finance ministers is already planned for the December Ecofin, it said.
EU Economic Affairs Commissioner Paolo Gentiloni had most recently underlined the need for revised budget rules at an event in Rome on Oct. 10. He said Europe was facing a challenging winter “as the Russian war continues, energy prices remain very high and inflation is reaching new records”. In addition, the pandemic has left public and private debt significantly higher, he said. The need to rebuild fiscal buffers is clear, he said. However, debt reduction strategies must be realistic if they are supposed to ensure stability and support growth.
“We have two mountains in front of us, a mountain of debt and a mountain of investment, and how we reconcile them is a key challenge we face in reforming our rules,” the EU commissioner said. Authority sources said the basic idea is to simplify the EU’s extremely complex budget rules while tightening enforcement.
To this end, member states are supposed to take more ownership of their debt reduction plans. According to the circles, the Commission’s considerations aim to have the EU authority bilaterally present a four-year plan to an EU member state to put its public debt burden on a credible downward path.
The member country can accept the plan or submit a counter-proposal – with a maximum term of seven years. Gentiloni had stressed in Rome that to ensure greater national ownership, member states could be given more leeway in proposing budgetary paths, provided that common EU principles – not least debt sustainability – were respected.
For example, reform and investment commitments could allow for a longer budgetary adjustment period. This would also be a way “to ensure that fiscal sustainability and growth can be mutually reinforcing,” he said.
According to the sources, with the new approach, the Commission wants to scrap the previous EU rule that required debt ratios to be reduced by one-twentieth per year by member states with debts above the EU ceiling of 60 percent of gross domestic product (GDP). This requirement had proved too rigid, especially since public debt ratios had risen dramatically since the pandemic. The use of a reduction in the structural deficit should also be ended, as this approach was too complex. Instead, the Commission wants to set a net expenditure path over several years in each national macrofiscal pan.
The primary indicator is supposed to be a country’s net primary expenditure, i.e., expenditure excluding the inclusion of unplanned revenues and interest expenses as well as expenditure for cyclical unemployment. The new rules would not affect the EU’s previous reference values, such as the upper limit for a public deficit of three percent of gross domestic product and a debt ratio of 60 percent of GDP, both of which are laid down in the EU Treaty. Once a debt plan has been agreed upon with a member state, there are to be annual progress reviews.
If a country fails to comply with the net expenditure path agreed with the Commission and the Council in the multi-annual plan or other benchmarks, the Commission threatens to initiate budgetary penalty proceedings. In this context, the development of public debt is supposed to be given much greater focus, and proceedings could thus be launched based on a country’s debt ratio, which has not been the case so far, the circles underlined. In the past, the proceedings had been opened exclusively based on excessive new debt of the member states.
The Commission and member states are under pressure to launch a new set of rules, as the current suspension of EU fiscal rules due to the pandemic is on hold until the end of next year. Observers in Brussels, however, believe it is not very realistic to complete the reform of the Stability and Growth Pact by the end of 2023. Berlin, for example, has considerable reservations about leaving the negotiations for the multi-year country-specific fiscal plans exclusively to the Commission and the member state concerned. Christof Roche
The members of the Platform on Sustainable Finance certainly did not expect this kind of turbulence when the advisory body began its work in October 2020. Fifty-seven experts from industry, academia, civil society and the financial sector, including seven directly appointed members from public institutions such as the European Investment Bank or the European Environment Agency, have since advised the Commission on the development of its sustainable finance policy. However, their approach caused a great deal of trouble in some cases.
Four of the platform’s six working groups had begun their tasks directly in the fall of 2020. Two further subgroups will not be established until 2023, as they require available data for their work. Based on a first report of the 2021 platform, the Commission already published a first delegated act setting criteria for the first two taxonomy targets (climate change mitigation and adaptation).
Another legal act addressing the remaining four objectives (sustainable use of water resources, transition to a circular economy, pollution prevention, and protection of ecosystems and biodiversity) is expected next year. A final report from the advisory platform’s technical working group with recommendations for the technical review criteria is still pending. In October, the platform released its report on Minimum Safeguards, as well as a report with recommendations related to data collection and usability of taxonomy reporting requirements.
Already when the first Delegated Act was adopted, several experts expressed concerns and the wish to revise some of the criteria of the act. This is actually also the task of the platform – but there was no time, one hears from members of the platform. All capacities were needed for the development of the criteria for the remaining four objectives of the taxonomy.
Nancy Saich, climate change expert at the European Investment Bank (EIB), tells Europe.Table, “My impression after two years of work in the platform is that the resources needed to develop taxonomy criteria for so many sectors are much greater than first thought.”
There were many more stakeholders to consult, more knowledge to bring to the process; after all, after the first piece of legislation, it was no longer a matter of just two goals, but four. “These goals have been less well considered in the finance world: Climate finance was already pretty well defined globally, but there was no equivalent for the rest of the green sector,” Saich says.
“Of course, not everything went smoothly,” says Thierry Philipponnat, who represents the NGO Finance Watch in the platform, as well. “There were some difficulties. But the work got done.” And the platform’s task, he says, is merely to advise the Commission. The latter is not obliged to then act on the recommendations, he says.
The accusation heard again and again inside and outside the platform: The Commission has not followed its own rules. The Taxonomy Regulation requires the Commission to establish technical assessment criteria that are “based on available scientific evidence.” Moreover, if a risk cannot be determined with sufficient certainty on the basis of a scientific assessment, the precautionary principle applies: Conceivable damage to the environment should be avoided in advance.
As a result of the delegated act, there is now no uniform standard based on the recommendations for the definition of sustainable electricity generation, for example: While all electricity sources are considered sustainable if they emit less than 100 grams of CO2 per kilowatt hour, this limit for electricity generation from natural gas is 270 grams of CO2 per kilowatt hour.
“For example, if you generate electricity in a waste incineration plant, you are not sustainable with 200 grams of CO2 per kilowatt hour, but with gas, you are sustainable with up to 270 grams,” Philipponnat says. “We, as experts of the platform, have pointed out to the Commission that this is not coherent.”
The nuclear issue was not about CO2 limits but about the possibility of significant environmental damage due to nuclear waste and the risk of severe accidents – i.e., disregarding the “Do No Significant Harm” criterion and the precautionary principle of taxonomy.
“There was no real study, no recommendations from the platform,” Philipponnat adds – while the Commission must wait for it before making a decision. Instead, on the evening of Dec. 31, 2021, some members of the Platform happened to see the draft Complementary Act in their email inboxes, asking them to provide comments within a week. The deadline was eventually extended to three weeks, but the Commission’s action had clearly created tension and anger among Platform members.
When the Parliament also voted in favor of the legal act in the summer, this broke the camel’s back for some members of the platform: Five civil society experts left the platform. In September, the WWF European Policy Office, the European Consumers’ Organisation (BEUC), Birdlife Europe and Central Asia, the European Coalition of Standards (ECOS) and Transport & Environment (T&E) wrote to Finance Commissioner McGuinness announcing their departure from the platform.
“Relations between the Commission and the Platform have been very unsatisfactory,” the letter said. It said the Commission had interfered politically in the platform’s work on several occasions. It also would have repeatedly ignored the recommendations of the expert group without providing scientific justification for those decisions. The inclusion of natural gas and nuclear power would also have severely damaged the credibility of the taxonomy.
Another reason for leaving: The organizations fear that the future platform could be restricted in its independence and be more influenced by the Commission. The Commission plans to limit the mandate to the implementation of the current criteria and reduce the number of members. “This could deprive the platform of any possibility to extend its independent recommendations to expand the taxonomy beyond sustainable activities or to social issues,” the experts warn.
In fact, the platform in the upcoming mandate will be smaller than before: In addition to the seven permanent members, there will only be 35 selected members in this round instead of 50. However, most of the work has already been done, says Thierry Philipponnat. So the remaining, very technical part will also need less capacity.
The application process for the new platform, whose mandate is supposed to begin in early 2023, is still open until Nov. 9. The Commission has defined three focal points for the work of the new expert group:
Two additional subgroups to review the regulation and monitor capital flows will begin work for this purpose.
“The new platform will operate in a different context, as the development of the technical screening criteria under the EU taxonomy has progressed significantly and markets have started to use the taxonomy and other sustainable finance rules and tools,” a Commission spokeswoman explained in response to a Europe.Table request. “In this new context, the implementation and usability of the EU taxonomy and the broader sustainable finance framework becomes the key priority.”
All that is now missing is the second report of the technical working group, which sets out recommendations for updating certain technical review criteria and developing criteria for additional activities (including mining activities). In spring, the relevant subgroups of the platform submitted the final report on the social taxonomy and on the environmental transition taxonomy. What will become of these projects remains to be seen. At the request of Europe.Table, the Commission states that it is currently analyzing and reviewing both reports – these provide “suggestions for further reflection” but do not prejudge any decision or action.
However, hardly anyone expects the Commission to act anytime soon (Europe.Table reported). “The political appetite of the Commission to push for an extended taxonomy and a social taxonomy is very low at the moment,” says Thierry Philipponnat. “I regret that, but I think it will not happen in this Commission and this Parliament.”
A train journey between Brussels and Berlin takes just under seven hours. It’s a route that Martin Schirdewan knows well by now: In Brussels, he’s a member of the European Parliament; in Berlin, he’s co-chairman of the Left Party. Since June, the 47-year-old has led the party alongside Janine Wissler, thus playing a rare dual role between Brussels and Berlin.
“I have always been a very political person,” Schirdewan says about himself. He studied political science in Berlin and worked for the Rosa Luxemburg Foundation while still a student. Later he writes for the youth newspaper of Neues Deutschland and the magazine “antifa”. In the Left Party, he has been part of the party executive since 2012, and in 2017 he moved into the European Parliament, where he is part of the Left Party in the European Parliament (GUE/NGL).
Schirdewan’s grandfather is Karl Schirdewan, a former member of the SED Central Committee in the GDR. “The political discussions with my grandparents shaped me,” Schirdewan says, “especially when we had different positions.”
A party chairman who is also a member of the Parliament in Brussels – Schirdewan sees that as an advantage: “I think that can and will be an asset for my party.” Issues such as the energy and climate crises are negotiated in Berlin as well as in Brussels. Schirdewan wants to bring his European perspective to the table. He wants to show what the Left Party in Germany can learn from the other left parties in Spain or Croatia.
Right now, the energy crisis dominates the political debates; usually, Schirdewan describes tax justice as one of his most important topics. He is part of the Committee on Economic and Monetary Affairs, deals with the EU digital tax and the issue of money laundering.
In the EU Parliament, Schirdewan voted against Ukraine’s admission to the EU. In the same resolution, the Parliament also spoke out in favor of supplying weapons to Ukraine and strengthening NATO – the Left Party and Martin Schirdewan are against this. The Left calls for a diplomatic solution and European disarmament.
Schirdewan criticizes the European debt rules and calls for more rights for the Parliament. From the outside, it is often difficult to see how the parliamentary groups are positioning themselves, he says. MEPs should therefore be able to make legislative proposals, says Schwirdewan: “It would be nice if we could not only make smart proposals but also come up with real initiatives.” Jana Hemmersmeier
