



When Josep Borrell, the EU’s newly appointed foreign policy chief, recently caused outrage by dismissing young climate activists as flaky sufferers of “Greta syndrome”, he made not just a serious error of judgment but a serious mistake in macroeconomics. It was a mistake that is symptomatic of the dire state of European economic debate after a decade of austerity and schwarze Null (balanced budget) ideas.

“The idea that young people are seriously committed to fighting climate change – we could call it the ‘Greta syndrome’ – allows me to doubt that,” Borrell said, before going on to question their naivety about the cost of tackling the climate crisis.

“I would like to know if young people demonstrating in Berlin … are willing to lower their living standards to offer compensation to Polish miners, because if we fight against climate change for real they will lose their jobs and will have to be subsidised.”

In Romania, mining unions complain that measures intended to 'reskill’ miners, tested for the past 15 years, only benefitted decarbonisation firms

For Borell, greening the European economy is a zero-sum game, in which paying for the move to a low-carbon economy must come out of the pockets of German taxpayers.

Borrell’s views, however unpalatably delivered, are perfectly aligned with the flawed macroeconomics of the much-vaunted European Green Deal. The clue is in the name.

The European Green Deal is the European commission’s proposed €1tn plan to finance the transition away from fossil fuels to decarbonising Europe’s economy. But the commission quietly dropped the word “new” from original US plans for a green new deal, which of course echo Franklin D Roosevelt’s Depression-era economic New Deal.

Losing that “new” is a signal that the commission does not seek system change through ambitious green macroeconomics and tough regulation of carbon financiers. Rather, it takes a politics as usual, third-way approach that seeks to nudge the market towards decarbonisation.

The macroeconomics of the European Green Deal remains trapped in the black zero logic of austerity. Instead of ambitious green fiscal activism, it mostly reshuffles existing European funds through a logic of seed funding to mobilise private sector money. Public money will be used to take risk out of private business activities and finance a “just transition” mechanism that promises to protect groups like Polish miners after their coal mines close through retraining and reskilling programmes.

Miners leave the Wieczorek coal mine in Katowice, Poland. Photograph: Kacper Pempel/Reuters

But there is little guarantee that European taxpayer money will reach Polish miners. It will probably go into the pockets of decarbonisation “barons”: clever local elites who will funnel transition money to their businesses, just as land barons siphoned most of the subsidies originally intended for small farmers under the common agricultural policy.

Take Romania. Mining unions there complain that measures intended to “reskill’ miners, tested in the Valea Jiului region in Transylvania for the past 15 years, solely benefitted decarbonisation firms. Their connections to Romania’s political elites allowed them to capture the “market” for reskilling services, but private investment and jobs in new economic sectors never actually materialised.

In dismissing green macroeconomics, the European commission puts its hopes on private finance. The logic is that the state won’t have to pay if the private sector will, provided there is nudging from public funds to “derisk” green investments. Here, the commission seems to have powerful allies, such as institutional investors with trillions ready to be greened. Larry Fink, the head of BlackRock, one of the world’s largest asset managers, recently noted that “we are on the edge of fundamentally reshaping finance” by taking decarbonisation seriously. The turn to green finance is a welcome step given that BlackRock and other global investors have so far behaved more like greenwashing carbon financiers than responsible climate investors: talking green while consistently blocking climate shareholder resolutions.

But the danger is that the public money the commission plans to put into greening the European economy will instead merely subsidise greenwashing.

Think of it as a two-step strategy through which carbon financiers can turn climate into a profitable business.

The first step involves shaping the rules of the game, such as the “green list” of assets (or “green taxonomy”) currently being negotiated by the EU institutions. The EU taxonomy of sustainable activities has important advantages over the private environmental ratings (known as ESG ratings) currently used by private finance to identify green assets. Drawing on a broader range of views, including climate experts, the EU taxonomy sets a public standard of green that makes it more difficult for carbon financiers to purchase green ratings privately. Done properly, it could become a global standard for measuring and regulating the environmental performance of global finance.

But the EU list risks being watered down in the ongoing political negotiations over the exact details of what constitutes “green” activities. Already, furious lobbying has led to the inclusion of a category of “enabling” activities under the auspices of “pathways to green”. These could easily become loopholes for activities that are more brown than green. The incentive for carbon financiers is to stick the label green everywhere they can in preparation for the second step: persuading European regulators to promote (de-risk) green assets.



Meanwhile the commission refuses to talk about – let alone regulate – “brown finance”. Yet the strict regulation of brown finance could be a powerful tool for financing the European Green Deal. The commission could impose penalties on brown assets, either through taxation (a green FTT) or regulation, thus accelerating the switch to green assets.

Those outraged by Borrell’s dismissive remarks about Greta Thunberg’s generation should note that the real political battle is to ensure that the European Green Deal does not morph into the first greenwashed social pact between regulators and carbon financiers, between Brussels and local elites, exporting greenwashed finance standards to the rest of the world.

Climate activists should be pushing for a complete green economic agenda that recognises the critical role of green fiscal activism in organising the transition to low-carbon. It also means protecting public finances from carbon financiers, ensuring instead that private finance becomes the first lever in the climate fight.

• Daniela Gabor is professor of economics and macrofinance at UWE Bristol



