Rethinking economic governance: it’s time for a Sustainability and Wellbeing Pact

Ahead of the European Commission publishing a review of the EU economic governance framework this summer, the EEB calls for a new framework that is redirected towards a sustainability and wellbeing approach.

Although the consultation is still open on the website of the European Commission, civil society organisations and the general public could submit a response and have a say until December 2021. The COVID-19 crisis has shown once again that a reform is urgently needed to create a framework that works for the planet and people and is more gender-just, intersectional and democratic.

What does the EU governance framework do?

The EU economic governance framework consists of a number of different regulations, some of which are enshrined in the EU treaties. The European Commission has revised these rules and procedures several times in the past, making the whole fiscal architecture quite complex. There are two major rules under the current framework that decide how countries can or cannot spend money: 

  1. Member States’ public debt levels cannot exceed 60% of their Gross Domestic Product (GDP) 
  2. their deficit levels cannot exceed 3% of their GDP. 

If a country breaches these rules, they have to get down to these levels as soon as possible, which often leads to austerity as seen during the financial crisis in 2008. The rules are outdated and chosen arbitrarily, as they are not based on an economic assessment. 

Why do we need a reform now?  

The transformation of the economic governance framework could not be timelier: the COVID-19 crisis has once again shed light on the unsustainability of our current system. The European Commission has rightly activated the so-called “general escape clause” during the COVID-19 pandemic to provide Member States with the fiscal space to respond to the economic and health crisis and support their citizens. However, without an ambitious and far-reaching reform, there is a high risk of a repetition of 2008, and potentially the introduction of austerity measures across the EU, as the rules will be imposed again in 2023. To avoid this, we call for a number of reforms in our own response to the public consultation.

Reorientate the economy towards wellbeing

The EU economic governance framework focuses almost exclusively on macroeconomic factors such as GDP growth, budget deficits, debt levels etc. However, overall GDP growth should not be the objective for its own sake. It must be reoriented towards social, environmental and climate goals that enhance the wellbeing of the planet and current and future generations while respecting national democratic processes.

Eliminate the arbitrary rules on government debt and deficit spending

To improve the framework, the EU must eliminate the arbitrary rules on government debt and deficit spending and adopt more flexible rules and guidelines that take into account specific national contexts. For example, debt targets could be replaced with country-specific targets to account for country-specific circumstances. It is also important that the EU agrees on new rules before 2022 to avoid a return to austerity before the deactivation of the general escape clause in January 2023

Implement a sustainability and wellbeing pact

Ultimately, there is a need to amend the Treaty on the Functioning of the EU (TFEU) and to design and implement new flexibility rules and guidelines within a sustainability and wellbeing pact as a replacement of the Stability and Growth Pact (SGP). Treaty change is ambitious and takes time, but we have to start the process as soon as possible. In the meantime, we call for the revision of the economic governance review to exempt green and social investment from the rules of the SGP to ensure a socially just climate transition.

End support for environmentally harmful activities

The EU economic governance framework must ensure that EU and national budgets do not support activities that harm the climate and the environment. 

More transparency and democracy

The decision-making procedures under the current fiscal framework are secretive and thus far from being a democratic process. A reformed economic governance framework needs to be simpler and more transparent. Rules must be based on indicators that are directly verifiable, accessible to an open and democratic debate and support the transition towards a new economic system that prioritizes the wellbeing of people and the planet.

Account for gender and social justice and intersectional aspects

The economic impact of the COVID-19 crisis was hardest on women and marginalised groups as they are overrepresented in ‘’invisible’’ low-paid and service jobs (such as retail, hospitality etc.) that were heavily affected by lockdown measures. At the same time, the current rules imposed fiscal constraints such as austerity measures that disproportionately impact women and other vulnerable groups. Cutting back on public services often falls back on women, as they are expected to take on the bulk of the care work. This makes it all the more essential to create targeted funds and measures that address inequalities and the intersections between them and to recognise paid and unpaid care work as central components of both the economy and natural systems. 

We believe that a new governance framework that promotes an alternative political-economic system is needed. One that is more resilient, just, and explicitly prioritizes human (and non-human) well-being over economic growth.