The European parliament elections, taking place on June 6-9 across Europe, will help set the direction of the European Union (EU) for the next five years. But with polls predicting an ever more conservative parliament, what is the future of green and just monetary policy in the EU?
During the 2019 elections, the message sent by European citizens was clear: we want climate and social justice on the agenda. The election results reflected these demands, as the majority of the European parliament agreed to start Europe’s green and just transition. This is what became the Green Deal. This political shift was mirrored in the European Central Bank (ECB), which decided to explicitly include climate considerations in its policies with the adoption of its climate action roadmap in 2021.
In the area of social policies, progress was made – with directives on minimum wage, platform work, and equal pay – but there clearly wasn’t the same level of ambition as for sustainability policy. At the same time, systemic injustices persisted and standards of living were eroded post-pandemic. Cost of living reached soaring heights following Russia’s aggression in Ukraine. While the ECB has attempted to battle inflation with interest rate hikes, it refuses to change policies despite the impact that high interest rates have had on the most vulnerable in society. This situation has left large segments of society feeling left behind. These economic difficulties along with misaligned climate policies even led to the farmers’ protests that shook Brussels and other European capitals earlier this year.
The European parliament is at the heart of all decisions made in the EU. As a co-legislator, it creates laws that apply to all 27 member States. Importantly, it is also the main oversight body of the ECB. It therefore plays a crucial role in shaping climate, social and economic policy.
However, furthering the green transition and fighting social injustice are far from being a priority for most political parties and future elected representatives. As laid out in electoral manifestos, their focus is on issues like competitiveness, security and Europe’s place in the world. This is already a reality: during the farmers’ protests, Commission president Ursula von der Leyen went to speak with chemical industry companies behind closed doors. Even the parties that do mention the transition only wish to implement existing legislation and avoid creating more.
Only the most progressive (and smallest) parties actually advocate for more green and social policies, including by getting the ECB to combat climate change and reduce inequality. The largest parties mostly ignore these topics, preferring to rely on the goodwill of private banks and companies rather than encouraging public financial institutions, like the ECB, and governments to fund the green transition. They are using the public backlash against green policies to reduce regulation for companies. Furthermore, economic inequality is visibly absent from the messaging of the centre and right-wing parties, despite citizens facing successive crises and suffering from rising costs of living.
How will this outlook affect green and just monetary policy in the future?
Firstly, a more conservative European parliament is unlikely to support central bank policies that would lower interest rates for green investments and boost employment across the EU. It would instead advocate to keep the ECB’s role strictly to limiting inflation. This approach would mean increasing or decreasing interest rates with no regard for how this influences financial flows towards green and dirty activities, and how it impacts wealth and income inequality. Without political endorsement by the parliament, the ECB would have a hard time justifying stronger climate action or incorporating inequality considerations into its policies.
Secondly, some members of the European parliament have already pushed back against the ECB’s commitment to support the green transition, denouncing it in public hearings. This opposition could grow even stronger given current political trends and may push the ECB to backtrack on its climate ambitions thus far. Earlier this year, as a follow-up to the climate roadmap, the ECB announced that it will consider the environmental impacts of its actions as part of its Climate and Nature Plan. But even in this context the ECB may backtrack on adopting lower interest rates for green investments, which it has spoken out in favour of the last two years. This highlights the tensions between the more progressive ECB executives and the more conservative ones. In this context, the European parliament pressuring the ECB to drop its climate action may tip the balance in favour of the latter.
Thirdly, shifting the responsibility for the transition to private banks and companies takes power away from public institutions like the ECB and the government, and gives it to private entities. However, the financial sector will not fund the transition by itself, it needs to be steered in this direction through regulation and public oversight. Additionally, the financial sector is in itself a vector for economic inequality as it concentrates money in the hands of the wealthy. We therefore need public financial and governmental institutions that will adopt strong policies to lead private finance towards the just transition.
Conclusion
The European parliament must seize its role as the democratic voice of EU citizens and support monetary policy for the benefit of people and the planet. The outcome of the election will have a direct effect on the political priorities of the Union, and these priorities must align with equality and climate justice. The threat of seeing the ECB turn away from reducing inequality and fighting climate change is real. Citizens must send a clear message: we want green and just monetary policy!