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Ursula von der Leyen’s plans to increase investment during her second term are facing an unfortunate and unnecessary challenge as this The ECB continues to neglect its secondary responsibility to “support the general economic policy of the Union”. Esther Lynch.
Esther Lynch is Secretary General of the European Trade Union Confederation
this Political Policy Von der Leyen’s second term will see “stepped up investments” and she pledged to “unleash the funds needed for green, digital and social transformation.”
Von der Leyen: This term must be a time for investment Tell the European Parliament July 18th.
This was the core proposition that won her re-election with a larger margin. Strategic Agenda Decision is made by the heads of EU member states.
But the news from Strasbourg did not seem to reach Frankfurt. A few hours later, the European Central Bank announced that it would keep interest rates at historically high levels.
Not only has the ECB long neglected its secondary responsibility to “support the general economic policies of the Union”, it is now openly undermining those policies.
High interest rates hinder much-needed investment in the transition to a green, digital economy, which would create new, high-quality jobs while tackling climate change and boosting productivity.
The decision to freeze rates came despite the ECB saying “most indicators (of underlying inflation) remained stable or slightly declining.”
This suggests that, despite finally slashing interest rates from their absolute historic levels last month, ECB presidents are still clinging to a strategy that is ill-suited to the problems at hand.
this The bank’s own data Shows profits are the main driver of inflation from 2021 to 2023.
European Commission data Data showed that profits at companies across the European Union rose by nearly 2% last year, but wages fell after taking inflation into account.
Clearly, we are facing a profit-price spiral, not a wage-price spiral.
But, as A recent study by the European Parliament Explaining that “monetary policy does little to stop sell-side inflation.”
Instead, it has created further financial stress for already struggling working people who rely on credit not only to pay their mortgages but also to buy cars they need to get to work, everyday items like refrigerators, and even to pay their household bills.
As the authors of the parliamentary report, influential economists Isabella Weber and Jens van ‘t Klooster, point out, “Using monetary policy to respond to shocks would undermine precisely those investments (in clean energy) that are most needed to protect the European economy from future shocks.”
The current inflation crisis was primarily triggered by rising energy prices, especially oil and natural gas prices.
Last February, on the same day that the European Central Bank announced an unprecedented interest rate hike, oil giant Shell announced that its profits last year were 38.5 billion euros, double the company’s profits in 2021 and the highest level in its 115-year history.
It is logical, then, to increase investment in clean energy to reduce dependence on fossil fuels.
Borrowing costs, especially the high upfront costs of renewable energy, are often the largest component of the total cost of generating electricity. So it’s no surprise that companies are canceling high-quality, job-creating renewable energy projects (such as offshore wind farms with high upfront costs) in response to record interest rates.
It also hinders public investment, which President von der Leyen herself has said is key to unlocking private investment in the green transition.
Therefore, the ECB’s current interest rate strategy not only blatantly violates the central bank’s duty to support EU policies determined by elected leaders, but also goes against the Governing Council’s commitment to “integrate climate change considerations into monetary policy.”
And at a time when a massive increase in investment was needed, funds were allowed to pile up in the reserves of the world’s major banks.
For ordinary people, the result will be higher energy prices and fewer good green jobs.
A more effective way to combat profit-driven inflation would be to increase and properly enforce a windfall tax on excess profits of energy giants such as Shell.
The ECB recently opened Euro House in Brussels to bring its operations closer to EU institutions, which currently seem far apart.
The ECB has long punished working people for crises caused by corporate profiteering.
The ECB should ultimately do its best to get Europe investing again and lower interest rates as quickly as possible.
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