The open letter by the Fiscal Matters coalition outlines a vision of a reformed EU economic governance framework that targets the roots of the social and ecological crises. It highlights a crucial time for transformative change in EU policy through adopting a Sustainability and Wellbeing Pact and a new EU fiscal framework that would enable a truly fair, sustainable, and future-fit economy.

Ahead of the European Council and the Commission’s orientation paper on economic governance and fiscal rules expected in October, the Fiscal Matters coalition that brings together civil society organisations, academics, think tanks, and trade union leaders published an open letter calling for deep and urgent reform to accelerate the green and just transition, restore trust in the EU and build a solid foundation for a sustainable future. With the end of the suspension of the EU fiscal rules in 2024, the letter emphasizes the necessity for the EC to present a comprehensive reform proposal of the EU’s economic governance through a democratic and transparent process that includes a formal role for the European Parliament (ordinary legislative procedure).

EU economic policy no longer delivers for the European people and nature with a growing green investment gap [1], persistent inequalities [2] and ongoing environmental degradation [3]. The letter asserts the need to adopt a long-term economic mindset allowing the next generation to enjoy better public services, lower inequalities, and healthy ecosystems.

The converging crises [4] require a complete rethink of the economy, shifting priorities from wealth to wellbeing, from consumption to quality of life, and from growth to equality. Rather than optimising outputs, we need a wellbeing economy, allowing everyone to enjoy a warm home, good health, strong relationships, and a habitable planet. 

The change from the Stability and Growth Pact to the Sustainability and Wellbeing Pact should be solidified in legislation and supported by effective mechanisms and relevant indicators. Such an economy should be based on well-paid, meaningful jobs that do not reinforce the endless treadmill. Such an economy would not only be more inclusive and equitable but also more resilient to future crises.

Closing the green funding gap could not be timelier. When European billionaires grow their wealth [5] as citizens struggle to pay bills [6], something is not going right. And austerity politics, arbitrary fiscal rules and stockpiling of sustainability risks can further worsen things. We need a framework that would not entrench our problems but help solve them. 

With environmental taxes accounting for less than 6% of total taxes EU-wide, green tax reform is urgently needed. The tax burden must be shifted away from labour to pollution and resource-use in combination with a more equitable redistribution of revenues. At the same time progressive and bold tax reforms should as a priority tackle the growing inequalities of wealth, including by introducing price caps and an EU-wide minimum corporate tax. We also need to rethink our approach to public debt, from limiting fiscal deficit ratios to the impact and quality of spending and its contribution to environmental and social objectives, paired with country-specific debt reduction pathways.

Reinvesting for an inclusive and flourishing society should be a central priority, facilitated through universal access to quality public services, social safety nets and a care economy so that no one falls through the cracks. Revenues generated by the well-designed fiscal system can prove crucial to accelerating the shift, including foregoing fossil fuels for accessible, affordable and nature-positive renewable energy. 

A complete rethink of our economy would enable humans and nature to thrive together in the long run. The time is ripe for an economic governance and fiscal framework that would undeniably steer us in this direction.

Katharina Wiese, Senior Policy Officer for Economic Transition and Gender Equality at European Environmental Bureau, said:

The adoption of the Sustainability and Wellbeing Pact has an extraordinary potential to realign our institutions and policies with the values that are the foundation of the EU and a livable future we want. It is time to become keenly aware of how our economic system shapes our shared world, and bold EU ambitions should be supported by instruments that enable change. The frameworks and indicators we use should truly serve people and nature, bringing us closer to a more sustainable and fair economy at every step. 

Marco Musso, Policy Officer on Fiscal Reform  at European Environmental Bureau, said:

The present moment is uniquely clear-cut. The reality check of our economic and fiscal policy triggered by COVID-19, the Russian war against Ukraine and the energy crisis has become too evident to ignore. Our current economic governance is unfit to address the complex socio-economic challenges of our time  and needs more than a quick fix. Redesigning taxation, redistributing wealth and redirecting funding towards a just green transition are essential steps on a much longer journey toward an inclusive and future-fit economy.

Notes to editors

The letter represents a continuation of a shared effort by civil society organisations, think tanks, trade unions and academics to transform EU economic governance. For more detail, please refer to:

Manifesto for a green, just and democratic European economy 

EEB position on the EU Economic Governance Frameworks 

Fiscal Matters coalition website

Footnote

[1]  Europe has a green investment gap that stands at €520bn. The financial flows need to realign with the below 1.5. Celsius warming goal stipulated by the Paris agreement.

[2] Inequality in the EU is manifested through multiple lenses, such as west-east divide, energy poverty divide, nutritional divide, gender pay and employment gap and environmental injustice. It is aggravated by limited inclusion of youth, women, people with disabilities, ethnic minorities and other vulnerable groups into democratic processes, while they are particularly hit by crises like COVID-19.

[3] The most recent State of the European Environment Report by European Environmental Agency highlights rapid biodiversity loss, increasingly alarming impacts of the climate crisis and unsustainable levels of resources consumption.

[4] This regards to the global social and environmental crisis, supply chain disruptions due to COVID-19 and intricate implications of the war in Ukraine for the future of democracy, civil society, and the global economy.

[5] During the Covid pandemic, in 2021 alone, European billionaires increased their wealth by $1 trillion.

[6] EU member states have been pushed to adopt tailored measures to support the most vulnerable social groups from the rising energy prices.