The majority of EU member states will not be able to meet their targets for investment in schools, hospitals and housing under plans for new economic governance rules, a study for the European Trade Union Confederation (ETUC) has found.
The European Commission’s own figures show investment in Europe’s social infrastructure is already €192 billion a year less than required to meet the needs of citizens.
Investment needs to be raised annually by €120bn in health, €57bn in affordable housing and €15bn in education.
But a report for the ETUC by the New Economics Foundation has found that the proposed fiscal rules, which would impose arbitrary limits on debt and deficit from 2027, would mean that:
- 18 member states including Germany, France, Italy, Spain and Poland could not make the investments needed to bridge that gap (table 1);
- When green investment needs are taken into account, just three member states would be left with the fiscal capacity to meet the EU’s own investment targets (table 2);
- Even if the EU’s Recovery and Resilience Fund (RRF) was extended, only five countries would be able to meet their social and green investment targets.
Table 1: The 18 member states who can’t meet EU’s social investment targets
| Country | Low estimate of spending needed for social investment (% of GDP) | Low estimate of spending needed for social investment (Euro in 2021 prices) | Maximum spending increase under fiscal rules, 2027 (% of GDP) |
Maximum spending increase under fiscal rules, 2027 (Euro in 2021 prices) |
| Greece | 0,5% | 920 million | 0,5% | 900 million |
| Cyprus | 0,4% | 110 million | 0,2% | 50million |
| Bulgaria | 0,4% | 250 million | 0,0% | 0 |
| Portugal | 0,6% | 1.3 billion | 0,0% | 0 |
| Germany | 0,5% | 19.3 billion | -0,1% | -3.6 billion |
| Spain | 0,6% | 7.7 billion | -0,1% | -1.2 billion |
| Austria | 0,5% | 2 billion | -0,1% | -410 million |
| Latvia | 0,3% | 100 million | -0,2% | -70 million |
| France | 0,4% | 11.2 billion | -0,2% | -5 billion |
| Italy | 0,4% | 8.1 billion | -0,2% | -3.6 billion |
| Slovenia | 0,4% | 180 million | -0,3% | -157 million |
| Poland | 0,5% | 2.7 billion | -0,4% | -2.3 billion |
| Finland | 0,4% | 1 billion | -0,4% | -1 billion |
| Malta | 0,3% | 40 million | -0,5% | -80 million |
| Belgium | 0,5% | 2.5 billion | -0,5% | -2.5 billion |
| Romania | 0,4% | 1 billion | -0,5% | -1.2 billion |
| Hungary | 0,4% | 570 million | -0,6% | -920 million |
| Slovakia | 0,6% | 570 million | -0,8% | -800 million |
The findings of the report show how counterproductive the proposed fiscal rules would be to the EU’s social and climate goals at a time when the Commission’s own polling shows these are the priorities of citizens.
Instead of investing, member states would be forced to make cuts worth over 100 billion Euro in the first year of the implementation of the new fiscal rules.
The ETUC is raising the alarm ahead of the final vote on the new fiscal rules in the European Parliament on 22 April 2024.
The research further shows that an investment mechanism would need to be over three times larger than the RRF to stand a chance of mitigating for the damage of the new fiscal rules. As such, the need for an investment mechanism is clear but it can only deliver if the proposed fiscal rules are not applied.
ETUC General Secretary Esther Lynch said:
“Europe needs economic rules that put the needs of working people and the future of the planet first. The EU’s own polling consistently shows these are the priorities of European citizens and acting in complete contradiction to them just months from the elections is a recipe for disaster.
“The proposed rules will put a straitjacket on member states and stop them from making even the minimum investment needed to reach the EU’s own social and climate goals.
“This report makes the consequences clear: adopting the proposed fiscal rules would mean fewer hospitals, schools and affordable homes at a time when pressure is rising on all three.
“And against a background of low private investment, strangling public investment will prevent the European industrial policy needed to create quality jobs and drag us further towards another unnecessary recession.
“All of this is being done to achieve arbitrary limits demanded by outdated economic doctrines. The EU needs economic rules consistent with its social and climate policies.
"These limits on member states must not be approved. This research further shows there is a clear responsibility on the EU to put in place a permanent investment mechanism at EU level with the capacity to meet its social and green objectives, and to fund a real European industrial policy.”
Notes
ETUC Manifesto for the European Elections 2024: https://www.etuc.org/en/ManifestoEUelections24
Table 2: How much extra fiscal capacity each country would need to be allowed to meet green and social investments in 2027
|
Investment gap to be filled for green and social investment needs if country spends the maximum amount the EU fiscal rules allow, 2027 |
||||
| % of GDP | GDP (€mns, 2021 Prices) | |||
| Lower estimate | Higher estimate | Lower estimate | Higher estimate | |
| Estonia | 1,0% | 2,4% | € 300 | € 800 |
| Netherlands | 0,4% | 1,4% | € 3.500 | € 12.500 |
| Czechia | 1,5% | 2,3% | € 3.500 | € 5.600 |
| Luxembourg | 0,5% | 1,7% | € 300 | € 1.200 |
| Croatia | 0,6% | 1,8% | € 300 | € 1.100 |
| Lithuania | 0,5% | 1,7% | € 300 | € 1.000 |
| Greece | 2,3% | 3,6% | € 4.100 | € 6.500 |
| Cyprus | 2,6% | 3,0% | € 600 | € 800 |
| Bulgaria | 3,2% | 4,5% | € 2.300 | € 3.200 |
| Latvia | 2,1% | 3,1% | € 700 | € 1.000 |
| Portugal | 2,4% | 3,2% | € 5.200 | € 6.900 |
| Germany | 2,2% | 3,0% | € 80.600 | € 107.200 |
| Spain | 2,2% | 3,0% | € 26.400 | € 37.100 |
| Austria | 2,0% | 3,8% | € 8.200 | € 15.300 |
| Finland | 1,8% | 2,4% | € 4.500 | € 5.900 |
| France | 2,1% | 3,0% | € 53.300 | € 75.400 |
| Slovenia | 2,6% | 3,2% | € 1.400 | € 1.700 |
| Italy | 3,7% | 4,5% | € 66.900 | € 81.100 |
| Poland | 2,6% | 3,5% | € 15.000 | € 20.200 |
| Malta | 1,6% | 2,5% | € 300 | € 400 |
| Hungary | 2,9% | 3,8% | € 4.400 | € 5.900 |
| Belgium | 2,5% | 3,9% | € 12.500 | € 19.800 |
| Romania | 2,7% | 3,7% | € 6.500 | € 8.900 |
| Slovakia | 3,5% | 4,6% | € 3.500 | € 4.600 |
| EU overall | 2,1% | 2,9% | € 304.600 | € 423.900 |
Technical note: New Economics Foundation analysis of Eurostat data on GDP, gross fixed capital formation, CO2 emissions and social metrics and European Commission data on reference pathways under reformed fiscal rules and green and social investment gaps. We compare estimates of the social and green investment needs by country to the maximum amount countries could adjust their spending by under fiscal rules. We calculate the maximum amount a country can adjust as increasing their deficit to 3% if they are not breaching the 3% deficit/60% debt rules or, if breaching rules, the amount a country is expected to change its deficit by under its reference pathway for declining debt defined by the fiscal rules. To work out green investment need by country we adjust by CO2 emissions per € of GDP, therefore countries with higher levels of carbon emissions (relative to their GDP) are expected to have higher investment needs. For social investment need we look at both current government investment in social sectors and social metrics in those sectors - similarly, adjusting so countries with low levels of investment have bigger investment need and countries underperforming on social metrics should invest more. This gives us a lower and higher estimate for social investment need per country which is also adjusted by assumptions on the public-private share of investment, ranging from 50-90% of the investment gap being covered by public expenditure.
