Can Europe Make It?

A modest proposal for giving a soul to quantitative easing

Why not redirect quantitative easing towards funding environmental technology?

Francesco Grillo
17 December 2015
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Ban Ki-moon speaks at the Paris climate negotiations. Demotix/Jonathan Raa. All rights reserved.What do Mario Draghi and Ban Ki-Moon have in common?

Apparently nothing. The former is – together with Janet Yellen, Mark Carney and their fellow central bankers - one the few individuals who still have got the almost unlimited (as he recently reminded) and “independent” power to create money in order to save the stability of developed countries. The latter is permanently in search of sponsors amongst the shareholders of his club - the United Nations - for funding the cause of saving the world.

Since the crisis began, central bankers have injected about eight trillion dollars into the economies of the USA, UK, Europe and Japan.  The secretary general of the United Nations has just achieved the titanic target of having the rich countries to agree to spend an amount of money which is 80 times smaller (one hundred million dollars per year) to  curb the emissions of CO2, which could lead to a catastrophic increase in the temperature of the planet.

On one hand, we have lots of money, which is having a hard time finding ideas to fund: tons of liquidity is – by and large - stagnating in the coffers of banks and economies are not growing as desired because money is not reaching firms through the channels of more investments. On the other hand, there are lots of potential ideas – which are in theory linked to the overall mission to avoid the world dying due to climate change – with very little money to fund them.

The two agendas have so far been totally separated. They talk to different audience. They are even assumed to be in a trade off so that we need to choose between them: at the conference in Paris the entire diplomatic tug-of-war was about how to minimize the cost of reducing climate change or mitigating its effects.

Yet they can only succeed if they are linked together. Whatever quantity of money you inject in developed economies, this will only create dangerous bubbles if we do not find enough investments; however the scale of investments which is necessary to restart economies can be compatible only with a massive reconfiguration of how countries, cities, social systems operate. Investments as a replacement of old infrastructures or as marginal adjustments will never be sufficient.

Climate change and, more in general, the environmental challenge can provide just that: a grand transformation hungry of investments, ideas and technologies. 

The conversion from old fossil-based energy sources and distribution channels to a new layout centred around renewables where, in theory, each consumer can also be a producer of energy. The progressive replacement of a hugely obsolete technologies like fuel and diesel cars with electric vehicles but also with shared modes of transportation. A massive change in the infrastructure of cities in order to allow innovation like highly efficient self-driving car.

These are just some of the social, industrial, political challenges that the climate change story line only makes more urgent. They are not just a cost; but also a huge opportunity for investments: just what central bankers and governments obsessed with GDP growth rates are looking for.

In fact, one idea would be to qualify the “quantitative easing” that Draghi and his colleagues use as an attempt to wake up sleeping economies: it is fine to print money to buy bonds but the money should eventually go to whoever is investing in the infrastructure and technologies that we need in order to have a future. On the contrary, financial support to zombies, corporations and states which are quasi bankrupt and act as an obstacle to innovation, should be avoided. 

Undoubtedly the transformation will also have its losers and its risks. Oil based business, the largest legacy of an old world which still represents a large part of workforce and which still has the power to slow down progress, may lose a lot. The same may apply to the dictators who run most of oil exporting countries and for the multinationals, which sell them the weapons that they need to protect their position of rentiers.

However, it is important to falsify the assumption that both economists and environmentalists seem not to even discuss before sitting at the negotiation table. There is no obvious trade-off between transformation and economic growth. Actually one may argue that ambition and long term investments is exactly what both Mario Draghi and Ban Ki-Moon need to succeed.

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