From JTF to COVID and back

On 14 January, while Wuhan was experiencing a spike in new coronavirus cases, the EU bubble was abuzz with comments on the new proposal by the EU Commission: the Just Transition Mechanism and related Just Transition Fund (JTF). Conceived as an integral part of the EU Green Deal architecture, the JTF targeted the socio-economic impact resulting from the decarbonisation of industry and service sectors and the shift toward more sustainable modes of production and consumption. Economic and geographical criteria629213_EN.pdf) were devised to define possible deployment of the €7,5 billion figure proposed by the Commission for the JTF.

The failureof the budgetary negotiations in the EU Council, however, exposed the underlying complexity of finding the required additional “fresh money” in the EU budget. EU governments had already been scrambling on the post-Brexit long-term budget of the EU: Few leaders, if anyone at all, were ready to commit to an increase of their country’s contribution to the EU coffers to match the original EU Commission proposal. Finding consensus on additional budget for environmental policies without down-sizing other budget lines looked like a “mission impossible”.

A few EU Council videoconferences later, and with a full-fledge Corona crisis unfolding across the EU, the EU Council gave the green-light to the mobilisation of €540 billion to support three safety nets for workers, businesses and countries by 1 June 2020. A clear signal of how dramatically priorities have shifted since the start of the pandemic. The EU Commission has now been entrusted with the thorny task of preparing a first proposal for a Corona Recovery Fund and link it to a revised Multi-Annual Financial Framework (MFF) for 2021-27.

EU leaders are increasingly worried about the socio-economic impactof the past month of Corona-related restrictions and of the upcoming phases of coexistence with the virus. Still, the climate crisis has not disappeared. The need for a “green recovery” has been highlighted by all three EU institutions, with EU Commission President von der Leyen pledging for a EU Green Deal working as the motor of economic recovery. Is Corona offering an opportunity for revamping plans for a Just Transition?

Leaving no-one behind

Socio-economic and labour market issues loom large in the current EU response to Corona. So did they, even if on a smaller scale, in the framework of the Just Transition Mechanism. Economic revitalisation and social support were two main areas of implementation for the JTM under the motto “No one left behind”. Investment in research and green technology uptake by firms, financial and technical support to SMEs, but also re-skilling of workers and measures to support jobseekers were originally intended as complementary tools in the wider EU Green Deal framework. Now, they could play a more central role in the recovery from Corona.

If the original idea behind the JTF had been to support businesses, workers and public authorities in their shift toward decarbonisation, energy efficiency and circular economy patterns, now the new strategy could be that of directly structuring socio-economic recovery from Corona to achieve such objectives. Surely, the original plans for the Just Transition Mechanism and the JTF should be consistently revised – and budget lines expanded – in order to address the scale of Corona crisis.

The €7,5 billion figure assigned to the JTF had been already criticised as widely insufficient to address the costs of potential layoffs and re-skilling schemes throughout the transition to climate-neutral industries. Recent studies highlighted that, for the 2021-27 period, up to 1,6 million jobs could be affected in the energy sector alone. Today, the Corona crisis poses even higher pressures on most EU sectors and on a large share of the EU working population. The size of the recently implemented SURE scheme – €100 billion in loans for temporary mitigation of unemployment risks – gives a partial hint of the financial largesse a synergic Green-Corona recovery could entail just for addressing labour market policies.

To strengthen EU action, state aid measures at Member State level could also be integrated in such a recovery framework at EU level, achieving better coordination of public interventions in the area of climate change mitigation and avoiding excessive disruptions to the Single Market. However, since the temporary state aid framework adopted by the Commission to address the Corona crisis does not include “green” clauses, EU capitals are intervening with public subsidies at their discretion, potentially further fragmenting EU environmental action as a whole. Furthermore, in this uncertain scenario, business and workers’ representatives may be reluctant to commit to further structural changes in the name of an EU-wide green transition, especially if no coherent policy – and budgetary – framework is implemented by all EU countries.

MFF Vs Corona

The recent suggestion of a €1,5 trillion recovery package by Economy Commissioner Gentiloni may sound impressive, but it falls short of specifying to what extent it would be tied to environment protection and climate neutrality targets. What is more, it does not confirm how such an amount would be made available to support economic recovery in the EU, and the EU bubble is well aware that the next round of budgetary fight is about to begin.

The new north-south rift emerged in recent heated arguments over the possibility of debt mutualisation at EU level to finance Corona recovery. While the option of “coronabonds” did not survive the last round of negotiations, the rift is still very much open on deciding whether to deploy a mixed scheme of loans and grants as suggested by the Commission. The latest Eurogroup meeting has in the meantime found a preliminary agreement on the deployment of the loan-based ESM Pandemic Crisis Support, with lighter loan rates and fiscal policy requirements to appease the southern front. Still, the pressure on Commission officials and budget negotiators is mounting, knowing that any further delay in kick-starting a Corona recovery plan might further accrue to what the EU Central Bank already defined as an “unprecedented contraction in economic activity”.

The Council request to link the Corona recovery package to the EU Multi-Annual Financial Framework (MFF) further raises the stakes at play. On one side, combining the recovery plan with the EU long-term budget would allow the EU to exert a more direct control on how the money is spent, therefore potentially strengthening the climate neutrality and Just Transition dimensions. On the other, however, linking the two instruments might risk stalling budgetary negotiations altogether.

Reaching an agreement on the MFF is a notoriously complex and time-consuming affair, not only because of the differing economic perspectives among EU Council members, but also for the difficult relationship between EU Council and EU Parliament when it comes to the EU budget.The launch of the recovery package could end up being stuck in the MFF quagmire, a nightmare for Commissioner Gentiloni, who wishes the recovery strategy to start in the second half of 2020: “Waiting for a year is out of the question”, he stated.

Sensing the political atmosphere, the German government is getting ready to lead the EU Council presidency from 1 July with a revised programme, prioritising the exit-strategy from the Corona Crisis and a revised EU budget.While the Commission looks committed to keep the EU Green Deal as a key element of the recovery, budgetary negotiations tactics and Corona-induced pressure could dampen potential policy synergies and lower the level of ambition in the climate action dimension.

Crucial weeks lie ahead

As the Commission’s work on the new budgetary proposals evolves behind closed doors, it is still early to say how the combination of Corona recovery package with the MFF will play out. It will be interesting to see if and to what extent such combination will allow the adaptation of the original Just Transition strategy into a tool for an environmentally sustainable socio-economic recovery. As we have seen, the challenges ahead are plenty, the time to address them limited, and motives for political squabbling potentially endless. Good luck Ursula.