Von der Leyen warned: Don’t slap the bill for climate and industry on consumers

The influential Brussels think-tank Bruegel has sent a ‘memo’ to Commission President-designate, Ursula von der Leyen, warning her of over-burdening consumers during her likely second term.

Few economic think tanks get as much attention from decision-makers as Bruegel – one of the longest-standing non-affiliated Brussels-based research centres, the views the group shares tend to make their way into EU policy.

The think-tank sent a “President memo” – authored by director Jeromin Zettelmeyer and senior fellows Maria Demertzis and André Sapir – to von der Leyen on Thursday 4 July, outlining its ideas on the tasks awaiting her in the upcoming mandate.

“The best way to understand this is the trade-offs,” Demertzis, also a professor of economic policy at the European University Institute, told Euractiv.

The first trade-off the Commission will face is on the need for money: re-armament, climate protection, digital infrastructure, and Ukraine reconstruction.

“But fiscal space is tight, and raising own resources or agreeing to new EU borrowing will be difficult and divisive,” the experts note.

The second trade-off is on the need to accelerate decarbonisation, at a time when opposition is heating up against what is seen as too-pervasive regulation .

“We know that decarbonisation is probably going to hamper growth, at least in the short run,” said Demertzis, “but we have to do it anyway.”

More specifically, the experts warn in their memo that “higher and broader carbon pricing will further strain social cohesion and fan polarisation around climate action,”– with the EU’s Emissions Trading Scheme 2 (ETS2) in mind, the EU’s new carbon price for heating and driving, which will start hitting European consumers in 2027.

Thirdly, they expect industrial policy to play an ever bigger role, which they say is required due to the need for economic security and an accelerated green transition – but it may hurt growth and upset international trading partners.

This, again, could land on the shoulders of consumers, said Demertzis. “If we follow industrial policy, the consumer pays a higher price than normal,” she said, “because industrial policy means that we are bypassing what is competitive in the economy.”

Newly-imposed tariffs on China-made EVs might be a case in point, which in an optimistic scenario will not increase consumer prices that much, but in the worst case could make green tech more expensive and reduce consumer choice.

“On top of it, we’re going to tax the consumer as well, because how can you pay all of this without tax money?” she added.

For as sensitive the policy objectives – defence, climate protection, and an industrial future – may be, a even more thorny task for von der Leyen will be to distribute costs fairly.

“The EU cannot allow for the cost to fall disproportionately on some segments of society, particularly the weak ones,” said Demertzis.

Though conceding “there is a good reason why consumers need to adapt their behaviour,” the Bruegel fellow argued “somebody [will need] to sit around the table and draw this up.”

“So if we’re going to do the ETS2, then what else are we going to do that is not going to necessarily fall on the consumer?” she asked.

Which brings us back to the point on what “own resources” the bloc can count on.

“Identifying common resources to pool common goals is the right way of doing this,” she said. That would mean identifying “what are the strategic investments for Europe for the next five years, and financing them at the European level.”

Her fear is that – if left alone with the targets – national governments could implement policies in a way that is problematic for poorer households. But “if we pool things together in Europe, we can actually do this in a much more equitable way, because we will be directing it exactly where it needs to go.”

While the emphasis on the need for continued EU investment tackling upcoming economic challenges echoes calls from a broad range of stakeholders, the recommendation of pooling together additional funds, could face intense opposition during a mandate dominated by centre-right politics.

What direction will the Commission go? A first signal might come from former European Central Bank chief Mario Draghi, who is expected to present policy recommendations over summer that could provide a close representation of what the EU executive will prioritise over the next five years.

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[Edited by Anna Brunetti/Rajnish Singh]

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