2020 in finance: what a difference a virus makes

December 21, 2020

“Fortitude under duress” may well be the very short summary of this never-ending year in European finance.Back in April, the EU found itself on its knees due to the economic impact of the pandemic, facing a crisis the likes of which living generations had never experienced. Economists in lockdown were punching numbers into their models to estimate what happens when you lose an entire quarter of economic growth, only to find out that weathering a financial storm of this magnitude was simply impossible for weaker, highly indebted economies such as Italy.

With one of the world’s largest public debts and the third largest economy in the EU, the Italian debt default is one of those scenarios that gives cold sweats to any policymaker, or central banker. In such a scenario financial unrest and an unstoppable capital ‘flight to safety’ would have caused a domino effect on countries not much stronger than Italy, such as Spain. A fully fledged financial crisis of this kind would have meant the end of union as we know it.

But in May the EU responded. Coerced into solidarity and innovation, heads of state decided to do the unthinkable: use Brussels’ institutions to foot the bill for the crisis. Next Generation EU, the union’s recovery plan, was announced by the European Commission in May. But only in July, after an epic marathon council meeting, did it become clear that the heads of government had changed the union’s ‘material’ constitution. Not just the size of the recovery plan, but the nature of it – the issuance of ‘common debt’ – were a clear sign that, post-Brexit and post-Covid, Europe was going to look increasingly more like the United States of Europe many had dreamt of since the second world war. These extraordinary, historic, circumstances have monopolised the entire year and the lives of many of us in public and private finance. In a fortnight Next Generation EU will be law. So, what next?

Will Europe seize the opportunity to ‘build back better’? Will the EU launch the green recovery that hundreds of NGOs, starting with T&E, and over a million Europeans have called for? 

It will take us the best part of 2021 to respond and, to some extent, the answer will depend upon our advocacy and campaigning work. The reason being: the historic ‘green’ spending plan, including the whopping €600 billion of ‘climate spending’ committed for the next seven years, has very few ‘green strings’ attached. The only agreement possible in Brussels was one vague on environmental conditionality. As a consequence, the handful of member states that will receive more than 50% of the funds (Italy, Spain, France and Poland) will receive very loose guidelines regarding the environmental quality of the spending. 

Next Generation EU dwarfed pretty much everything else in finance. Even the launch of the Taxonomy Regulation, the world’s most advanced set of rules for green finance, went somewhat unnoticed. And so did the birth of the EU’s new expert group, the Platform for Sustainable Finance, which will determine who’s green and who’s not for years to come. Things might change in 2021 as the experts cast their vote on aviation, shipping, bioenergy and many more controversial economic sectors that today have access to ‘green funding’ because of poorly determined criteria – such as those in the Renewable Energy Directive. 

We will never forget 2020. Its victims and innovations. But 2021 is the year in which we get the chance to really steer the course of the decade. No pressure.

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