Summary by Antigoni Voulgaraki, MSc European Law and Policy, Scientific Associate ΕΝΑ →


The last period has been crucial for decision-making on law-making at EU level. In the shadow of an ongoing triple threat (energy, climate, and the risk of de-industrialisation), the European Union is pursuing objectives dictated by growing challenges such as ensuring energy sufficiency in terms of affordability, strengthening European industry, meeting climate objectives and reshaping supply chains for strategic products.

In this context, the European Commission presented specific proposals for Regulations in an effort to respond to geo-economic challenges and to strengthen the regulatory framework which governs key areas of the Green Deal. Among them, the most important are the Net-Zero Industry Act, the Hydrogen Bank, the Green Deal Industrial Plan, and the Critical Raw Materials Act.[1] At the same time, the conclusions of the recent European Council (29 and 30 June) confirm the importance that the EU attaches to the resilience of the European economy and its long-term competitiveness, which it links to accelerate the green transition.

However, these initiatives are subject to financial constraints linked to the nature of the European structure, the complex decision-making processes and the unequal opportunities for counter-cyclical economic policy-making by Member States. In this context, as there is no common fiscal policy, and given the huge investment spending required to tackle the triple crisis, the question is whether these policies and objectives can be implemented smoothly in a broader context of uncertain prospects for economic growth, monetary tightening, and fiscal restraint.

The latter restriction – in combination with the new interest rate strategy of the European Central Bank (ECB) from 2023 to tackle inflation- becomes more important if we consider the deactivation of the “general escape clause” of the Stability and Growth Pact from 2024, as well as the tendency of European companies to revise their investment plans at the expense of Europe and in favour of the US, especially after the issue of  the US IRA (Inflation Reduction Act) program which predicts the use of 369 billion euros in order to attract investment.

“Green” finance is the biggest challenge of the decade

The urgency of the climate and energy transition highlights the financing of the necessary investments as a major issue. The ‘financing or investment gap’, which is now explicitly recognized by all organizations highlights also three further issues: a) the level of financing (i.e. whether the planning and the mobilization of funds will be done centrally by the EU or nationally by Member States), b) the role of the public sector in achieving climate-energy objectives, c) the role of the economic policy instruments.

According to the International Renewable Energy Agency (IRENA), annual investment in clean energy technologies must exceed $5 trillion globally in order to achieve containment at 1.5˚C by 2050. The International Energy Agency’s assessments are similar, with the necessary investment in clean energy estimated at $44 trillion, 80% of which is for clean technologies. The result of a recent survey showing that 41% of planned investments by 2050 will be in conventional fossil fuels, is in clear conflict with the need to finance the economy in terms of long-term sustainable development.

Regarding the European financial needs, it is noted that the Commission’s initial forecast of additional annual investment needs of €260 billion, with the revision of the 55% emission reduction target under Fit for 55, now stands at €350 billion, an estimate that is considered to be underestimated.[2] In the same vein, the European Investment Bank estimates that €400 billion is needed every year until 2030 if the EU is to “catch up” with the interim target of 55% emissions reduction by the end of the decade.[3]

The economic divergence between European countries as a threat to the success of the transition

Taking as a starting point the assumption that the private sector is not sufficient to mobilise large-scale capital (a position supported by the World Economic Forum in Davos), and that some investments do not always meet the profit maximisation criterion (e.g. large-scale infrastructure with huge initial cost, sustainable public transport, infrastructure for the adaptation to the impacts of climate change), it is clear that the green transition requires significant involvement of the public sector.

Subsequently, the significant role of public investment in the achievement of the green transition raises concerns about the possibility of divergences between Member States. States with tight fiscal margins are de facto at a disadvantage compared to others that have fiscal flexibility and can undertake public investment. Therefore, it is concluded that ‘transition risks’, i.e. risks describing the economic and fiscal costs of policies related to mitigation and adaptation to climate change, are differentiated across Member States.

Additionally, there is a similar variation between European countries in terms of their exposure to climate change. For example, the countries of southern and south-eastern Europe will become “climate hotspots” and they will suffer disproportionate environmental and economic impacts. For countries with reduced levels of fiscal sustainability (such as Greece), this means that adaptation to the new climate conditions will automatically become more difficult. A double vulnerability (fiscal and climate) therefore arises, with major risks for economic growth and social cohesion in general.

The recent study by the New Economics Foundation captures the issue of divergences and inequalities between European countries, predicting in particular the following:[4]

– 13 Member States (50% of EU GDP)[5], including Greece, will not be able to make the necessary green investments to meet even the minimum climate targets without not violating the deficit and debt targets.

– On the contrary, only four countries are in a position to increase spending in order to meet the most ambitious climate targets set by the Paris Agreement (Sweden, Ireland, Denmark, Latvia, i.e. a total of 10% of European GDP).

One area in which the possibility of economic divergence between Member States is evident is the industrial policy.[6]  The huge contribution of industrial activities to the climate crisis means that European industry needs to be reshaped as a whole. At the same time, the green transition creates important opportunities for new industrial sectors and green innovation. However, the lack of a common European industrial policy, combined with existing inequalities between Member States and the strictness of European budgetary rules, suggests that Member States will not bear the costs of new green industrial policies and regulations equally and will not participate equally in the growth opportunities of green industry. Fiscally weak states will not be in a position to radically change their industrial patterns. This perpetuates a pattern of economic inequalities between European countries, brings back the ‘two-speed Europe’ debate and threatens the success of the green transition and cohesion between European countries.


It is clear that the EU is seeking to strike the required balance between achieving green objectives during the redesigning of its energy policy and returning to strict economic policies, as indicated by the removal of the “general escape clause” of the Stability and Growth Pact and the restrictions on subsidies in the new electricity market which is currently under design.

At the same time, initiatives such as the proposed legislation reflect the will of the European leadership to find solutions in a fast-moving world in which its main competitors are proving to be faster and more effective in adopting measures.

The critical questions are whether the policy being followed is sufficient to meet investment needs and whether there will be joint planning at the European level or whether Member States will bear the financial burden individually.

In the scenario where the implementation of investments is left to national budgets (and thus to the budgetary discretion of each Member State), the question of unequal opportunities and disparities between Member States arises, while in the scenario of European funding, the question arises as to the amount and duration of the funding, and whether the resources will be new and additional or whether they will be saved from other Community actions.

Undoubtedly, however, the restrictive fiscal policy that is now being pursued seems to leave no room for ambitious national investment plans, especially for countries with fiscal constraints like Greece. As a result, the debate on the transformation of the Resilience and Recovery Fund into a permanent financial instrument, as well as the necessity of overcoming fiscal constraints and adopting a ‘green golden rule’ that would exclude green investments from the calculation of the budget deficit, is increasingly emerging in the public debate.[7] This new fiscal and growth approach would prevent the fragmentation of the common market due to the uneven investments and national subsidies that Member States can provide to their economies.

In conclusion, the above challenges require the adoption of a holistic and long-term investment plan by the EU that will translate the objectives of the Green Deal into sustainable investment projects, taking into account the specific circumstances and needs of each country and region. The adoption of such an investment plan would offer predictability (a crucial aspect for public and private investment bodies), sources of financing (with an emphasis on the long-term horizon and given the expiry of the NextGenerationEU in 2026), improve the competitiveness of the European economy (vis-à-vis US and Chinese companies), and finally, promote the EU’s ‘strategic autonomy’ (by mitigating the need to import energy, critical raw materials and technological products).




[1] For a more detailed description and for a critical overview of these proposals, see in particular the working paper “The energy and green transition in Europe and the challenge of finding resources”, in the context of the special feature of the Sustainable Development Observatory of the ENA Institute for Policy Alternatives on the economic challenges of the green transition. Available at:

[2] For a more detailed overview of this issue see the relevant study of the Sustainable Development Observatory of the ENA Institute, p.4-9, March 2022, “Objectives, priorities and policies of energy transition in Europe and Greece”, Available at:

[3] See Energy Overview 2023, European Investment Bank, Available at:

[4] See “Half of Europe unable to spend enough to meet climate targets under current borrowing rules”, New Economics Foundation, 28.04.2023, Available at:

[5] These countries are France, Italy, Spain, the Netherlands, Poland, Belgium, Finland, the Czech Republic, Portugal, Greece, Hungary, Romania, Croatia and Spain.

[6] See the interview of Sebastian Mang, Senior Policy and Advocacy Officer, New Economics Foundation (NEF), for ENA’s Sustainable Development Observatory special feature “Economic challenges of the green transition”, Available at:

[7] See “Making Next-Generation EU a permanent tool”, Foundation for European Progressive Studies, March 2023, Available at:, and “A role for the Recovery and Resilience Facility in the new fiscal framework”, Bruegel Institute, January 2022, Available at: