It works for both climate and growth

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The 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) (COP 27) will be held from 6 to 18 November 2022 in Sharm el-Sheikh, Egypt. Most of the 196 countries are going through multiple crises: energy, food, economic, health, debt, etc. France has an important role to play, but it seems otherwise.

The world is heading towards a “global catastrophe”., warns the UN. France currently invests the equivalent of 2% of annual GDP in decarbonisation, which will require at least double that investment by 2030. According to the challenges. France, which is facing major setbacks in the French economy should invest 100 billion a year to save the planet. Medef’s figure is 60-80 billion euros Additional investments are required each year to decarbonize France by 2030. Civil society pushes states to do more, faster and better.

How is the global economy doing? According to the latest Trade and Development Report 2022 published by the United Nations Conference on Trade and Development (Cnuced or Unctad in English), global economic growth will fall to 2.5% in 2022 and 2.2% in 2023. This slowdown will cost the world more than $17 trillion (20% of global income). for Europegrowth is slowing across the continent (2.7%), while inflation is showing signs of weakening (9.9%). For OFCE, the French Observatory of Economic Conditions, Household purchasing power is expected to decline by 1.4% (in consumption units) in 2022 and 2023, returning to 2019 levels. Since the pandemic, About 3% of the national wealth was spent on mitigating external shocks to the economy. By borrowing heavily from the financial markets, the government is at the end of its means. To fight inflation, the European Central Bank sharply raises interest rates and threatens growth (marginal lending rate increased to 2.25%. This necessary approach makes life difficult for businesses, households and the budget of a heavily indebted state. France will end up in slow and steady decline. How much credit can the government survive on with weaker growth, higher inflation and higher spending, with rising interest rates in a context of monetary tightening? The weakness of public finances that governments have shown in recent decades and the recourse to external debt through commercial banks leave France facing a “debt wall” that is difficult to overcome.

France will only achieve its goal of net zero CO2 emissions if citizens can co-finance it. Why not partially follow the Japanese example? It is the savings of Japanese households in their bank accounts that are used to buy Japanese bonds. Japan has just taken a unique decision: to invest 266 billion euros to revive its economy. This is a great support plan based on household savings. At the same time, the Bank of Japan is keeping key interest rates unchanged at a low level in order not to slow down growth.

But how can France finance this lack of investment? ? With the current economic situation, monetary authorities, especially in the eurozone, will appear disarmed. In the absence of new ingenuity, it is hard to see what new monetary instruments France can use to re-energize the public budget and make major climate investments. We need to create new citizen funds like in Japan, but with this adjustable booklets. These new products will have to be promoted by the State, which sets the rate (above the ECB’s 2% inflation target), exempts the interest collected from any tax and distributes the income. Much of this will have to go towards financing renewable ecological transitions, etc. This is the only way to invest today without increasing public debt and the deficit, and without improving the purchasing power of the poor and middle class. All with an environmental, social and inflation-free approach.

Understand the fiscal multiplier and the effect of government-directed citizen investment or public investment on inflation, growth and recession.

Budget multiplier It explains an important element of the economic policy of states: how does their budget affect the economy? It is a measure of the effect of a change in government spending on gross domestic product (GDP).

France missed their first chance. In 2020, GDP decreased by 7.9%. With 0.5% inflation and zero interest rates, it was necessary to invest massively: “During a crisis, and especially when monetary policy reaches the zero bound on interest rates, the multiplier increases and reaches higher values ​​between 1.3 and 2.5…” OFCE, in its study Public investment, Public capital and growth. But for France, INSEE observed the opposite of the 2008 crisis: “investments decreased in 2020 on a scale comparable to GDP“. in 2020 and 2021, according to the Banque de France 175 billion euros yet additionally saved (Covid forced saving). Amount that can be invested very quickly.

Citizen investments and inflation : today, after the stimulation of citizens’ investments, a positive demand shock will be followed by a very significant positive supply shock. As a result, the Central Bank does not need to raise interest rates in response to reducing inflation. Economic activity will be supported by a supply shock and the multiplier is stronger. OFCE analysis.

Civic investment and recession : several studies show that GDP multipliers for citizen or public investment higher during recessions. In the case of monetary union, the spillovers are even greater. The effect is higher in a a period of global recession or recession in the euro area. An increase in income due to the multiplier generates tax revenues that cover the government deficit.