Climate Crisis

In the summer of 2003, a heatwave engulfed Europe. It would become one of the continent’s most devastating natural calamities in a century. It cost over €13 billion and killed tens of thousands of people. (The most widely cited number is 35,000). At one point, the average maximum temperature in Paris that summer was almost fifteen degrees Celsius higher than usual. High temperatures persisted for over three weeks. Such events are ten times more likely now than they would be without climate change.

The UN’s World Health Organisation (WHO) estimates that, by 2030, the health crisis associated with a changing climate will, on its own, cost between $2 and $4 billion per year globally. An additional 100 million people will plunge into poverty. Between 2030 and 2050, climate change will annually kill about 250,000 additional people, an estimate that the author of the WHO study has called “conservative”. Droughts and other disruptions to water supplies will affect food production, and the changing climate will increase the risk of conflict. Sub-Saharan Africa is particularly at risk of civil war, with an additional 393,000 battle deaths projected by 2030 at current rates of warming—exacerbating the crisis of involuntary migration.

More alarming than the lethal nature of the climate crisis is its permanence, leading activists to frame the threat as an extinction-level crisis. A paper published in the Proceedings of the National Academy of Sciences in the United States showed that the effects of climate change caused by carbon dioxide emissions will be irreversible for 1,000 years after emissions stop. If global temperatures rise by more than 2 degrees Celsius, we could enter a “hothouse Earth” state in which the planet itself begins to emit greenhouse gases. 

In that scenario, we will eventually face the hottest temperatures since paranthropus went extinct 1.2 million years ago, when a changing climate destroyed our ancient cousin’s main food source. Current sea levels are predicted to rise by one metre by the end of this century, which could displace tens of millions of people from countries most vulnerable to climate change. In a hothouse Earth, sea levels could eventually rise by 10-60 metres, affecting at least a tenth of the world’s population and sinking all of Europe’s coastal cities.

Those with the least economic resources would be hit hardest. According to an Oxfam paper from 2015, the richest 10% of people are responsible for 49% of all lifestyle consumption emissions—a measure of what we emit in our everyday lives. Their carbon footprints are, on average, 60 times higher than those of the poorest 10%.  At the same time, just 100 companies are responsible for 71% of all global emissions. The top ten alone are responsible for over a third.

Austerity Politics

The destruction of our natural world has amplified the other crisis plaguing our continent: austerity. In 2008, the collapse of the global banking system ground our economy to a halt. The crash originated in the United States, but quickly spread to Europe, where the private debt crisis turned into a sovereign debt crisis. In parts of Europe, unemployment tripled. It continues to increase across the eurozone. Instead of rethinking the broken assumptions underlying the system, the political establishment rallied to save it, taping over the cracks to stave off the next collapse.

The dogma that governments could not deficit spend meant cuts were inevitable. So, the bank bailouts were financed through austerity, invoicing the poor for the failures of the rich. The devastation of this era is difficult to overstate. In southern European countries like Portugal, Italy, Greece and Spain it has led to dramatic worsening of living standards, decimating of large parts of the welfare state, ballooning youth unemployment and firesale privatisations.

In Britain, the income share of the top 1% halved from about 12% to under 6% between 1950 and 1979. It is now above 14%. Almost 31% of children live in poverty, 70% of them in working families. Schools, where some children stuff their pockets with food so they can eat at home, have become a front-line social service for many families. Life expectancy is in decline. Violent crime is at its highest in more than a decade. Annual wage growth has been lower than at almost any point since the 1940s. The free-market reforms of the 1970s brought none of the anticipated benefits to GDP growth, and its deregulatory agenda strengthened the power of international finance. Bankers now earn more than anyone else.

Public investment has collapsed, just at a time when urgent action on climate change is needed. Before the euro crisis, the eurozone invested just under 1% of GDP in infrastructure—already a paltry sum. Most of that came from Greece, Ireland, Italy, Portugal and Spain. By 2012, those five countries’ investments had reduced by 40%. Across the euro area, net public investment has hovered around zero since 2014.

The withdrawal of the state from public life has created an opening for the resurgent far-right, which has seen the biggest gains in popularity since World War 2. In an increasingly oligopolistic market, firms engage in rent-seeking. These resources (higher wages for bankers, higher returns for shareholders) are diverted away from productive investment in the economy. A study led by Andrew Baker at the University of Sheffield estimated that the financial sector sapped the British economy of over £5 trillion between 1995 and 2015—three years of GDP. Just as we begin to grasp the existential threats posed by the climate crisis, the state has receded, leaving us without the tools necessary to overcome historic challenges.

A Radical Break

The dogma that state intervention into the market is to be avoided at all costs was never applied to the elite. After the financial crisis, governments came up with a way to keep the banking system afloat. Central banks injected gargantuan sums of money into the banking sector by buying financial assets from private banks in the hope that they will invest the money back into the economy. They called this quantitative easing (QE).

Between 2009 and 2019, the European Central Bank pumped almost €2.6 trillion into the banking system. At one point, the programme was worth €30 billion a month. If half that spending was sustained for twice as long, it could be enough to end global poverty. In the United Kingdom, the Bank of England’s QE programme, which is still in place today, injected £435 billion into the banking system. The United States spent over €4 trillion—about equivalent to its budget for World War II.

The programme, by many measures, was a failure. The low investor confidence caused by austerity meant that banks didn’t lend the money back into the real economy. Instead, they went on a stock- and bond-buying spree. This gave us the paradox of rising stock prices and plummeting investment. Since stocks also tend to be held by the wealthy, QE programmes supercharged wealth, while cuts to social spending removed a key buffer protecting the vulnerable against inequality in economic downturns.

Banks prefer conventional investments that produce short-term gains. And, in partnerships between public and private banks, which support longer-term and more socially-oriented financing, the investments tend to be backed by public guarantee. In this model, investment risk is socialised while private banks keep the gains. This underscores a bigger point: private banks are fundamentally ill-suited to funding solutions to the climate crisis.

The incentives just aren’t there. The scale of investment required would also contribute to the banks’ status as “too big to fail”—and therefore also to their political power. (After all, it was the capacity of individual banks to destroy national economies that pushed governments into QE.) Today, the bankers’ best idea for solving the climate crisis is the rehabilitation of collateralised debt obligations—complex, opaque financial instruments that contributed to the recession just ten years ago.

More nefariously, global finance continues to find the allure of dirty profits irresistible. Since the Paris Agreement was adopted in 2016, just 33 global banks provided $1.9 trillion in financing to the fossil fuel industry. Jamie Dimon, the CEO of JP Morgan who earns about $30 million a year, recently described socialism as necessarily producing “stagnation, corruption and often worse – such as authoritarian government officials who often have an increasing ability to interfere with both the economy and individual lives.” In 2008, JP Morgan received a welfare payment of $35 billion from the US government. The bank is now fronting an investment worth as much as $30 billion in Aramco, the Saudi government-owned oil giant that comes second only to China as a contributor to global warming.

Our financial system is the fuel of the climate crisis. By continuing to fund fossil fuels and by failing to invest in our future, private banks have shown themselves to be an obstacle to solving the twin crises of austerity and climate change. This is why we need to break finance’s stranglehold on investment.

Emergency and Opportunity

In 1939, Keynes began to set out his case for the financing of World War II. He argued that government spending to supply the war had to increase to the limits allowable by Britain’s resources. But, unconstrained, the spending risked causing an inflationary spiral of rising wages and rising consumption. This would have diverted money from the war effort. Taxation alone would not be a panacea. Increasing taxes on the working-class would squeeze workers’ paycheques and weaken wartime morale.

To avoid inflation, the policy had to curb consumption by absorbing excess liquidity. It did so by making government bonds available to households and investors. But Keynes went further, suggesting a programme of “compulsory savings”. All excess income above a certain amount, Keynes said, should be retained by the government until after the war. The response to Keynes’ proposal was crushing. The Deputy Leader of the Labour Party, Arthur Greenwood, published a panicked piece in the Daily Express, saying that Keynes’ proposal “goes beyond anything we have tolerated in this country since democracy was established here.”

Keynes fought a long battle to win over the labour movement. And in the process, he discovered that his ideas could do more than fund war: they could create prosperity.  He rebranded the notion of “compulsory saving” to “deferred pay”—the idea that growth in consumption should slow to free up resources for the war, but that workers should accumulate deferred pay that would be made available to them for spending after the war, to support reconstruction. The proposal included family allowances of five shillings per child. The deferred pay would be funded through a tax on wealth. Keynes set out his ideas in a series of articles in The Times called ‘How to Pay for the War.’  

It took until August 1941 for Britain to pass a budget that was adequate for the war effort. Keynes’ fingerprints were all over it. Sir Kingsley Wood, Winston Churchill’s Chancellor of the Exchequer, raised expenditures to £4 billion. The budget included subsidies to curb inflation. It froze prices to 25 to 30% above pre-war levels. It stabilised the cost of living. It raised taxes to capture any excess liquidity that could have produced inflation. And it included post-war credits, Keynes’ proposal to unlock “deferred pay” after the war.

The effects of state intervention in the economy were felt long after the war ended. In the United Kingdom and the United States, which followed a similar funding strategy, the war effort virtually eliminated unemployment and dramatically cut inequality, which continued to decline until the 1970s. On the mainland, European lives would also be transformed. People became wealthier. Life expectancy increased. The era that ushered in decades of economic prosperity for Europeans was an era of state investment.

This transformation mobilised all the technologies developed during the war—from Teflon and nylon to assembly lines and modern management practices—for commercial use. And drafting all the men who fought in the war into the factories generated a powerful workforce, who formed trade unions that ensured a high working standard and lower working hours. Government investment agencies, state companies and nationalisation programmes channelled the investment to where it was needed, for example for the construction of railways or public housing, which the best architects competed to design. This is the world that the Green New Deal envisions.

A Green Alternative

The Green New Deal isn’t a specific set of policies as much as a framework for a sweeping legislative and social transformation. Its commitment is to transform the structure of our economies through massive public investment in renewable energy, sustainable public transport, and research and development. Every version of the programme involves a jobs guarantee, promising millions of secure, well-paying and future-proof jobs. But the scale of the challenge presented by climate change requires more, so the Green New Deal ventures into the realm of industrial policy, setting local, national and international priorities for production. But, despite numerous ambitious plans already being on the table, the question continues to arise: how would we pay for it?

The sums needed for a Green New Deal in Europe could be raised without increasing taxes, by using Europe’s public banks to issue green bonds and sell them to private investors. Such bonds would basically be IOUs issued by governments, and the proceeds would be restricted to sustainable investments. Sovereign debt is among the safest investments in the world, and there are powerful regulatory incentives for banks to hold them. The sale of green bonds would also ensure that any unused cash floating around the financial system—what economists call “trapped liquidity”—is mopped up, putting idle resources to use while controlling for inflation. The programme would effectively be a reversal of QE: instead of injecting money into the financial system, it would withdraw it.

The money raised through the issuance of green bonds would be made available to fund projects through public banks operating at the national, regional and municipal levels. These institutions already exist and play a major role in investing in sustainable infrastructure.  A stimulus would supercharge them. Municipalities and regions could work with local farmers to rekindle Europe’s industry of family-run, sustainable farms that feed their local communities. A European Manhattan Project for Renewables could bring together the best engineers, thinkers, scientists, architects and designers to develop the advanced technologies of the future: more efficient battery storage, entirely new forms of public transport, smart cities. As an added benefit, the creation of millions of jobs means that we can phase out wasteful industries, like coal and investment banking, which are heavily reliant on state subsidies and sap our economies of productive investment.

The Green New Deal is also an opportunity to remove free-market ontology from public life. The system of market exchange has congealed around our lived experience, so that everything is measured by the ability to generate increasing amounts of market value. We talk about citizens as “consumers” and national budgets as if they were shareholder reports. We are overwhelmed by technological change, while the structural conditions of our economies continue to generate stagnation and suffering. The innovation happens at the surface while the core is rotting away, captive to an increasingly small oligarchy. Meanwhile, the insistence on infinite growth is killing our planet.

The movements calling for a Green New Deal for Europe will need to work together—regardless of the outcome of Brexit. The United Kingdom cannot solve the climate crisis on its own. This is why the movement must, as the DiEM25-led European Spring insists, be agnostic to EU membership. Even with the broadest possible international solidarity, the Green New Deal will be a difficult task, requiring historic efforts. But the momentum is building—and this month’s European elections offer the chance of a leap forward.