Reconciling the tension between green spending and debt Sustainability by Olivier Blanchard published by PIIE (12/2023)
“Governments in advanced economies face two major challenges.
The first is the need to fight global warming. The Paris Agreement calls for limiting the increase in world temperature to 1.5°C above the preindustrial average. The European Union has agreed to reduce greenhouse gas emissions by 55 percent in 2030 relative to 1990, and to reach net zero CO2 emissions by 2050. This will be expensive.
The second is to keep public debt under control. As a result of drift, but also of the 2007–10 global financial crisis and the COVID pandemic, ratios of public debt to GDP have reached historic levels. In many members of the European Union, they exceed 100 percent. Avoiding debt explosion is of the essence. Even leaving aside externalities from default of a major sovereign, the risk of default makes fiscal policy, and indeed macroeconomic policy in general, extremely hard to use…”
