CENTRAL BANKS,
CORONAVIRUS & CLIMATE

Without action to cope with climate change, the coronavirus crisis we are experiencing today is only a preview of the multiple crises our societies will have to face in the near future.

If the economic and financial governmental response to the crisis is determined and voluntary, it aims above all at going back to “business as usual” and ignores both the nature of the crisis and what it reveals about the state of the global financial system. While the ECB is back in its financial firefighter suit, the application of the 2008 remedies to the ills of 2020 shows a certain inability to acknowledge the mistakes of the past.

Even worse, by refusing to consider a way out of the crisis that meets both financial stability objectives and social, climate and ecological emergencies, the ECB is not strengthening the resilience of the financial system. On the contrary, it is allowing financial institutions to keep generating and amplifying risks. At a time, when the current circumstances force actors to prioritize support to the people most vulnerable, the ECB is announcing measures that will reinforce existing inequalities and disproportionately and unjustifiably benefit multinational companies and the most polluting actors.

It is not too late.

Reclaim Finance calls on the ECB to integrate the achievement of European climate objectives into its crisis response.

The ECB must set up long-term measures to meet these climate objectives while limiting financial risks and protecting all EU citizens, starting with the people most vulnerable.

Understand what is at stake

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THE END OF “MARKET NEUTRALITY”

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The responses to the coronavirus crisis show that we can act for climate

The ECB and world governments are mobilizing exceptional resources to prevent the economic and financial risks associated with the coronavirus, to the point where the rules of the game are being revised and sacred dogmas – such as the Maastricht rules – are being broken. As the President of the French High Council for Climate, Corinne Le Quéré, pointed out, “we know what to do.”

Here are 4 interesting measures to develop, provided they are oriented towards social and ecological needs.

The EU Finance Ministries decided to ease the Stability and Growth Pact in order to finance European States’ recovery plans: The rule limiting the deficit to 3% of GDP has been temporarily suspended.

It is essential to direct these stimulus plans towards the ecological transition and to maintain spending on this emergency outside the Maastricht rules, once the coronavirus crisis is behind us.

The ECB and financial supervisors announced the relaxation of prudential rules. With the adjustment of capital and liquidity requirements, banks are now able to reduce their reserves and establish them according to more flexible rules.

If these measures are understandable during the peak of the crisis, they go against the urgent need to strengthen banks’ resilience to shocks, including climate shocks. Additional provisions must be imposed on banks according to their exposure and financial services to polluting sectors. This would mitigate risks and deter banks from financing them.

With the coronavirus crisis, long-term refinancing measures (LTRO and TLTRO III) have been considerably facilitated.

The ECB’s stated objective is to provide liquidity to banks to enable them to specifically finance loans to the most affected and vulnerable small and medium-sized enterprises (SMEs). Problem: No guarantee is given. It is therefore a gamble that a large part – if not almost all – of the financing will go to speculation and to the financing of multinationals, which are much easier to finance than SMEs. 

Reclaim Finance calls on the ECB to ensure that long-term refinancing operations are properly geared towards small and medium-sized enterprises and that they switch as quickly as possible to financing the ecological transition. Thus, the ECB needs to refuse to lend money in exchange of the most polluting assets: fossil fuels must be excluded from the list of collateral. Furthermore, the application of variable rates to banks according to ECB requirements can serve as a model for the integration of climate criteria. 

In addition, negative rates granted by the ECB to banks allow them to be remunerated for the loans they grant. Small businesses and households should also benefit from the ECB decision and therefore get loans at near zero rates.

After a flurry of initial measures, the ECB announced a new assets purchase program in response to the pandemic. The Pandemic Emergency Purchase Program (PEPP) aims to inject EUR €750 billion into the economy.

Government bonds are eligible, but government bonds are not infinite, and the program will be used to buy back corporate securities. Since small companies and households are not listed, it is the multinationals that will take the money. Therefore, the most polluting companies – including fossil fuel companiescould benefit from up to 132 billion funding.

It is essential to make this aid conditional on the companies’ adoption of climate commitments and to exclude the most polluting companies.

Furthermore, the purchase of government bonds should also forge solidarity between Member States and prioritize the hardest-hit states.

Read our demands to central banks