(Bloomberg) --
Going green and pushing through economic overhauls would help the euro area avoid the low-growth, low-inflation trap of the type that befell Japan, the European Commission warned.
A decade after the global financial crisis, the commission said there’s a “risk of a further prolonged period of low growth and inflation driven by anemic productivity and ageing populations.”
It singled out the economic impact of climate change as one of the biggest systemic risks facing the world economy and its financial system, and urged the currency bloc to take measures to prevent a negative fallout on long-term economic growth potential.
“If tackled in the right way, environmental and climate challenges are also an opportunity to revitalise the European economy towards sustainable development,” the commission said Thursday. Public and private investment in the green and digital transition can “help to sustain growth in the short term and meet the long-term challenges,” it said.
The recommendations come less than a week after the commission proposed its landmark Green Deal, which envisages a sweeping transformation of the 28-nation EU that touches upon every aspect of its economy.
Faced with sluggish growth and ongoing risks, the commission repeated its call for countries with fiscal space to spend more. It also urged those with high debt levels to reduce them to more sustainable levels.
“On the fiscal side, differentiation is essential,” the report said, adding that “in case of a worsening outlook, the Commission also recommends a supportive fiscal stance at the aggregate level.”
The recommendations include another push for the euro zone to move faster with completing its architecture, including a long-sought agreement on joint deposit insurance. The call comes only a couple of weeks after finance ministers failed to make significant progress on completing its banking union or reforming its bailout fund.
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