Sustainable finance is often discussed as a solution to the climate crisis, but its impacts are limited. We introduce the concept of “public sustainable finance,” in which the state has a central role to play for maximum transformational impact. To date, sustainable finance focuses on mobilizing private capital by “de-risking” private investments through public funds without considering direct government action. This is due to an implicit reference to mainstream economic theory: according to the New Consensus model, an overly active state leads to time inconsistency problems and crowding-out effects. The theoretical assumptions are also reflected in the current institutional framework in the form of the EU’s Maastricht Treaty and national debt brakes. However, these assumptions based on the loanable funds theory have been sufficiently refuted in recent years. Loans arise out of thin air and can provide additional public investments, which in turn lead to increased private investment (crowding in). Using the case of Germany, we show how public sustainable finance can be introduced despite tight fiscal regimes. We propose that the Klima- und Transformationsfonds (KTF) be given its own borrowing powers. By borrowing 162 billion euros by 2030, the existing financing gap can be closed and important investments in the future can be made.
‘Macro-Financial Innovation in Times of Crisis: The Role of the Recovery and Resilience Facility in Transforming the Eurozone’s Monetary Architecture’ (with Friederike Reimer, Andrei Guter-Sandu, and Armin Haas)
The Recovery and Resilience Facility (RRF), introduced as EU’s main macro-financial response to the Covid-19 pandemic, has been hailed as Europe’s Hamiltonian moment and raised great expectations for future fiscal integration. Despite its promised radicality, […]
‘Primary Dealers in the Offshore US-Dollar System. Intermediating Treasury and Central Bank Balance Sheets’ (with Will Bateman)
This study analyzes the Primary Dealer model for the issuance and distribution of sovereign debt as a distinctive feature of today’s international monetary system, the Offshore US-Dollar System. Primary dealers are a group of private […]
‘Encumbered Security. Conceptualizing Vertical and Horizontal Repos in the Euro Area’ (with Alexandru-Stefan Goghie and Matteo Giordano)
Despite the paramount centrality of repurchase agreements (repos) in today’s market-based finance regime, both conceptual and empirical questions about European repo markets are insufficiently explored as contradictory legal and accounting treatments make their on-balance-sheet representation […]