European Contribution to Global Sustainable Development

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Abstract

Global sustainable development is an open process that depends on a variety of global transformative strategies underpinned by social movements. Several global regions are developing initiatives for sustainability, and Europe has also launched the European Green Deal. Europe, as one of several global poles, is developing innovative strategies to reduce real capital inputs, increase human capital through education, and increase global competitiveness. In parallel, the European financial system is increasing high financial investments to support European sustainable development with an export surplus. The author offers crucial insights into how Europe can benefit by shifting from high trade to direct investment in its less developed global regions. Europe can become a global leader by increasing its efforts towards European sustainability, and simultaneously contributing to socio-economic equality and global sustainable development. We neglect most bottom-up initiatives and concentrate on macro-sociological development.

1. Introduction

Global sustainable development is an interdependent process, resulting from highly diverse leadership (Jacobs et al., 2020). Globally, the Millennium Development Goals (MDGs) were expanded into Sustainable Development Goals (SDGs) anchored in human rights and democracy, codified in the European Constitution (2003). The current 27 Member States anticipate enlargement with the extension of light membership to countries across the geographical continent. The present organizational structure of the EU questions globalization as a “flat world” (Friedman, 2005) and global sustainable development results from interactive poles with different wealth distribution and organization. Some poles are organized as nation states, like USA and China, and Europe is a unique pole with an integrated mixture of national and EU policies. The EU set its own goals in alignment with the SDGs accepted by all states.

European policies are developed in close coordination with Member States. Since the introduction of the Single Market and the Currency Union (1999), the Lisbon Strategy, in the first decade of this century, aimed to make Europe “the most competitive economy of the world” through better policies for the information society, modernized European society model and adequate macro-economic policy. In the second decade, EU policy turned into a smart, sustainable, and inclusive economy delivering high levels of employment, productivity, and social cohesion. Both strategies were hampered by the 2008 financial crisis and in the following third decade, Europe faced COVID-19 and the Russian-Ukrainian War. The European Green Deal (EGD) represents a deep transformation of all European policies, aiming to establish Europe as a global leader.

During the current legislation period, the EU is extending the Single Market for capital, banks, mobility, and energy (Letta, 2024). By reducing national governance of banks and making the movement of capital easier, it can facilitate financing of public budgets and the real productive sector. The European mobility system for travel and trade should be open for all countries with investment in trans-border infrastructure. A European single market for all kinds of energy should reduce reliance on foreign sources. For the reduction of socio-economic inequality in Europe the EGD extend existing Structural Funds through a new Just Transition Mechanism (JTM). The extension of the European Single Market and Structural Funds aims to increase competitiveness within Europe and globally.

During short-term transition, the increase in competitiveness will increase growth, and in longer term, the reduction of real capital inputs through innovation and education will require further financial resources for sustainable development. For given financial capital resources, declining real capital inputs and higher human capital need an increase of financial capital for higher sustainable growth. European competitiveness policy concentrates primarily on changes in real capital, less on human capital, and views the relation between real and financial capital as decisive. Higher flexibility of financial capital compared to real capital becomes the driver for sustainable development, both in Europe and globally. Increasing European financial means will increase the contribution of Europe to global sustainable development not through export surplus, but through direct investments in countries with trade deficits. European sustainable development contributes to more global socio-economic equality and global sustainability.

European sustainable development can be derived from the SDGs and bottom-up processes, but we refer to European documents mainly based on structural and macro-economic approaches. We give a brief outline of the EGD, the strategies for reducing real capital, increasing human capital, the role of the European financial system, and some interactions between the European and global sustainable development.

2. Structure of the European Green Deal

The EGD is a new growth strategy that aims to transform the EU into a fair and prosperous society with a modern, resource-efficient and competitive economy. The EU considers itself to have the collective ability to transform its economy and society toward a more sustainable development path by 2050. In cooperation with its neighbors, the EU-Commission regards the EGD as an integral part of the United Nations’ 2030 Agenda and Sustainable Development Goals (SDGs) serve as guidelines for EU policy-making and economic policy for the well-being of all citizens (European Commission, 2019).

The EU-Commission intends to transform the EU toward a sustainable future through eight deep transformative policies: (1) Increasing the EU’s climate ambition for 2030 and 2050, (2) Supplying clean, affordable and secure energy, (3) Mobilizing industry for a clean and circular economy, (4) Building and renovating in an energy and resource efficient way, (5) Accelerating the shift to sustainable and smart mobility, (6) From farm to fork: Designing a fair, healthy and environmental-friendly food system, (7) Preserving and restoring ecosystems and biodiversity and (8) Zero pollution ambition for a toxic-free environment. All these policies are highly interdependent, and most of them are in accordance with the SDGs.

These policies are integrated in all EU policies: (1) Pursuing green finance and investment ensuring the transition: EU Commission proposes a Sustainable Investment Plan and a Just Transition Mechanism, (2) Greening national budgets and right price signals: National budgets play a key role, including tax reform. (3) Mobilizing research and fostering innovation: Horizon Europe promotes sustainable technologies and (4) Activating education and training: Educational institutions will reskill with a focus on sustainability.

The EU wants to become a global leader with EGD programs and by mobilizing all bilateral and multilateral diplomatic channels, including the UN, G7, G20, WTO and other relevant fora. Based on the Paris Agreement and the following conferences, the EU is intensifying cooperation with neighbors, especially Africa and the Middle East. The EU as the world’s largest single market can set standards across global value chains and the EU should encourage international investors to shape the financial system to support the global sustainable development.

The European Climate Pact will accelerate involvement and commitment of the public and all stakeholders in three ways: (1) Widespread information and dialog with all citizens, (2) Creation of real and virtual spaces for individuals and collectives to express innovative ideas and enhance creativity and (3) Integrating grassroots initiatives and diverse NGOs in the debate on future of Europe. A new monitoring system will inform about factual implementation of EGD measures and whether they are on track or deviating, and all Member States will inform the UN about their SDG implementation.

3. Changes in the European Productive System

The overall target of the EGD is to transform the European productive system into a fair and resilient evolution across Member States and the European Union as a whole. For the next decade, the implementation will be financed through (1) the EU budget and associated instruments, (2) the creation of a framework for private and public sector investments, and (3) public administrations and promoters of sustainable projects. Within these funds is the Just Transition Fund (JTF) which supports the highest carbon-intensive regions, addresses social challenges, job losses, and aids Member States with low investment capacity.

Directly related to the EGD is “A System Change Compass” (SYSTEMIQ and Club of Rome, 2020), which primarily focuses on the productive sector. Four defined ecosystems address social needs (Healthy Food, Built Environment, Intermodal Mobility, and Consumer Goods), and four supporting ecosystems (Nature Based, Energy, Circular Material, Information and Processing). For all ecosystems, 10 regulating principles are proposed, that redefine the traditional criteria for economic development (Prosperity, Nature Use, Progress, Metrics, Competitiveness, Incentives, Consumption, Finance, Governance, and Leadership). These criteria applied to economy and society promote resilient economic, social, and environmental sustainability and suggest a considerable reduction in real capital, supported by the reoriented European innovation program.

The transformative innovation program Horizon Europe tackles climate change and boosts EU competitiveness with new elements: The European Innovation Council, Mission Areas (Climate, Smart Cities, Health, Soil and Food), Open Science Policy, and New Partnerships. The structure contains three pillars: (1) Excellent Science (European Research Council/ERC, Marie Curie and Research Infrastructure), (2) Global Challenges (Health, Culture, Civil Society, Digitalization, Climate, Bio-economy and Non-Nuclear Energy) and (3) Innovative Europe (European Innovation Council/EIC, Innovative Ecosystems and European Institute for Innovation and Technology/EIT). These subjects clearly show that they cover the eight deeply transformative EGD policies, the ecosystems of the System Change Compass, and the 17 SDGs and their sub-targets. Horizon Europe is largely aligned with global research and innovation programs, which focus on real productive capital, including natural capital.

The EGD largely neglects both the financial system and macro-economic effects. Traditional macro-economic investigations show that in the short term, the transformation needs higher economic growth, but changes in consumerism and new styles of public governance increase prosperity without growth (Jackson, 2009). A more detailed study finds seven drivers for short-term higher growth, but institutional changes and engagement of new partners for socio-economic transformation are projected to markedly reduce growth by 2050 (Aiginger, 2016). The System Change Compass and Horizon Europe also address a relative decline in the real productive system and emphasize the importance of human capital development and reorientation.

4. Education and Human Capital

Education empowers humans as individuals and collectives supported by human-centered education technology. In general, education is a crucial instrument for societal transformation (Jacobs et al., 2021), and increasing human capital will facilitate the transition toward sustainable development by simultaneously reducing the emphasis on real capital accumulation and increasing human-centered education. The implementation of EGD focuses mainly on socio-economic orientation and neglects the essential personal and cultural dimensions of sustainable development.

Over the past few decades, the EU has developed into a Knowledge Society through innovation and educational programs. The educational program ERASMUS, mainly financed by Member States, embraces five lifelong educational stages. The EGD focuses on the European Competence Framework with proactive reskilling for sustainable transition, including several European and worldwide networks. Participation of learners, parents, and the wider community in schools, training institutions, and universities help to deepen their socio-ecological orientation. Financing from EU level primarily from European Investment Bank (EIB), and Structural funds are directed toward employability skills. However, employability for the EGD remains primarily capital-centered and neglects far-reaching new socio-ecological values and modern educational technology.

Acceleration of sustainability needs to begin with education for the 21st century (Serageldin, 2024). A new paradigm of knowledge, beyond what is sketched in EGD, must move from print to digital imaging, and use machine learning, investigate complexity by applying computer science, embrace an interdisciplinary approach, and shift from teaching to learning. Education goes beyond skills to building character through imagination and creativity to invent the future. We need to foster respectful and ethical minds through continuous lifelong learning in schools and universities with distance learning opportunities, participation from all social groups, and the development of healthy lifestyles within the family and as active citizens.

European sustainable transformation may reduce economic growth through innovation and increase human capital through widespread future-oriented education. In the short term, financing human capital is far behind real capital investment and economic growth. In the longer term, human capital will relatively increase and macro-economic dynamics will change bottom-up and top-down structures beyond markets and government frameworks. In the short term, human capital investment is mainly influenced by the European financial system, which depends on the global financial system.

5. European Financial System

The governance of global poles, like USA and China, with national governance structures, relate directly to IMF, WB, and WTO (Hoedl, 2024). Emerging global poles, like NAFTA, Mercosur, and ASEAN are mainly governed through a variety of national policies. The European mixture of national and European policies is strongly influenced by the European Central Bank (ECB) and the European Stability Pact (ESP) managed by the European Stability Mechanism (ESM). The formal limits for ESP are 60% of GNP and 3% yearly increase of public budget. Some Member States surpass the 60% limit to approximately 140% of GNP and the 3% limit to 8% yearly increase of public budget, which indicates high indebtedness of the EU as a whole.

Within the European Financial System, ESM corresponds approximately to the IMF, the European Investment Bank (EIB) to the World Bank (WB), and the European Single Market to the WTO. The extension of the Single Market to capital, banks, mobility, and energy increases European competitiveness and reduces the European gap between the real and financial systems. EMS exerts only a limited influence on the global financial system, but it can more readily channel financing toward Europe’s productive sector. Financially enforced high public and private debts promote a sustainable real productive system, through innovation and education, which in the short term increases growth but in the longer term decreases growth due to sectoral and regional changes.

EMS channelizes private savings to real investment, expands the European Single Market, and the EIB subsidies and credits enhance the transformation of the European economy, including regional and local policies. Several regions have established project-oriented public-private partnerships which helps increase finance for public pension funds, implement local currencies, and create local commons. Local projects contribute to resilient regional and local economy framed by the European Regional Agency in cooperation with all Structural Funds. The deeply sustainable reorientation and decentralized bottom-up policies (Reuter, 2024) increase public acceptance and contribute to the strength of the real productive system.

The enlargement of the European Single Market fosters competitiveness and, in the long term, requires relatively fewer financial resources. However, European security expenses are increasing to 2% of GNP and a new demand program (Draghi, 2024) will increase EU debts considerably. Some Member States established non-formal budgets for COVID-19 and the Russian-Ukrainian War. Europe can partly compensate for debts through its positive trade balance. Increasing competitiveness and the demand program will further increase export surplus. The increased quantity of money goes partly into the European financial system where European financialization can promote real production and global trade. The role of Europe within globalization depends primarily not on the supply of real production, but on the demand of higher financial capital.

6. European Contribution to Global Sustainability

Global sustainable development results from diverse open sectoral strategies and the implementation of SDGs takes place under different socio-economic circumstances. Europe, as a global pole, contributes through real production processes, i.e. interaction of real productive and human capital and accelerates sustainability through financial capital, which indicates that the financial system is the promoter for sustainable changes with real production following financing. Europe‘s contribution to global sustainability is also influenced by the global financial system and shaped by its competition and cooperation with other emerging sustainable global poles, primarily through international trade.

The EGD concentrates on global political activities and largely neglects the transfer of real capital to weaker countries. Since the trade inversion between USA and Europe (1961), USA transferred real investment to Europe, and contributed, through technological transfer, to increase European global exports. For more than a decade, China has significantly increased high real investment in Africa and Europe contributing to the competitiveness of the receiving countries. Countries with trade deficits require more than increased product exports and financial aid, but crucially require direct real investment (Davidson, 2011).

European sustainable production of trade commodities and production equipment reduces, through innovation, relative real capital inputs and contributes to the competitiveness of weaker countries and simultaneously to global sustainable development and global equality. The future role of Europe needs, also to reduce migration, a shift from trade to direct investment.

Global sustainable development is largely under the umbrella of the global financial system and overlapped by the handling of finance within global poles. The European financial system managed the disturbances in the last two decades and financialized the real productive system. Most of the expanded quantity of money was invested in repairing crises, and part of it was invested in sustainable transition. The interrelation of real, human, and financial capital within the EGD is similar to the Marshall Plan. The USA raised financial capital, increased European real capital and created European human capital through active employment. The EGD requires substantial funding from both global and European financial systems. In the longer term, innovation will enable a transition toward less reliance on real capital. European sustainable development will gradually substitute real capital with human capital, and the transformation will need more financial capital.

Global sustainable development intends to create more equal global wealth distribution and more equal well-being for all. A critical component of achieving this is the expansion of global financial resources. Implementation of SDGs needs enormous money from offshore and more important from artificial money (Brunnhuber, 2021). During its transition toward sustainability, Europe has maintained an export surplus and improved its competitiveness, positioning it to co-finance the SDGs.

Implementing SDGs results in an open global sustainable development, which saves natural and productive capital through innovation and education. The role of Europe within global sustainable development is to turn toward less global trade and increase direct real investment in weaker countries. Such a reorientation of global development reduces global inequality and simultaneously increases global sustainable development, which is a powerful socio-economic open process.

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