A wake-up call for the green transition

by Lilyana Pavlova*

The crisis triggered by the war in Ukraine is putting the resilience of our economies to the test once again. The pandemic taught us a valuable lesson: solidarity and joint support are paramount for a successful recovery. Now, we must redouble our efforts to build new strategies, financial instruments and wide-ranging partnerships that will help us tackle food and energy disruptions, and consequently the worsening issues of poverty and social disparity.

Due to COVID-19, economic activity in Central and Eastern Europe, the Eastern Neighbourhood and the Western Balkans contracted somewhat more than the global average of about 3.0% in 2020. Thanks to strong policy support and an early launch of vaccines, the recovery was rather strong last year, leaving fewer scars than initially expected. However, the emergence of a second major crisis in less than three years means that policymakers are facing new challenges. On the one hand, public indebtedness increased in a number of countries, seemingly warranting a more targeted fiscal response going forward. On the other hand, inflation appears to be more permanent and higher than anticipated, potentially triggering a stronger monetary policy response. In addition, structural reforms need to advance faster to boost potential output growth, including the digital and green transformation. All in all, demanding times lie ahead.

First and foremost, the shock from the war in Ukraine needs to be adequately addressed as risks to the outlook are mainly on the downside. In addition, higher commodity prices — including for energy — as well as energy supply limitations and food security issues are very high on the policy agenda. Innovative and faster growing firms, together with those that are more export-oriented, may be harder hit. Furthermore, an extended conflict would undermine global and regional sentiment even further, derailing the recovery from the pandemic. Heightened risk aversion would depress consumer, producer and investor confidence, affecting investment and spending activity. The focus should now be on the nature of the reforms and priorities to be applied.

Improving energy and food security

Just as the pandemic was a wake-up call for digitalisation, the current crisis should be seen as a call for the green transition. European Investment Bank research shows that a number of countries in the Western Balkan region score lower in terms of energy efficiency, climate awareness, green management practices and green investments than their Western peers. Among the obstacles to climate investments, firms also cite difficulties in accessing financial resources.

The region is still highly reliant on fossil fuels and gets a low share of its energy from renewable sources. Some countries are heavily dependent on gas supplied by Russia, meaning that the ongoing spike in oil and gas prices is hurting the purchasing power of households and deepening social inequalities. In this vein, the recent crisis proved that the need for renewable and efficient energy and climate-friendly technological innovation is more pressing than ever. As the EU climate bank, the EIB is ready to support the development of efficient, secure and diverse energy networks, more sustainable transportation networks and wastewater facilities, and other infrastructure resilient to climate change or contributing to its mitigation. The interplay of digital and green — for instance related to investments in decarbonisation, sustainable mobility and smart solutions for businesses — is particularly important.

Finally, sustainable food production should also be high on the policy agenda, with the goal of ensuring food independency, especially for countries reliant on imports. The implementation of quick and targeted policy measures to protect the most vulnerable — including refugees, the hardest hit companies and households — will be necessary to overcome the most immediate shock.

Increasing resilience is paramount

When the pandemic struck back in 2020, the EIB set up a two-tier approach where crisis firefighting was coupled with the long-term policy orientation of the Bank. The areas of climate, innovation/digitalisation, small and medium-sized enterprises (SMEs) and sustainability were at the heart of our intervention. The EIB reacted by establishing the European Guarantee Fund, which helped SMEs in the European Union’s member states navigate through a difficult period of liquidity shortages. Beyond the European Union, we joined the Team Europe’s response to the pandemic and delivered €1.7 billion for the Western Balkans alone. We supported the global COVAX initiative, which helped deliver over 1 billion vaccines doses to 144 countries.

We are now following a similar approach that will enable us to provide immediate help where it is most needed and continue increasing economic resilience. Under its Ukraine Solidarity Urgent Response package, the EIB provided €668 million in immediate financial support for the Ukrainian authorities. At the same time, the Bank’s experts are currently assessing the needs of countries in Ukraine’s neighbourhood and within the European Union that are affected by the war, so that tailor-made support can be delivered.

Outside the European Union, the EIB is working with national and local authorities, national promotional institutions and other counterparties to make financial and technical assistance urgently available to these countries and regions. In this respect, the EIB streamlined its approach by setting up the EIB Global branch in early 2022. This new organisational setup aims to enhance the efficiency of project origination and implementation outside the European Union through efficient cooperation with our partners and beneficiaries, development finance institutions and civil society.

Finally, we recognise the need to act together. This means that crowding in the private sector and improving coordination between the public and private sectors will be crucial.

*EIB Vice-President