After 25 years of reforms of economic policy governance, is EMU fit to address the climate challenge? A political economy view

Abstract After 25 years and numerous reforms in response to previous crises, how fit is economic policy governance in EMU to address the climate challenge? We explore this question through the lens of political economy in political sociology and heterodox economics, based on a review and discussion of key contributions to the literature. We first take stock of the changes in the economic policy governance framework in EMU since its inception, with a particular focus on the ECB, to discuss the extent to which recent transformations since 2020 potentially represent a shift away from the initial “stability” paradigm towards one more concerned with redistributive and climate objectives. We then discuss the issues raised by these changes, reflecting on the interactions between monetary and fiscal policies, on the independence and politicisation of the ECB, and on the desirable degree of financialisation in EMU. Finally, we discuss possible changes to the economic policy governance framework in response to these challenges. We conclude that further reforms are needed for EMU to be fully fit to address the climate challenge.