The Climate-Induced Trade Dilemma: Trade Imbalances, The Ecological Transition, and the Case For Implementing a European Bancor

This article discusses the climate-induced trade dilemma that results from the eurozone core’s macroeconomic vulnerabilities. Because of the external constraint and concomitant need of ecological investment, member states face two possibilities, both leading to current account deficits: either engaging with green investment in the amounts required, running the risk of experiencing trade deficits in the short term, or underinvestment in the ecological transition with long-term imbalance through technological or clean energy dependency. We argue that the Maastrichtian European Monetary Union and the European treasury proposals neither modify the mercantilist bias of the eurozone nor solve the climate-induced trade dilemma. This article shows that the Euro-Bancor project addresses this dilemma by rebalancing the burden of adjustment, also creating the incentive to implement green investment. JEL Classification: E12, F33, F45