In a study published on Wednesday 16 April, the pro-European think tank Bruegel points the finger at an oversight in economic policies: the failure to systematically take into account climate risk in sovereign debt sustainability analyses.
The analysis, based on the work of five economists specialising in financial and climate modelling - Matteo Calcaterra, Andrea Consiglio, Vincenzo Martorana, Massimo Tavoni and Stavros Zenios - is based on the RICE50+ model, which links climate and the economy, making it possible to understand the economic consequences of global warming at the level of fifty regions around the world.
In this way, climate scenarios and economic growth trajectories are crossed to estimate, in particular, the long-term effect of climate disruption on GDP.
However, as the authors point out, as these dynamics are still not sufficiently taken into account in the debt sustainability analyses used by many governments, the economic impacts of global warming could, as early as the 2040s, call into question the ability of many governments to meet their financial commitments.
At a time when the EU is discussing new fiscal rules and economic governance reforms, the authors argue that a purely adaptation-based approach is not enough, and call for these risks to be integrated into fiscal policies and for international cooperation to be stepped up to prevent climate-related financial crises.
To read the analysis: https://aeur.eu/f/ggt (Original version in French by Nithya Paquiry)