There is a new issue for the 19 euro-coin nations in the coming months. It could end up being the greatest challenge of our time.

In general, the euro area wants to increase its spending on climate policies. However, many countries worry that such an approach could lead to a rise in their debt.

Consequently, these nations are now suggesting that climate-friendly investments shouldn’t count against their total expenditure — an idea that the more fiscally-conservative nations will find hard to accept.

When asked by CNBC in Brussels this month if he would approve green investment debt relief, Magnus Brunner, Austria’s Finance Minister, said that he wouldn’t say “yes” to the proposal.

EU fiscal rules require the 19 Euro members to adhere to. They are required not exceed 60% of their gross domestic product (GDP) and should have no public deficits. EU law requires that countries keep their budget deficits to below 3% of their GDP.

The rules were intended to maintain a stable fiscal trajectory in the region. They were temporarily suspended after the outbreak of coronavirus to allow countries the financial flexibility to support themselves and spend more.

Now, as the euro zone prepares to reinstate them next year, a debate has emerged over how best to ensure they reflect the market environment — higher debts, a different labor market and higher inflation.

Nadia Calvino from Spain’s Finance Ministry said, speaking to CNBC in January: “We have to have an adequate fiscal framework that encourages growth.”

Spain, France and Italy — among others — do not want to put an abrupt end to the current loose fiscal policy stance, fearing this would damage the economic recovery.

Because countries across Europe have the ability to inject a lot more money into their economies, the euro zone will likely grow much faster than the U.S. by 2022.

However, other Euro nations insist that fiscal consolidation is necessary for the bloc to weather future shocks better and not worry financial markets during a period when the European Central Bank adjusts its policy.

Austrian Brunner stated that they are for stability… Austrians must stick to the rules.

Climate Action Network Europe is a European group that represents more than 1,500 non-governmental organizations and 47 million people. It has called previously for “climate action”fundamental“To ensure that additional fiscal space can be used to support targeted, effective climate actions by Member States,” “reform of EU’s fiscal rules and economic Governance”

This is particularly important because, according to CAN Europe, “massive private and public investments in climate mitigation are essential for avoiding runaway catastrophes.”

The European Central Bank has noted this. last yearWhen it comes to the climate crisis, there are “clear benefits” in getting things done early. “The transition’s short-term expenses pale in comparison with the unfettered effects of climate change in medium and long terms.”

At present, it is not yet clear what stance Germany — the traditional powerhouse of Europe’s economy and historically one of the most fiscally-conservative nations — will take on fiscal reform.

Guntram Wolff from the think tank Bruegel stated to CNBC that “the German finance minister in principle doesn’t like the word flexibility.”

But he said Christian Lindner (German Finance Minister) might accept some flexibility in green investment policy due to the country’s importance.

Experts have also suggested that, rather than reforming the fiscal rules for green investments to help them out, the EU might instead raise new joint debt.

In 2020, the bloc shocked markets by agreeing temporarily to tap the markets for the financial recovery of the Covid-19 pandemic. You could use the same instrument to help you target your transition to carbon neutrality.

“The pandemic’s legacy is that we know that common European debt may be part of the solution if it is severe enough. I bet that this will happen in two, three or four years.” [is]CNBC was told by Jacob Kirkegaard (senior fellow, German Marshall Fund think-tank), that the climate will be at this political level.

CNBC also heard Paschal Donohoe, Ireland’s Finance Minister, say that “this is a very important theme” and will be following the Euro area through 2022.

But he stated that no matter what the finance ministers may decide on, it is certain that these investments cannot be all met by public capital.