A constructive attitude, in the Netherlands? Diplomats and officials in Brussels sometimes have to blink their eyes. For years, the Netherlands was known as perhaps the biggest hardliner in discussions about budgetary discipline and other European money issues. Just three years ago, it was The Hague that took a fierce lead in the resistance to a corona recovery fund – as the leader of the so-called ‘miserly four’ (which includes Austria, Sweden and Denmark).
How different is that now. This Friday, the European finance ministers will start negotiations on the reform of the budget rules and it is already clear: the Netherlands is not among the hardliners this time. The Netherlands contributes ideas, makes proposals and guidelines, and forms coalitions with Southern European countries. And is suddenly the antithesis of Germany’s stubborn attitude.
That difference in tone and attitude between The Hague and Berlin is striking in Brussels and shows how much has changed in a short time. Three years ago, Europe temporarily put fiscal rules on hold to give governments plenty of room to tackle the corona crisis. Now that that pause period is ending, the European Commission wants to refresh the rules.
And that’s where it gets explosive. Germany sees a great relaxation in the Commission’s proposals. Absolutely undesirable, believes Christian Lindner, the German finance minister. “It is not some kind of fetish of ours, ever smaller budget deficits and less high government debt, but we are convinced that in the long run that will be to everyone’s advantage,” he said in an interview with NRC.
Together with Spain
The old rules, a budget deficit of no more than 3 percent and a government debt of no more than 60 percent of the gross domestic product, are somewhat the holy scripture of the European monetary union. And like religious commandments, these rules are also consistently broken – without ever really arousing the wrath of the European Commission. This is to the chagrin of countries such as the Netherlands and Germany, which (usually) do comply with the rules.
Read also this interview with the German finance minister
But if Lindner hoped that he would find Sigrid Kaag (D66) as an ally at his side, he was disappointed. The Dutch Minister of Finance still believes that Brussels should not stand idly by if member states allow their deficits and debts to increase. But Kaag emphasizes that the rules should not prevent countries from growing.
It is Kaag’s tone, not Lindner’s, that has the wind in Europe. In April, Brussels proposed to change the rules and give member states more time to reduce their debts and reduce their budget deficits. To this end, they draw up a plan themselves, in which they can ‘buy’ more time if they demonstrate that they are making extra investments in matters that are regarded as European priorities – such as the climate transition or defence.
It means more flexibility and a break with the old, often regarded as rigid regime. The pressure on Member States to cut spending after 2009, during the economic crisis, has caused a lot of bad blood and left countries in southern Europe in particular with a serious trauma.
That history has further reinforced the north-south divide in budgetary discussions. There was therefore great surprise when Kaag presented a vision piece together with her Spanish colleague Nadia Calviño last year. The two get along very well and managed to come up with a joint proposal.
According to Calviño and Kaag, member states would continue to monitor their budgets without being forced to make reckless cuts by customizing instead of rigid rules. Diplomats and civil servants in Brussels acknowledge that it is remarkably similar to the proposal that the European Commission eventually came out with this year.
“Kaag has played her cards very well,” says Philippa Sigl-Glöckner, a German economist who heads the financial think tank Dezernat Zukunft. Sigl-Glöckner has followed Germany’s actions in recent months with a critical eye. At the same time, the way the Netherlands acted garnered her admiration.
“The Netherlands is of course not the largest country in the EU. So what do you do? You look for another country, you build a coalition and then you can get pretty far by balancing your own wishes with European reality,” says Sigl-Glöckner. “When I look at Germany, I wonder what exactly is going on. The strategy of the German government eludes me.”
Pragmatic oil man
The Netherlands, it sounds in Brussels, is increasingly finding its role in the new European order after the departure of the United Kingdom from the EU. And instead of sitting on the flanks of a discussion, the Netherlands now clearly chooses the role of a pragmatic ‘oil man’, always looking for changing coalitions to defend its own interests.
The budget debate is a good example of this. Kaag was in Spain at the beginning of June, she will travel to Portugal at the end of this month. A trip to Italy is planned for the coming months. Kaag is clearly doing its best to improve the reputation of the Netherlands.
Led by Jeroen Dijsselbloem (PvdA) and Wopke Hoekstra (CDA), the Netherlands gained an iron reputation in Southern Europe. Kaag tries to come across differently. “I don’t believe in artificial stereotypes,” she recently said in an interview with El País after her visit to Calvino. “They only get in the way of achieving good budget rules.”
The new Dutch course is not only noticeable at Kaag. Her ministry has gained many younger officials, and a recently appointed top foreign relations official at Finance is nowhere near as eurosceptic as her predecessor.
For a long time, people there viewed with considerable distrust how the European Commission applied the budget rules. Notorious is a statement by former president Jean-Claude Juncker, who, when asked why he did not act harder against French violations, replied with: “Parce que c’est la France!”
That distrust has faded in recent years. People are cautiously satisfied with the European corona recovery fund, from which billions in gifts and loans are paid out to the member states. These payments are linked to strict agreements on reforming the domestic economy. The Commission is so strict that the Netherlands itself also had to make great efforts to claim its share. According to officials in The Hague, it has strengthened the confidence of the Netherlands in the European Commission.
And then the Netherlands itself has also become more lenient: in the Spring Memorandum, the government notes a budget deficit that will rise well above 3 percent in the coming years. Being strict in Brussels is more difficult to maintain if you are no longer so strict with yourself.
This does have consequences for the axis The Hague-Berlin. Dutch officials are now no longer as sure as before about what Germany will bring to a meeting, it can be heard. Sometimes the Netherlands schooled behind the great German back, sometimes the Netherlands took the chestnuts out of the fire for the neighboring country. In this way, both countries could piggyback on each other’s tight line. And even now it is not bad for The Hague that Berlin is going strong: the Netherlands still does not like too much flexibility.
But the inexorability with which Lindner is now focusing on hard debt standards is not necessarily positive for the Netherlands, says Sander Tordoir, an economist affiliated with the Center for European Reform think tank. “In the discussion, the Netherlands is mainly trying to strengthen enforcement. But because Lindner adopts such a rigid attitude and paints himself stuck in a corner, it becomes a lot more difficult for The Hague to make that other point.”
Fear of the return of old rules
This Friday is only a first step in a discussion that threatens to become heated, especially this fall. If the ministers cannot agree at all this year, the old rules will apply again. Lindner has already said that he thinks that outcome is fine, so badly can he live with the proposal that is now on the table.
In Brussels, however, there is a warning about the consequences of that scenario, because the financial scope to invest in goals such as climate and defense would then become far too small. But also because certain factions within the Italian government are now also arguing for the old scenario, because they did not have to worry about enforcement at the time. Be careful what you wish forit sounds in Brussels.
It looks like Kaag will have to do without her partner Calviño in the negotiations that will follow. Spain has called early elections and the right is winning. Because Spain is also taking on the presidency of the European Union, it can no longer be as outspoken as before due to diplomatic etiquette.
Nevertheless, the key role for Kaag has not disappeared, says Philippa Sigl-Glöckner. “Getting Germany on board will be the biggest challenge in these negotiations. And the Netherlands can do that like no other, because it is not a suspicious ally for Berlin.”