The government expects that the Russian war against Ukraine will affect European economies and that it will therefore become more difficult for EU countries to comply with European fiscal rules. It “cannot be ruled out that the flexibility of the rules will again be invoked,” writes Finance Minister Sigrid Kaag (D66). Friday to the House of Representatives†
During the corona crisis, the fiscal rules from the Stability and Growth Pact (SGP) were completely suspended. The Netherlands is generally not in favor of this. However, Kaag speaks of a “new extraordinary and worrying situation in which the Netherlands and the European Union have found themselves as a result of the terrible developments in Ukraine”. The minister emphasizes “the importance of a united and decisive Union” in the face of Russian aggression.
EU countries are expected to reduce their public debt below 60% of GDP. The budget deficit should not exceed 3 percent. These fiscal rules have been discussed for years: they are said to be too strict, too complex and not sufficiently enforced. The European Commission had tried to start a discussion about this before, but then the pandemic intervened. At the end of last year, she proposed to start after all, and to include the lessons from the corona crisis here.
Also read: Why Brussels thinks the EU budget rules need to be adjusted
In her letter, Kaag describes the Dutch commitment. According to the minister, the Netherlands is ‘constructive’ towards modernizing the fiscal pact, as long as the adjustment of rules leads to ‘debt sustainability’ and countries grow sufficiently towards each other economically and in terms of prosperity. The cabinet also wants to make a case for ‘effective enforcement’.
It is not yet possible to say what the exact effect of the war will be on European budgets, writes Kaag. In the talks in the coming months, she says, this will have to be taken into account. “Obviously it is important that future rules must also be able to deal with extraordinary circumstances.”
‘Adjust path to standards’
According to Kaag, the percentages from the SGP in themselves are not the problem. In fact, the government is in favor of retaining the deficit standard and the debt standard, and there would also be broad support for this among EU countries. What could be adjusted is ‘the path to’ these standards: the speed at which the national debt is reduced. Under current rules, a country with a government debt exceeding 60% must reduce the excess by an average of 5% annually. After the corona crisis, that seems too much for some countries. The government does not oppose the ‘adjustment or replacement’ of this criterion. It does require something in return: better enforcement. Until now, EU member states and Brussels have never intervened if a country failed to reduce its debt quickly enough. According to Kaag, this is because “political weighting” soon comes into play. The minister is referring here to the often-heard reproach that the Commission is more lenient towards large countries such as France. The government wants a ‘technical analysis of compliance with the rules’ to become the guiding principle. This may also mean that that analysis should be carried out by ‘an independent body within the Commission’. The Netherlands is now investigating whether this is possible under ‘treaty law’. According to Kaag, the discussion is still completely open and EU countries are still holding the cards firmly against their chest. This means that “the Netherlands also does not want to exclude any ideas or take a very detailed position at this stage”.
A version of this article also appeared in NRC Handelsblad on 5 March 2022
A version of this article also appeared in NRC in the morning of March 5, 2022