Why the Dutch government is not sold on the Commission’s new recovery package

The position of the Dutch government on European economic affairs has come under heavy scrutiny since the Corona crisis. The Dutch have teamed up within the so-called frugal four in showing most resistance to the proposals of the Commission on the recovery package. Earlier in the crisis, Dutch finance minister Wopke Hoekstra (CDA/EPP) was leading the efforts to prevent the Eurozone from adopting common debt instruments, or Coronabonds. In order to understand where this resistance is coming from this article explains the position of the Dutch government, as outlined in recent documents, and presents an overview of the kinds of arguments prevalent in the Dutch parliamentary debate.

After the stark foreign and domestic media criticism that followed the Dutch refusal to support Coronabonds, leading Dutch politicians within the coalition have started to stronger emphasise the need for a solid and swift economic recovery for the EU, which requires solidarity. Prime Minister Rutte (VVD/Renew) also has said that the Dutch will have to financially contribute to help protect those in need and to prevent divergence in the EU. At the same time, the Dutch government is against joint borrowing that is disbursed as grants and prefers a recovery fund based on loans. It, however, supports the focus on the green transition, digital transition and single market. Furthermore, it calls for clear conditionality links to ensure the funds are used to support structural reforms. The Dutch believe that the Corona crisis justifies a change in the MFF (Multiannual financial framework) proposals and also the setting up of a recovery fund, but believe that the Commission has not been able to make a clear case for its current proposals.

The Commission made a needs assessment in which it calculated that, due to Corona, an investment gap of 850 billion EUR has appeared. Given the fact that there was still an existing shortage of investment, the Commission arrives at a total public-private investment gap of 1.5 trillion EUR. At the same time Member States lost 1.7 trillion in extra spending and lost tax revenue in the crisis. The Commission does not claim that the proposed 750 billion EUR recovery fund will completely fill this shortage, but argues that it will make a serious contribution to growth and jobs.

The Dutch government does not find this needs assessment to be convincing, as the numbers don’t add up to 750 billion EUR. Furthermore, no country-specific analysis has been made of the needs, the 540 billion EUR package of measures agreed by the Eurogroup has not been included and the argument for grants instead of loans seems contrary to previously made claims that all national public debts are sustainable.

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The Dutch government also argues that the proposed measures are insufficiently linked to the needs assessment or to the Corona crisis itself. In the Commission’s recovery plans, extra funds have been made available for agricultural policy and the just transition fund that is linked to the green deal. It is not directly evident why these expenditures are related to Corona. Furthermore, for the main fund of the recovery plan the criteria for disbursement are backward looking, such as the 5-year average unemployment rate. This implies that much of the funding will go to the Member States whose economies were less heavily impacted by Corona compared to some others, such as Greece or Spain. And who are expected to have an almost full economic recovery in 2021 (such as Poland). The fixed allocation key also does not allow for dealing with the effects of a possible second wave of the virus. To the Dutch, the current proposals feel more like a top-up to the existing MFF with a classic philosophy of transfers rather than a dedicated Corona-fund. Finally, no reprioritizations have been suggested within the MFF away from traditional spending such as the agricultural funds towards this new challenge.

The Dutch government does not reject the plans outright, but insists on a more thorough assessment of what is needed. Rutte has indicated that for him the quality of the outcome should have priority over the speed of the negotiations. Of key importance in the negotiations will not just be the size of the fund and the balance between loans and grants, but also the conditionality linkages attached. The policies of other Member States are often extensively discussed in the parliamentary debates, with a lot of concern for possible moral hazard. Arguments made in the debates typically go as follows: “Why should we allow our taxpayer money to go to Italy when the Italians have a 200 billion black market that has not seen any effective taxation for years? Whereas here someone who doesn’t pay their taxes is immediately fined heavily or put in front of a judge.” Or: “How do I explain to voters that European money is sent to Poland when their government officially discriminates by introducing LGBT-free zones in their country?” With regards to Spain, the recent announcement of the governing parties to reverse course on the labour market reforms and pension reform has also been debated with misgivings.

[Escuche el ‘podcast’ de Agenda Pública: ¿Qué pasa con la solidaridad en la Unión Europea?]

Rutte himself describes the recovery fund less as a joint investment in the European economy and more as a solidarity mechanism that is only acceptable when there are strings attached to it. According to Rutte, conditionality is good, because structural reforms are good and with structural reforms the Member States will be able to weather the next economic crisis on their own, which should be the ultimate goal. Member States will have to show how they will strengthen their economies in such a way that they will be stronger next time around. Rutte can count on a wide majority of support for this stance, with only the centre left parties arguing for more ambition and the fringe parties outright rejecting the Commission’s plans. Also in public polls a vast majority of Dutch support solidarity mechanisms for the crisis, but also believe this should be in the form of loans. When asked whether Rutte would also be able to accept an outcome that would still include grants he refused to rule it out or speak of vetoes. He also admitted that in the end a compromise is needed, as long as his starting position – a recovery fund based on loans – is clear. Contrary to the debate on Corona-bonds neither the government nor parliament has set clear red lines for the upcoming negotiations. The only parliamentary motion that got enough votes was the one that called upon the government to ensure that the money of the recovery fund would not be spent on fossil fuels.

(The explanation is based on the position of the Dutch government and do not reflect the authors own views or that of the Dutch parliament. The governments view can be found here. The parliamentary debate can be viewed here)

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