Wednesday

25th May 2022

Analysis

Will the new Dutch government be more pro-EU?

  • New finance minister Sigrid Kaag has stressed the importance of her ministry in the implementation of climate policies (Photo: Wikimedia)
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Following 273 days of tough coalition negotiations, Mark Rutte began his fourth stint as the prime minister of the Netherlands, with his new Dutch government officially taking office on Monday (10 January).

The 'Rutte Version 4.0' government consists of the same coalition of governing parties - the left-leaning liberal D66, the centre-right VVD and the Christian CDA and CU parties - but with some noteworthy changes to the ministerial team.

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Of particular interest for EU member state relations is the move of the influential finance minister Wopke Hoekstra to the foreign office, with D66 leader Sigrid Kaag replacing him.

It is widely expected Kaag will strike a more dovish tone than her predecessor Hoekstra, whose uncompromising resistance against a shared European bailout fund in the early days of the Covid-19 pandemic ended up isolating him from many of his peers.

At the time, Portuguese prime minister Antonio Costa called Hoekstra's behaviour "repugnant," a comment that later came to symbolise the fierceness of the debates.

But that moment had also revealed a growing schism between Dutch and German policymaking in Europe.

"For decades, the Netherlands and Germany closely coordinated policy. They were like Batman and Robin, with the Netherlands often acting as rightwing forward in debates about the functioning of the eurozone. But this started to change when Olaf Scholz took over the German finance ministry in 2018," Rem Korteweg, a senior research fellow at the Clingendael Institute, an independent Dutch think tank, told EUobserver.

The Netherlands rejected a joint European recovery initiative and insisted on strict conditionality and loans instead of grants.

But in Germany, the political stability of the EU slowly started to take precedence over purely financial concerns and fiscal discipline, eventually leading the country to join France's call for a €500bn recovery fund in May 2020.

This also shifted the balance in the debate on key European issues like public debt and the EU rules that guard budgetary discipline.

With the so-called stability and growth pact up for an overhaul in 2022, the Dutch have now signalled a return to the German line, Korteweg explains.

Frugal no more?

"The language on EU fiscal rules in the new Dutch and German coalition agreements are eerily similar," Korteweg said.

Both countries insist on the need to "modernise" EU fiscal rules to allow for more flexibility. The Netherlands also stresses it intends to be a "constructive" partner in the debates.

The frugal Dutch government has also embraced public spending, with €60bn in new investment planned for climate policy in the coming years.

This will bring the country's public debt above 60 percent of GDP, and expectations that Kaag will embody the country's dovish turn are high.

"Kaag is probably the most pro-European member of the new cabinet, and she will try to get the Netherlands to a more pro-EU position," Korteweg said.

Kaag herself has stressed the "crucial importance" of her ministry in implementing the "ambitious plans" of the new government, mentioning climate explicitly.

However, Korteweg said it is too early to tell what her position will be in the coming debates.

"Kaag has insisted on 'conditionalities'," he said, suggesting she is likely to emphasise stricter enforcement of fiscal rules.

This may put her at odds with typically more economically dovish countries like Spain, Portugal or Italy.

And while Italian prime minister Mario Draghi has been outspoken in his support to make some parts of the EU's €800bn recovery fund permanent, Kaag, who does not have a financial background, has not said anything publicly on the subject.

"The Dutch course correction is a realignment with Germany first. It is not necessarily aimed at placating southern member states," Korteweg said.

And a crisis may force her hand in other unforeseen ways, he explains.

"Suppose that the Italian interest rate [on government loans] rises and payment problems arise. How will Kaag position herself? Intuitively she would be inclined to come to Italy's aid. Still, she also has to deal with the Dutch parliament, which is majority eurocritical," he said, adding that "it is too early to tell how she will behave."

"Kaag's first real litmus test will be her handling of the EU recovery fund application," Korteweg said.

The Netherlands is the only EU member state that has not yet applied for the EU recovery funds, which in its case amount to almost €6bn.

As a condition the European Commission wants the Dutch government to trim down its generous system of mortgage tax breaks, which Kaag's D66 supports but Mark Rutte's VVD has been resisting for years.

'Frugals' renew effort to reduce excessive debt

Finance ministers of eight EU member states released a signed letter calling for a renewed effort to "reduce excessive debt" among member states. It is the starting point for renewed debates on debt and deficits in Europe.

EU re-launches mammoth fiscal debates

The EU Commission has restarted its effort to rewrite European fiscal rules, but some countries, such as Italy, are off the charts on debt in terms of an existing pact.

EU's Mr Austerity: No need to change debt ceiling

Austrian official and fiscal hawk Alfred Katterl has said the EU's 'stability and growth pact' on national debt-limits should remain sacrosanct, but some economists disagree.

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