The Dutch solution

12 Sep

Usually more Catholic than the Pope in matters of macroeconomic policy, at least when the Pope resides in Berlin, the Dutch prime minister and finance minister published last week their answer to the Eurozone crisis.

According to Mark Rutte and Jan Kees de Jager, the European Union should create a new post, that of a commissioner for budgetary discipline. This commissioner would have the power to tell countries with deficits what their spending targets should be and to ensure compliance with these targets. Rutte and de Jager suggest that the commissioner would have the power to force national governments to levy new taxes in case of shortfalls, and also to slap fines onto deficit-ridden economies. National budgets should – in the interests of prevention – be presented to the commissioner first, before they are presented to national parliaments for approval. In extremis, the Eurozone should be able to expel repeated budgetary offenders.

It is difficult to know where to start with this proposal. Everything is wrong about it. Rutte and de Jager’s account of the crisis is almost facile in its simplicity. Today’s problems in European economies all stem from the fact that some countries didn’t follow the budgetary rules. Ergo, if everyone is made to follow the rules in the future, we will have no crisis. As well as being a post hoc explanation – where were the Dutch truthsayers when Germany ignored the rules of the Stability and Growth Pact under Gerhard Schroder? – it also presents macroeconomics as merely a matter of rules. As argued in previous posts, macroeconomics is also about institutions, interests and social structures. The Eurozone crisis brings together all of these factors: it is a mixture of national histories, national politics and European integration. To present it as only a problem of debt is already a sign of where the Dutch stand in the struggle between debtors and creditors in Europe.

The dogmatic attachment to rules is also oddly naïve. Rules are there in order to protect outcomes or goals; the validity of the rules depends upon what they are intended to achieve. Rutte and de Jager seem to believe that budgetary discipline can solve the Eurozone crisis. This flies in the face of the current debate, namely about whether a recession-inducing austerity budget is the best path to growth. Even the IMF is not arguing this. Rutte and de Jager also buy into the technocratic mindset of European public policy. This mindset rests upon the presumption that policies are independent of each other, and can be dealt with in the manner of separate and discrete filières (streams). Thus, a budget discipline commissioner would only deal with budgets. But this would involve making decisions that touch upon all aspects of national public life. Budget cuts affect jobs, welfare, industrial policy, foreign policy. Who would be responsible for connecting decisions about cuts with decisions about consequences? The result would be national governments implementing painful programs over which they claim no responsibility; with a European commissioner for budgetary discipline denying any role in determining how budgetary decisions are implemented. That, he or she would say politely, is “national competence”.

The Dutch solution fails to grasp the causes of the present crisis. Its blind adherence to rules ignores the extent to which rules are only as good as the purposes which they serve. In this case, the purpose is little more than to shift onto deficit-ridden states all the responsibility for the woes of the Eurozone. And in a way that further diffuses responsibility for difficult decisions across a hotchpotch of national and European level officials. Let’s hope Rutte and de Jager’s proposal goes no further than the pages of the Financial Times.

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2 Responses to “The Dutch solution”

  1. Marcel September 12, 2011 at 6:32 pm #

    You suggest that the Netherlands was silent when Germany (and France) broke the rules of the EU stability pact around 2003. This was not the case. The Dutch government protested fiercely against this disrespect of the agreements, just without any results because there was almost no support from other Euro member states who feared that they might be the next one to break the rules.

    Also, the agreement in the Europact was to reduce the debt to less than 60% of GDP and to have a deficit that was no more than 3%. This would have to mean that in the good years there is a surplus, and in the bad years a deficit of no more than 3%. What the politicians did was not to have the surplus in the good years, not reduce the fefitic to the agreed 60% and then claim that in the less good years it was “needed” to exceeed the promissed 3% in order to react to the crisis.

    • The Current Moment September 13, 2011 at 7:19 am #

      Thanks for that point. There was a good deal of grumbling around the breaking of the rules of the Stability and Growth Pact a years ago, notably by the smaller Eurozone member states. But we don’t remember there being a long Financial Times op-ed piece by the Dutch prime minister upbraiding the German government for its double-standards! The SGP rules were broken in various ways, not least as you say, by not doing in the “good times” what was expected. But in many ways, the SGP was drafted in the good times, with little thought given to how it might fare in a serious downturn. In many ways, it was a tool designed by the more powerful member states to discipline those thought to be fiscally unreliable. It was not intended as a real brake on the fiscal independence of Germany or France.

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