Hoist with your own petard

21 Mar

Back in September 2011, we posted on an opinion piece published in the Financial Times by the Dutch prime minister, Mark Rutte, and his finance minister, Jan Kees de Jager. Entitled ‘Expulsion from the eurozone has to be the final penalty’, the article was a hard-line take on dealing with the Eurozone sovereign debt crisis. It urged the creation of a commissioner responsible for budgetary discipline and suggested that as a final penalty for non-compliance, profligate member states could be thrown-out of the Eurozone.

At the time, the Dutch were riding high in the league tables of Eurozone economies: unemployment was very low, the country enjoyed a trade surplus and it seemed free of some of the concerns weighing down troubled economies like Spain, Greece, Italy and even France. In debates about transforming the EU into a “transfer union” the Dutch took as hard a line as the Germans. Pushed by the far right party that was propping up its coalition, the government made clear that subsidies to work-shy Greeks were out of the question. Countries should not live beyond their means and the EU should ensure that those governments unable to control their spending should be made to pay.

Events have taken a turn for the worse in the Netherlands and the government risks being hoist with its own petard. Unexpectedly, the Dutch economy has fallen into recession and if growth continues to stall, it will overshoot the 3% of GDP budget deficit limit that is formally enshrined in the new fiscal pact agreed by the Netherlands and most of the EU’s other member states. As The Economist reported, a deficit of 4.5% is currently being forecast if no cuts are made to government spending. The government has to find 9 billion Euros of savings in 2013 in order to avoid incurring the very sanctions Rutte and de Jager were calling for back in September of last year. Given the weak position of the present government, there is a good chance that it won’t be able to push through the required cuts. Yesterday, one MP of the far right Freedom Party (PVV) resigned from his own party, claiming that the PVV is a one-man Geert Wilders show rather than a proper political party. Given that the government’s minority coalition relied on the PVV for a majority in parliament, this defection threatens to bring the whole fragile edifice tumbling down. The opposition is calling for new elections.

At the time of Rutte and de Jager’s original argument, we criticized it for assuming that that Eurozone crisis was purely the result of overspending by national governments. What gave their article its rhetorical force was the notion that fiscally conservative “Northern” governments, safe from the choppy waters of the Eurozone crisis, were well-positioned to lecture their profligate Southern partners on the merits of good housekeeping. These national stereotypes have given the Eurozone crisis its chauvinist edge. The troubles of the Dutch government today suggest that falling growth, rising deficits and the political costs of austerity measures, is a pan-European problem. Evidently, there is more to the Euro-crisis than just the misplaced largesse of Southern European governments. With a bit of luck, the Dutch difficulties will have the effect of pushing forward the debate around the Eurozone crisis.

 

 

 

 

2 Responses to “Hoist with your own petard”

  1. philmader March 21, 2012 at 7:03 pm #

    They say pride comes before the fall. In this connection, you may be interested in this analysis by “German Foreign Policy”: http://www.german-foreign-policy.com/en/fulltext/58288. Regards, Phil

    • The Current Moment March 22, 2012 at 10:28 am #

      Excellent, many thanks for the link. The repercussions on the seemingly more healthy Northern economies of the Eurozone crisis will become an important theme of the crisis as it evolves. And it indicates that the problem is not just one of inefficient and unreformed Southern-Med economies but a more general one of debt-fueled growth reaching its limits. It always did seem clear that growth in Germany, Netherlands and elsewhere was dependent in part on whether Southern-Med economies would keep buying up their goods. As austerity bites, that becomes more difficult.

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