Can the Netherlands start investing massively in the economy and society? On Monday, the NOS said it was aware that the current cabinet formation includes a plan to invest many billions via special funds in solutions to nitrogen problems, climate objectives or infrastructure.
Such a plan, if it is actually made, does not come out of the blue. Consultations are currently taking place in Brussels about changing the European fiscal rules, which have been put on hold by the pandemic. And these types of funds may play a role in that. After all, should the European budgetary regime continue as it was at the beginning of 2023, when the rules come into effect again?
The existing rules assume a maximum government debt of 60 percent of GDP with a maximum budget deficit of 3 percent. Since the euro crisis of ten years ago, more and more rules, requirements and procedures have been added, mainly out of pure mutual mistrust. To prevent it from getting out of hand again.
Times have changed since then. The economy had been sputtering for years before the corona crisis, and that already caused an intellectual turn towards a more active fiscal policy. The costs of the pandemic then caused the average government debt in the eurozone to rise to an all-time high: 103 percent of GDP this year. About a quarter of all that debt has now been bought up by the central banks of the eurozone, and is on their balance sheets.
With so many changes, there is a good chance that the existing rules will be changed before they come into effect again. In just two weeks, on 19 October, the European Commission will present the first proposals. Already last month in the Slovenian city of Brdo, the finance ministers of the euro countries discussed this subject for two days.
Striking outcome: a possible exception for special spending on climate policy, digitization and other ways to better prepare the economies for the future. Think of the good old ‘golden financing rule’: according to that principle an expenditure that is used for investments does not have to be included in the budget deficit, only in the national debt.
That is very similar to what is apparently circulating at the formation now. How much money can it be? The Netherlands apparently only has to worry about its financial reputation. As long as it is the same as the German one, the interest rate on the government debt can remain extremely low. This year, the Dutch government debt is 57 percent of GDP, which is 16 percentage points lower than the German one. Even if you only reduce that difference by half, more than 70 billion euros can be borrowed for new Dutch funds. A formidable amount, probably without loss of reputation.
Then it is of course important to prevent southern euro countries, with their already sky-high debts, from interpreting such a policy change as a free ticket to freely invest huge amounts themselves. Or insist on canceling their sovereign debt that has been bought by the central bank. To free up money.
How do you make sure this doesn’t get out of hand? That is where the different reputation of the Netherlands takes its revenge. Southern countries use, certainly in the public debate, the argument that the Dutch tax practice, with its routes and tricks, has cost them a lot of income for years.
In short, it will be a very fierce and ruthless European fight. The question is how Minister Hoekstra of Finance, after the revelation in the Pandora Papers of its own fiscal route planning, which thinks it will fight on behalf of the Netherlands.
Maarten Schinkel writes about economics and financial markets.
A version of this article also appeared in NRC in the morning of October 7, 2021