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Dijsselbloem or DijsselDoom – a Dutch Perspective

9. April 2013, von Adriaan Schout, Comments (0)

I already presented my reservations against the appointment of Dutch Minister of Finance, Jeroen Dijsselbloem (Labour Party) as President of the Eurogroup. The public outrage following the bankruptcy of the banking sector in Cyprus has raised new questions concerning his ‘presidency’ (for which in Dutch the more modest ‘chairmanship’ is used). My initial doubts concerned the question whether this prestigious position would be in the interest of the Netherlands – and I was bold enough to propose Olli Rehn as possible candidate for a permanent chair after his departure from the European Commission in 2014.

The Cypriot turbulence in March immediately tested Dijsselbloem’s ability as a chair. He had become minister of finance in the Netherlands only in November 2012 and his appointment was almost immediately followed by rumours about his candidacy as president of the Eurogroup. In that respect, the criticism of his lack of experience and authority during the Cyprus crisis came as no surprise. For his two rescue proposals for Cyprus the media treated him on nicknames such as “DieselBoom”, “DijsselDoom” and “EuroBaldrick” (borrowed from the series Blackadder) as well as on appeals for his resignation. The fierce debates he provoked centre on the question as to whether the deposit holders are really completely safe. ‘True’ EU believers – and bankers who long for stability – would have preferred a banking resolution including European deposit guarantees in order to prevent bank runs whereas EU sceptics wished for the dismantling of the euro. Moreover, as was to be expected, Dijsselbloem was scorned as a Dutch puppet of Germany and blamed for defending the Dutch position instead of being a neutral chair.

Yet, in view of political realities like the upcoming elections in Germany and the public reservations against saving zombie banks and eurozone countries, the decisions of the Eurogroup to dismantle the Cypriot banks and to bail in seem inevitable. Moreover, given the lack of money in any country, it is highly unlikely that former Eurogroup President Juncker would have been able to orchestrate a different outcome. Approximately € 3 trillion is needed to stabilise banks in the eurozone. It is simply impossible to avoid more haircuts. Still, Dijsselbloem’s presentation of the measures appeared cold and his alleged Dutch bluntness provoked comments like the one by Juncker that you sometimes have to lie as chairman of the Eurogroup – as if financial markets preferred unreliability instead of predictability.

Also, the role of the chairman of the Eurogroup seems to be widely overestimated, if one has a close look at the EU power structure. A lot of criticism on Dijsselbloem is politically naïve in view of the strong resistance against the Cyprus bail-out not only in Germany but also in countries such as France where EU Affairs Minister Moscovici talked about “casino banking” on Cyprus. It seems widely regarded as reasonable to bail-in bondholders and deposit owners – particularly in the absence of an effective European resolution mechanism.

Hence, Dijsselbloem seems to have withstood the criticism well so far. Yet, there are issues for which he could be criticised, which in some cases can be blamed on his lack of experience. First of all, he made himself more important than he really is by ̶ during the hearing before the European Parliament ̶ taking the blame for the bailing-in of savings below €100 000 in the first deal with the Cypriot government. Firstly, the chair (President of the Eurogroup) is not a decision maker but mainly a spokesman: it was the decision of the Eurogroup to bail in those savings. Secondly, he referred to the bail-in of Dutch bondholders. A chair should be as neutral as possible and avoid telling the world how good his native country is in dealing with a crisis. Particularly Dutch politicians should take care not to be too outspoken. Dijsselbloem’s presentation of the Netherlands as a role model fuelled the criticism that he was pursuing a national agenda. Thirdly, he talked in terms of “core” and “periphery countries” as well as “the north” and “the south” whereas a chair should avoid divisions at any cost (as he later seemed to have realised).

Even though these issues are mainly issues of style and nothing serious, the international press once again saw a reason to complain about Dutch bluntness and about pushing through the Northern austerity agenda. Similarly, when Dijsselbloem, as Dutch Minister of Finance, attacked the Commission’s request for an additional € 11.2 billion for the budget for 2013, a question basically unrelated to the euro crisis, this led to head lines such as ”Dijsselbloem, president of the Eurogroup, joining forces with the UK” (EurActiv 3 April 2013). This shows that it seems to be inevitable that the chair of the Eurogroup is not regarded as neutral but as a national politician.

If Cyprus can cause an existential euro crisis overnight, it is very likely that more and more serious crises are to be expected. Against this backdrop, complaints about Dutch bluntness, accusations of Dijsselbloem acting as a German puppet or being part of the British camp, are particularly unhelpful both for the EU and for the Netherlands. What the Eurogroup urgently needs is a professional chair!

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

The European crisis explained in two graphs

13. March 2013, von Aldo Caruso, Comments (1)

Guest contribution by Ricardo Paes Mamede (Assistant professor at the Department of Political Economy of ISCTE – University Institute of Lisbon)

A long book is probably too short to explain the European crisis in full length and depth. However, the essential causes of this crisis can be grasped with two simple ideas.

1) The sovereign debt crisis stems from the accumulation of external debt (both public and private) in some EU economies since the early 1990s

Since 2010, the interest rates on the sovereign bonds of some EU countries has increased sharply. According to the official view, the causes of this sovereign debt crisis are to be found in unsustainable national fiscal policies and the postponement of ‘structural reforms’– mainly labour market liberalisation and pension systems’ reforms – in the countries most affected by the crisis. But this is not what the data show. Fiscal developments and changes in labour market laws and pension systems vary widely across countries, both among those most affected by the crisis and among the remaining EU member states. On the contrary, as the first graph shows, the relation between the sovereign debt crisis and external indebtedness (public and private) is rather clear: countries whose sovereign debt interest grew the most in 2010-2012 were those which accumulated more external debt since the mid-1990s (Figure 1).

Figure 1 – Correlation between the accumulation of external debt (% of GDP) and sovereign debt crisis

Change in % of GDP between 1996 and 2008

Change in % of GDP between 1996 and 2008

Source: AMECO
Notes: External indebtedness is measured by the International Investment Position, a commonly used indicator of external debt. Data on some EU countries is unavailable for the period under analysis, namely: Bulgaria, Cyprus, Estonia, Slovenia, Ireland, Malta and Romania.

Therefore, in order to understand the causes of the European crisis first we have to explain why some countries accumulated more external debt (public and private) than others over the years. This brings us to the second idea.

2) The determining factor behind the growing indebtedness of some countries (and improved external position of others) is the specialization profile of each national economy

In the 20 years preceding the global crisis of 2008/9, EU economies have undergone significant transformations, most of which were politically induced. These include: the abolition of customs barriers within the EU, the creation of the internal capital market, the liberalization of financial flows and activities, the increasing EU level control over monetary and fiscal policies, the trade agreements between the EU and China (and other emerging economies), the Eastern EU enlargement, the appreciation of the euro against the dollar (from 2003), or the sharp increase in oil prices (between 2002 and 2008). These changes encompassed all Member States, but had very different impacts across countries. Lacking the appropriate policy instruments to manage such impacts, countries with less advanced productive structures accumulated more debt (public and private) than the others. This is shown in Figure 2.

Figure 2 – Relationship between the accumulation of external debt and the specialization profile of each national economy

% of business employment, 1998

% of business employment, 1998


Sources: Eurostat and AMECO
In other words, the rules and institutions of the EU have proved very suitable for certain economies with more advanced productive structures, but detrimental for others. It is worth noting that productive structures take a long time to change, regardless of the policies pursued at the national level.

 

Conclusion

It makes little sense to sustain that the sovereign debt crisis is fundamentally caused by government misconduct in specific countries. To be sure, citizens from different parts of Europe have many reasons to complaint about the quality of their democracies and the about decisions taken both at the national and the EU levels. Still, the main mistake of the national leaders of those countries most affected by the crisis was probably the decision to participate in the European integration process according to the rules that were adopted in the past decades, without anticipating the difficulties this would create for their economies. Their greatest mistake will be to persist in the same path.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Blog Authors

Adriaan SchoutAdriaan Schout

Dr Adriaan Schout is Deputy Director Research/Europe at Clingendael, Netherlands Institute of International relations. (read more...)

Alexandre AbreuAlexandre Abreu

Dr Alexandre Abreu is a 33-year-old Portuguese economist with a PhD from the University of London. Currently he is a lecturer in Development Economics at the Institute of Economics and Business Administration, Technical University of Lisbon, and a Researcher at the Centre for African and Development Studies of the same University.

Almut MöllerAlmut Möller

Almut Möller is a political analyst in European integration and European foreign policy. She is currently the head of the Alfred von Oppenheim Centre for European Policy Studies at the German Council on Foreign Relations (DGAP) in Berlin. (read more...)

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