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Are we Living in a Post-EU Society?

20. November 2013, von Adriaan Schout, Comments (0)

There seems to be a paradox: whereas the euro crisis has enforced deeper integration, economic and political attention is shifting away from the EU. Europhiles blame the Eurosceptics but EU-watchers should be careful to follow simplistic reasoning.

Dutch Foreign Affairs Minister Frans Timmermans has the reputation to be an EU-believer and was, among others, a convinced member of the Convention that drafted the Constitutional Treaty. When he became minister of foreign (including EU) affairs, the general impression in the Netherlands, and the rest of the EU, was that his appointment was a good sign of the Netherlands becoming pro-EU again. However, now one year in office, Timmermans has shown himself rather critical of the EU. He talked about a ‘Brussels bubble’ that has lost touch with reality, criticised EU salaries and insisted on closer control of the EU Commission by the European Council (i.e. intergovernmentalisation of the Commission). Of course, it is possible to contribute this to pragmatic kowtowing to the political signs of our times or to the more reserved EU attitude of the Dutch liberal Prime Minister Rutte and his coalition government of which Timmermans is a member.

Yet, there is more. Minister Timmermans is also travelling extensively abroad. In fact, he is much more in other parts of the world than in Brussels or in EU Member States. One could could argue that the Dutch international influence via the EU would be more pronounced and, hence, that the use of all his international activism outside the EU is debatable.

In the meantime, across the channel, Cameron has expressed the possibility of an in-out referendum. A part of British industry has been issuing threats of leaving the country, and many in the EU are once again appalled by the Brits who continue to be unsurpassed EU-sceptics. However, rather than condemning – as so often happens – the Brexit discussion ignited by Cameron, we could also try to take the British debate seriously. Similarly, we might need to consider that Timmermans’ external perspective is well-founded. In any case, it has to be admitted that the British are good at thinking outside the box, so maybe there is more substance behind the Brexit debate than simple Euroscepticism.

Studies also show that big as well as small and medium-sized industry in the UK question the relevance of current EU policies and of the importance of the EU. Whereas about half of the UK’s exports go to the EU, the other half is going to other parts of the world and, more importantly, it is there where the growth in export – not just the UK’s ─ is taking place. Discussions about competitiveness are now primarily linked to comparisons with countries such as India, China, Brazil and the USA.

Hence, rather than sticking to European navel-gazing, it seems justified to look at the rest of the world for market opportunities and for new threats. In principle, questioning social policy objectives – maybe precisely because they are more symbolic than real – and other developments in for example the growing tasks of the ECB and in the EU’s economic governance, seems a valid starting point in the current debates on the future of the EU. It is crucial to consider what such trends imply for the EU’s competitiveness. This is important from an economic perspective but one also has to consider that the EU’s international security and influence are intimately related to its economic strength. External benchmarking of the EU’s competitiveness should not suffer from internal euro crisis debates.

The EU may have to come to terms with the fact that we work and live in a post-EU society, which also helps to put the traditional European claims into perspective. There is a keen awareness in the Netherlands that 70% of our trade goes to countries within the EU, especially to countries within 1000 kilometres of our borders. This has actually little to do with the EU. Trade relations with neighbouring countries are bound to be important, irrespective of the European integration project. Although important, extensive trade with countries close by are more or less traditionally given. Trade with other parts of the world is clearly increasing and posing new and painful challenges. To focus trade relations more on the rest of the world seems a natural and necessary development.

We in the EU may have to accept the post-EU society as a reality. Voters, consumers and industry have interests beyond the internal market and internal eurozone worries. This recognition has, in principle, little to do with anti-EU sentiments. It would be a mistake to taboo those who’ cast their nets out further’. On the contrary, accepting this might actually help us to get a better focus on what is important within the EU, e.g. standing together in external relations, and what is potentially dangerous such as, for example, creating a French-type EU. The European Union is important, but there is a lot more in the world that counts.

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.”

Will France Become like the Netherlands or the Netherlands like France?

28. May 2013, von Adriaan Schout, Comments (1)

To understand the euro project we need to go back to 1989 and the frustrations over exchange rate adaptations under the European Exchange Rate Mechanism (ERM). France was frustrated by the hard Deutsch Mark and, occasionally, lost billions on aligning the FF to the DM. Mitterrand used the German unification as a lever to get Kohl to accept the euro. This was regarded by the Dutch with grave worries for various reasons. In essence, the euro is a French project.

For one, the Dutch, together with the Germans, wanted at least to ensure that the euro would be a hard currency and demanded the Maastricht criteria, the SGP and an independent ECB. The demand for rules to reinforce economic institutions continues and resulted of late in an ‘independent Commissioner’ and semi-automatic sanctions. The euro may have a French pedigree but was supposed to become German/Dutch and, with that, ‘southern’ Europeans would/should become like the Germans/Dutch. One of the most recent steps in this effort was the line in the six pack that all countries should have an independent budgetary authority. The Dutch have such a prestigious economic analysis bureau but in France this function has been part of the Ministry of Finance. Strong economic governance goes together with strong, independent, rule-bound and transparent institutions.

The Netherlands is now in a recession and economic prospects seem to be gloomy for some time to come. To be able to reform, the Dutch need to rely on their proven social ‘polder-model’ and recently a social pact between employers and employees was agreed on and supported by the government. However, the government did not want the independent budgetary control office to examine the consequences of this social pact nor its implications for the 3% rule. Moreover, this control office recently had a shift in leadership and a top civil from the ministry of finance was appointed. The new director may be extremely competent but the image of independence is endangered. Moreover, Prime Minister Rutte spoke out to be optimistic about economic prospects. Yet, over-optimism has been one of the most annoying characteristic of politicians when it comes to reliable statements about the SGP criteria. Recently Hollande also presented a brighter economic future for France than Olli Rehn. In the debate for EP on 7 May, Dijsselbloem ̶ albeit it as chair of the Eurogroup ̶ emphasised that we should not examine the weakness of banks until the eurozone has the resolution mechanisms in place. Hence, the message seems to be, let us postpone the facts until we think we are ready. Is it wise to circumvent facts, to thwart the image of independence and not to analyse major reform proposals?

Rumsfeld once stated that there are known unknowns and unknown unknowns, but the eurozone has invented the ‘unknowns we’d rather not know’. The French had a political perspective on the fiscal policy whereas the Germans and Dutch stood for rationality. As it now seems, the euro is not changing Hollande into Kohl, but it might make the Netherlands more French.

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.”

What a Tomato Can Tell us about the Euro

22. March 2013, von Adriaan Schout, Comments (0)

In order to form an opinion on the effects of the euro, we could start out from a simple question: what sort of impact had the introduction of the euro on a specific product, let us say a tomato, that a country (e.g. the Netherlands) cultivates and exports? The Netherlands has a strong horticultural sector. At first sight, it seems as if the Dutch exports in horticultural products have benefitted greatly from the euro. In 2010, almost 10% of the workforce worked in the production, knowledge development and trade of vegetables and fruits. 75% of the exports of tomatoes, cucumbers, paprika, etc. were within the EU. Exports within the EU have benefitted from European integration since 1992 with the removal of trade barriers, the definition of common food laws, the protection of patent rights and the introduction of the euro. Since the introduction of the euro in 2002 the exports of vegetables and of fruits have increased massively with 90% and more depending on products and regions. Exports to southern European Member States have proven to be particularly impressive with a growth of 241% between the introduction of the euro and 2010. Does this mean that the euro was a big success?

There are many reasons for this sharp increase in exports from the Netherlands and for the increasing imports by the southern Member States. One explanation for the favourable exports between 2002 and 2010 was the introduction of the euro. Tomatoes and related products are bulk products with low margins. Hence, the export success depends on enormous volumes combined with low profits margins. As a result, small changes in costs result in major changes in trade. The introduction of the euro contributed in two ways to the export success. The euro implied lower transaction costs, and lower costs with bulk products imply more exports. In addition, the economic conditions in the southern countries was inflated due to investments in housing, the inflow of cheap capital and high consumption. There were few incentives within the eurozone to lower wages and prices. As a result, Dutch horticultural exports to southern Member States flourished and investments in production went up, meaning that the success of the Dutch production and exports was partly a sign of failing market adjustments in the south.

Evidently, this upswing in Dutch exports has had its flip sides. Production in the south was pushed back before 2010. At the same time, investments in the Netherlands had gone up leading to the current overcapacities. These days, Dutch export of tomatoes within the EU is dropping. At first sight, this might appear to be a logical consequence of the general economic crisis given that consumption is falling in many eurozone countries. What is much less realised is that it is also the introduction of the euro that can partly be blamed for the present economic setback in horticulture. Currently we see wages in southern eurozone countries dropping, production and export of horticultural articles from the south are increasing, and, as a result, imports from the Netherlands drop and exports to the northern countries increase. Dutch export is not only dropping towards southern countries but also towards countries like the UK due to stronger competition from southern tomatoes.

Looking back, it would have been better had the market for horticultural products remained more in balance. The success of the exports was in part the result of failing markets within the eurozone. Would markets have adapted more smoothly, exports from the Netherlands would not have grown so fast and this would have prevented overinvestments and less adjustments once the crisis set in. Similarly, production in the south would have increased earlier had markets been more flexible.

This shows that the introduction of the euro – a macroeconomic development – resulted in microeconomic imbalances in the market for horticultural products. Looking back, the increase in Dutch exports following 2002 was too high and is now followed by a reversal of trade flows. The story of the tomato tells us that the increase in exports due to the euro was also a sign of insufficient adaptations in the south and has resulted in a hard landing that could have been prevented had the euro not functioned as a ‘sleeping pill’ to postpone market adaptations. At the same time, export surpluses were not matched by adaptations in exchange rates so that adaptions in the end have been more abrupt. What goes up must come down. Paradoxically, the euro has aggravated the ups and the downs. Like it or not, the well-functioning of markets is even more important with the euro.

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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