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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.”

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.”

Dijsselbloem as Eurogroup President – Curse or Blessing for the Netherlands and the Euro?

20. February 2013, von Adriaan Schout, Comments (1)

Finding suitable chairpersons for EU meetings is extremely difficult.  Since ‘presidents’ can be politically quite threatening they should preferably come from small countries. They should be rather gullible and non-threatening people.

As our euro notes prove, the EU has no shared values and that makes chairing particularly difficult. The design of the euro notes was a bit of a challenge. With only 7 notes (from five euro up to 500 euro), any selection of people as figureheads on the notes proved impossible. Erasmus was Dutch and protestant. Jean Monnet was of course a pure technocrat and only known to a handful of Europhiles – apart from being French. Hence, the notes depict the most self-evident symbols of unity (or dis-unity!) one can possibly imagine: bridges and windows. Yet, even these architectural wonders of our European history had to be imaginary because real bridges or window would cause jealousy.  The euro was supposed to be the symbol of our collective future that we carry with us in our pockets but it actually shows that the EU lacks agreed values – at least in economic terms.

This makes chairing the Eurogroup very difficult. The paradox of European leadership is that leadership is about connecting, but with so many differences in values, interests and cultures, leadership is almost impossible. It can only be extremely subtle – hence the emphasis on presidencies as honest brokers and on neutral presidencies.

Chairing the Eurogroup is probably currently the biggest challenge because this is the meeting where battles are fought and the most sensitive dossiers for the European Council are prepared. The Eurogroup is divided between north and south, it is divided over the role of the ECB, and it has to discuss reform programmes between debtors and triple A countries. As Jean-Claude Juncker’s track record shows, it is easy to run into all sorts of difficulties, as happened with Merkel and other heads of state over the idea of launching eurobonds.

The Dutch were very happy with an EU top position. Part of their ambition to chair originates from the frustration of being not one of the bigger countries (overlooking that chairmen – Juncker, Barroso, Van Rompuy – actually come from small countries). The newspapers were full of the fact that the chair is always best informed, in the middle of the negotiations and that he thus can steer negotiations. I beg to differ: steering negotiations should not be overestimated. Moreover, I doubt whether a chair is always optimally informed. We have, e.g. seen Van Rompuy presenting presidency papers that could almost immediately be retracted because France and Germany put their papers and agenda’s on the table showing that France and Germany seem to be perfectly able to communicate with each other directly. Apart from being obviously overruled, this also proves that the President of the European Council is completely sidelined whenever it suits the Member States.  Van Rompuy, on the other hand, has shown that he is very flexible (yes IMF, no IMF; no flexibility; yes flexibility in Deauville) and not easily insulted when overtaken by the real power blocks.

What is worse, the costs for the Netherlands – and for the euro – can be high. First of all, there is no such thing as a neutral chair. If the Dutch Minister of Finance Jeroen Dijsselbloem is even-handed, he will run into difficulties with Germany and with other EU countries at the same time.  Compromises are not regarded as neutral, and if there is one thing that is really important to the Dutch than it is good relations with Germany. As Juncker’s experience shows, chairing the Eurogroup includes a big political risk vis-à-vis the Dutch-German relation. Secondly, it will be difficult for the Netherlands to fight for its interest. After the decision was taken to support Spanish banks through the ESM, the Dutch, Germans and Fins got together to dictate the rules. This post-hoc redefinition of outcomes of meetings – which always happens because ministerial meetings do not settle details – will be very difficult for the chairing country. Being a triple A country, the Netherlands should fear for its influence because the devil is always in the detail. Thirdly, the power balance may have been redefined by Dijsselbloem’s new position meaning that the Netherlands has to change its tune. Of course, there is now a Dutch junior minister at the table to defend the Dutch position, but everyone knows that that the senior minister sits in the chair. Finally, democratic control can be complicated. Discussions in Dutch parliament prior to important Eurogroup or European Council meetings will probably be different. Minister Dijsselbloem now has so much confidential information through his many talks with eurozone politicians that he will likely be restricted in his debates with parliamentarians.

Apart from these political costs, chairing means showing the eurozone members that the own house is in order. This is difficult enough for the Netherlands these days. It would have been good to invite a country to chair that is really making a lot of effort to prove financial markets, that it is desperately reforming. An Irish chair could have been the wiser option.

Finally, ministers come and go. Juncker stayed for a decade. Dutch governments change on average every two years. Acting ministers in the chair add the risk of a high turnover of chairpersons. This can be avoided by choosing a professional chair. Olli Rehn is available in 2014.

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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