The Dutch position on joint financing of a European approach to the corona crisis has sparked unprecedented incomprehension and frustration in recent weeks. We, Dutch economists, also believe that the Dutch position cannot be justified. We call on the Dutch government to change course now and support a European approach.
About this manifest
This manifest is signed by 80 Dutch economists from universities and thinktanks all over the country. The original Dutch letter and the full list of signatories can be found here.
There is hardly a clearer common challenge than the current corona pandemic. Solidarity is what is needed. Together we shall overcome.
The health of the Dutch directly depends on the public health of those in the countries with which we have contact. The Netherlands will not remain virus-free for long when surrounded by countries with infected people. And contact is vital for an open trading nation such as the Netherlands. Our trade is primarily through the internal market with other EU Member States.
The Dutch economy has quite rightly been ‘propped up’ with extra support, with companies and consumers being sustained with a package that could reach EUR 65 billion in the coming months. As perhaps the most open economy in the eurozone, it is now important for the Netherlands to unite in a European approach. It is in our own interest that countries such as Italy, but also Spain and Portugal, can effectively deal with the crisis.
And whether we like it or not, our common currency increases the pressure. The fight against a common enemy, the virus, must not force the eurozone into crisis. Doubts about creditworthiness of countries can, in financial markets, lead to self-fulfilling prophecies. Investors demand a higher return for the perceived risk, raising interest on government debt. This increases financing problems for the country concerned and leads in turn to an even higher risk premium, and the spiral starts again.
Dutch obstruction counterproductive
There are two reasons Dutch obstruction is now counterproductive. First, the European Central Bank (ECB) will then act independently again. However much we wish it we will never be able to prevent it. This means that democratic legitimacy and direction are wanting, and government leaders and parliaments have failed once again and are relegated to the sidelines.
The second reason is that the Netherlands must protect its effectiveness in Europe, we must choose our battles. Of course countries must reform and put their finances in order. To achieve this, we will certainly in the future have to make ourselves heard. But now is not the time for that discussion. We must therefore keep our powder dry. The common threat from the virus requires compassion and assistance. From our own relatively comfortable position, we can and must radiate solidarity.
Decisive European action required
Decisive European action is now needed. The first steps have already been taken. The European Commission has found tens of billions within its current budget, and budgetary requirements have been relaxed. The ECB has announced that it will stimulate the economy, amongst other measures, by buying up more than EUR 1,000 billion in debt. Recent ECB decisions are particularly significant, notably the Pandemic Emergency Purchase Program. In the margins, the ESM has also been slightly broadened.
This flexibility announced by the ECB, which also allows the ECB to support specific countries, puts the ECB back in the lead. And this is problematic. The ECB cannot do it alone. It needs support from government leaders, the EU and national parliaments. They must ensure democratic legitimacy by combating the crisis with common fiscal support.
Bigger support packages in Nothern Europe
Most of the measures are, however, national by nature. The extent to which northern EU member states are able to spend more money than the southern ones is also striking. Germany announced an aid package in excess of EUR 350 billion. Italy produced a package of 25 billion euros — much less and yet much more problematic because of its precarious financial position. This is precisely why pan-European backing of weaker countries is so crucial now. They too need to implement a support policy. The corona virus is a common enemy, and it requires a unified policy.
A solution is feasible for this specific, unique crisis – the corona crisis. So: no permanent mechanism is in order whereby all euro-states guarantee each other permanently, no mutualisation of existing debt is needed. All this distracts from the problem at hand. But joint financing for tackling the current crisis. Most obvious, is the activation of the existing emergency fund ESM by, for example, by offering credit lines to member states. These need to be specifically focused on the crisis, and thus separate from reform programs and their conditionalities. The ESM has a borrowing capacity of € 410 billion, which can be increased. Crisis bonds (‘coronabonds’) may also be considered, but, again, focused on this crisis only.
Whichever way, the ECB will have to provide backing, but at least government leaders will be in charge. The Netherlands cannot avoid being more generous and carrying this out.