New Dutch finance chief warns against ‘throwing caution to the wind’ on spending

 

New Dutch finance chief warns against ‘throwing caution to the wind’ on spending

 

While the EU steers toward more fiscal laissez-faire in the midst of war in Ukraine, the Dutch swim against the tide.

 

BY PAOLA TAMMA

March 8, 2022 7:06 pm

https://www.politico.eu/article/the-netherlands-finance-chief-ukraine-domestic-spending/

 

The war in Ukraine, coming hard on the heels of two years of pandemic budgets, is ushering in a new era of economic largesse.

 

Countries are announcing big spending plans to boost defense and shelter businesses and households from energy inflation. The European Union is pondering whether to issue new debt to insulate its economy from the blowback of Russia sanctions, and it has already hinted that rules limiting national expenditure may be punted for a fourth year.

 

Even the Dutch, bastion of tidy finances, are going on a domestic spending spree under their new government. But that shouldn't cloud ongoing discussions on the EU's economic governance, where long-term debt sustainability should remain the objective, according to The Hague.

 

“With our new coalition agreement, we have also adopted an expansive fiscal approach,” Sigrid Kaag, the country’s finance minister and deputy prime minister, told POLITICO on Tuesday at an event at St. John’s Church in Maastricht.

 

"It is possible we may again need to be flexible in the application of the rules we agreed together, but it doesn’t mean we should throw caution to the wind when it comes to public investments," said Kaag. "It wouldn’t be wise."

 

She was delivering her vision for Europe — a speech that had to change to reflect Europe’s dramatically changed reality.

 

“​​When I accepted the invitation to come here today to talk about European unity, we all believed that war on this continent was a thing of the past,” Kaag told a small audience of university students and curious denizens.

 

But despite today's circumstances, Kaag thinks Europe should have a frank discussion about debt.

 

“It may make us uncomfortable speaking about money, prosperity and well-being in the midst of the current political and military crisis," she said. "But we do need to talk about our financial stability. Because these are also important issues people worry about."

 

"How will the war affect me? How will it affect us?" she asked.

 

The choice of St. John's Church, with its gothic high ceilings and sober Protestant aesthetic, seemed hardly casual — it is Maastricht’s only Protestant church in the otherwise majority Catholic province of Limburg.

 

So-called frugal countries, including the Netherlands with its outsized role, are similarly isolated in a European economic landscape that's tilting away from austerity and toward more public investment.

 

The bloc is currently reviewing its economic and financial governance, namely, the Stability and Growth Pact, a set of rules meant to ensure countries don’t run deficits above 3 percent or reach beyond 60 percent of debt-to-GDP ratio — or that they quickly cut back if they do.

 

Kaag says she has an “open mind and a constructive attitude” on that debate.

 

“Heavily indebted countries need to focus on the reduction of their debt level,” she said. “[But] for some member states, a rapid reduction in their debt is just not realistic.”

 

Instead, she proposes these capitals “cut back to a prudent level at a responsible pace” over a number of years. At the same time, they need to stick to an enhanced enforcement scheme that would force countries to course-correct, under the supervision of an independent body.

 

Translated into EU policy, this means doing away with a requirement to reduce excess debt by 5 percent per year and scrapping the European Commission's authority on whether to start so-called Excessive Deficit Procedures.

 

However, Kaag does concede there's a need to preserve investments, especially in climate protection.

 

“Money should be considered a means to an end and not an end in itself," she said. "And the time we live in will require large-scale investments to keep our planet liveable.”

 

That doesn't mean it's a good idea to exempt certain investments, such as those in green or defense expenditures, from counting against debt calculations, she cautioned, saying she's "a little bit hesitant on this approach."

 

A long-time career diplomat at the United Nations before entering politics at the head of the centrist D66 party, Kaag held the posts of foreign affairs minister and trade minister in previous governments. She succeeded conservative and financial hardliner Wopke Hoekstra in the top treasury job in Prime Minister Mark Rutte's latest cabinet earlier this year.

 

Kaag and her party balance more classical liberal positions in economics with progressive stances on other issues, including civil rights and climate change.

 

“She’s a very smooth operator,” said one EU diplomat. “Her charm helps her win people over who sometimes have a totally opposite point of view."

 

"She makes you think hard before trying to convince you," the diplomat said — a skill that will certainly serve her as EU finance ministers enter negotiations on fiscal rules.

 

"In the greatest of crises, we still need to remain very level-headed, very strategic, and not to take any easy decisions on any matter which has far-reaching consequences," Kaag said. "That is my job; to sort of state the unpopular and the need to take stock and look ahead."