International

Countries in the eurozone which fail to keep to the budgetary rules will in the future be more-or-less automatically fined, according to reports in the Dutch press. Finance Minister Jan Kees de Jager is perfectly happy with this agreement, because he hopes that it will mean that a new crisis such as has occurred in Greece can be prevented. The agreement carries major disadvantages, however, which could seriously undermine support for the EU.

Countries within the eurozone which fail to reduce their national debt to 60% of Gross Domestic Product (GDP) – the total produced in that country in a single year – could soon find themselves facing heavy fines. The same goes for countries which do not reduce their deficit to below 3%. An agreement is an agreement, you might say, and in this sense the Finance Minister's joy was certainly understandable. On the other hand, the Netherlands was itself clearly above the 60% national debt limit in 2009, as well as having a deficit of 3.9%. We are therefore running the risk that we will soon have to pay a stiff fine, or be confronted with the need for draconian austerity measures. These are not attractive prospects, and the Netherlands is far from being the only country facing them. Of the sixteen member states of the eurozone, eleven have a large national debt and fourteen exceed the permitted deficit.

Punishment

In addition to being subject to fines for an excessive national debt or deficit, countries can also be fined if their economies are subject to imbalances. This will bring a great deal of national economic policy under the supervision of Brussels. Not only trade deficits and exchange rates, but also house prices and wage movements will come within its scope. Economic governance (or influence) was the aim of President of the European Council Herman van Rompuy, but this looks more like economic government (or management). I consider, in any event, the agreement reached to be an important step on the way to a European economic government. The economic crisis has been skilfully employed by supporters of a federal Europe to take a great leap forward.

Of course, national debts cannot go on rising forever and must in due course be reduced. There can, however, be good reasons to contract a temporarily higher level of debt. Former Finance Minister Wouter Bos did just that in order to save the banks. It would be bizarre were this rescue operation to be punished with a fine, certainly in view of the fact that it is expected in the end to deliver a profit. A temporarily higher finance deficit may also be acceptable if the economic system is boosted by increased public spending. It is particularly undesirable that the agreement limits such policy freedom for eurozone countries.

Financial markets

That the high level of debt of some member states is currently causing problems is also to do with the behaviour of financial markets. Greece has deterred lenders through its carelessness with numbers and is thus rightly distrusted. We must, however, not allow a situation to develop in which, under pressure from speculators, governments impose austerity measures in excess of what is both necessary and economically prudent. That is why the quality of credit rating agencies must be subject to better monitoring and an emergency fund established as protection against speculators. What is still missing is the introduction of a tax designed to make purely speculative transactions less profitable and thus to some degree discourage them.

Euro currency

The problems in the eurozone are to a large extent caused by the fact that a common currency was introduced for countries amongst which there were extreme economic differences, without there being any suggestion of a political union. If on the creation of the monetary union it had been immediately announced that eurozone countries would gradually lose control of their national economies, there would have been considerably more discussion regarding this currency union. To put it more strongly, it is probable that it would never have happened.

We are now stuck with this currency union and those who advocate far-reaching European harmonisation have the Netherlands, financially and economically, in their grip. More than ever, we will in the future hear - in the face of radical austerity measures, the clawing back of social achievements, the freezing of wages and the raising of the burdens on ordinary citizens - that 'Brussels made us do it.' Strictly speaking this is not completely true, because choices regarding the raising of taxes on profits and the capping of mortgage relief remain possible, and if these were not taken it was for political reasons.

Much worse is that our government itself agreed to this important step in European policy and therefore 'Brussels' can't really be blamed. Thus was created the peculiar situation that it is precisely the advocates of this European Union who have seriously undermined support for the EU amongst the public.

Harry van Bommel