Frugal Dutch answer the call for eurozone fiscal stimulus
Wopke Hoekstra will present a draft 2020 budget that is expected to be big on investment and tax cuts
There are few more unlikely candidates to lead the eurozone’s charge on fiscal stimulus than the Netherlands.
Often dubbed “more German than the Germans”, successive Dutch governments have been religious adherents to balanced budget rules and debt reduction targets in good times and bad. In Brussels, the country’s conservative finance minister, Wopke Hoekstra, has spent the last year leading the Hanseatic opposition against generous new spending tools like a eurozone budget. In the absence of the UK, the Netherlands is also among the most vocal opponents of increasing the size of the next seven-year EU budget.
Yet one of Europe’s biggest cheerleaders of frugality is loosening the purse strings. This Tuesday afternoon Mr Hoekstra will present a draft 2020 budget to the Dutch parliament that is expected to be big on investment and tax cuts and less fixated on balancing the country’s already healthy books.
Mr Hoekstra’s expansionary budget is one of the first responses from a national government to renewed pleas from the European Central Bank for growth-enhancing fiscal policies. Such is the anticipation (and surprise) around the Dutch plans that Mario Draghi even name-checked Tuesday’s budget when he cut interest rates and announced the resumption of bond-buying last week.
According to leaks in the Dutch press, Mr Hoekstra will announce €3bn in tax cuts for households and launch plans for an investment fund that locks in the country's historically low borrowing rates. The plans aren’t expected to make a huge dent in the government’s healthy budget surplus (around 1 per cent of GDP) and near 50 per cent debt-to-GDP ratio.
Dutch stimulus alone won’t be enough to rescue the eurozone but the shift in one of Europe’s most fiscally hawkish countries should be welcomed across the bloc.
“It could serve as an important bellwether for the rest of the eurozone”, says Bert Colijn, senior eurozone economist at ING. “If a Dutch stimulus package comes through, it sends a message that fiscal spending could become more important as a tool to fight a possible eurozone downturn”.
Mr Draghi and others will be hoping Mr Hoekstra’s move may be a sign of a broader trend, and that even Germany may relax its self-imposed fiscal constraints.
Markets and economists were left disappointed earlier this month when Olaf Scholz, German finance minister, stuck to the government’s infamous “black zero” deficit policy.
Mr Scholz has since promised to spend “many billions” fighting off a slowdown. A big test is approaching at the end of this week when the German government is expected to unveil a “green” spending blitz. Welt am Sonntag reports it could amount to €40bn over the next few years. Should it live up to expectations, it would be the first sign that Germany is getting ready to go Dutch.