It is an ominous portent for EU leaders. The Dutch parliament will have to vote by October – one of the last eurozone countries to do so – on a major expansion of the European Financial Stability Facility (EFSF), which financial markets want as a step to restore their confidence in the bonds of eurozone countries. Many analysts think that the planned fund should be increased in size immediately in order to show it can cope with any foreseeable crisis. But any question of an expanded guarantee was side-stepped by German Chancellor Angela Merkel and French President Nicolas Sarkozy at their summit meeting (August 16). Instead, the two key leaders stressed other future remedies, notably closer coordination among European governments to maintain fiscal discipline and constitutional measures to impose budgetary safeguards such as "debt brakes" to limit borrowing. The meeting took place against a crisis background of stalled growth in Germany and growing tax-payer backlash against bail-outs across Europe, and it was intended to shore up confidence in the euro. But the lack of concrete commitments disappointed investors and analysts.
Echoing German views, the Netherlands warned just ahead of the Sarkozy-Merkel meeting that boosting the volume of the eurozone's rescue fund will not solve the problems in the currency area. Now that the crisis has spread so widely in Europe, such a step could backfire by hurting the solvency of guarantor nations, according to Finance Minister Jan Kees de Jager. In a letter to the Dutch parliament, de Jager said that an increased EFSF is "no panacea" to solve the mounting troubles in the eurozone, adding that "any significant increase of the EFSF can…have consequences on the creditworthiness of guarantor nations.” In his view, a bigger EFSF therefore should not be seen as an alternative to achieving structural reforms and debt sustainability.
His comments echoed those of German officials. A spokesman for Chancellor Merkel said at a news conference that "the EFSF will remain what it is, and keep the volume it had before July 21," dashing market hopes of seeing immediate agreement on a more robust EFSF.
The positions of Germany and the Netherlands clash with the European Commission, which has called for a massive increase in the EFSF's current lending capacity of EUR 440 billion guaranteed by eurozone governments. Market watchers have said that much more – perhaps as much as EUR 1.5 trillion – might be necessary to reassure investors that the fund can offset threats to the solvency of governments.
In this context, the Dutch poll shows the depth of the challenge to European political leaders in trying to rally behind the euro. It showed that 60 percent of Dutch respondents wanted the Netherlands to stop lending money to other eurozone countries. In another poll, by Dutch newspaper AD, nearly half of the respondents said that they wanted the Netherlands to leave the euro and return to the Dutch guilder. (Such a step could have negative short-term impact on the Dutch economy, including a steep rise in the guilder exchange rate that would make Dutch exports less competitive. The poll question did not probe that far into people's reasoning, but it did capture their frustration.)
Amsterdam and Berlin also agree in opposing the issuance of “euro bonds,” fearing that such bonds would likely harm their taxpayers by making the rich countries pay for the poor ones as well as raising borrowing costs for the richer countries such as the Netherlands and Germany. In contrast, euro bonds have been promoted by many analysts, including World Bank President Robert Zoellick – as the measure that should be used now (and not kept as a step of last resort) to stabilize the eurozone crisis.
Part of the problem in The Hague is that the minority government needs the support of eurosceptic Geert Wilders' Freedom Party to pass legislation on some of these rescue issues for the euro. Wilders is strongly opposed to eurozone bailouts, so the government might have to turn to opposition parties for support to carry legislation even on the expansion of the EFSF facility.
Patrick van Wersch is an editorial assistant at European Affairs.