July 15, 2020
Mark Rutte is still playing the tough guy, but his list of demands has shrunk. One should not draw complacent conclusions though. When agreements fail, they usually do so over a narrow range of issues. In this case, Rutte still wants two things: a budget rebate for the Netherlands, and linkage of the recovery fund to economic reforms. Two essentially unfulfillable demands are out: a Dutch veto on every single loan disbursement, and a loans-only recovery fund. Rutte also hinted that he is ready to compromise on the loan/grant issue if others are too.
There are still many more ways in which this can go wrong than in which it can succeed. And we would not rule out the possibility of another couple of weeks' extra time until a final compromise is agreed. But all of this is to be expected considering the complexities of folding the recovery money into the EU budget. That route was chosen because the EU Commission, France and Germany wanted to bring the fund under an existing legal framework rather than create a new one.
The Dutch political scientist Michiel Luining noted that there are two red lines in Rutte's position: no reversed qualified majority as proposed by the Commission, and conditionality. The first relates to the question whether a qualified majority, of 55% of member states representing 65% of the EU population, is needed to approve a payment or to stop a payment. The latter is referred to as reverse QMV. The Commission proposed it to speed up the payment flows. We think this whole debate is a red herring. Once a payment is approved, the Council will not stop it unless there is an open violation of the rules. We struggle to see a situation where the difference between QMV and reverse QMV would matter in practice.
The second relates to conditionality. Here the devil lies in the details. We would agree with the Dutch view that the European Commission is unlikely to apply conditionality strictly. What Rutte wants is much more intrusive than even the Troika. As Mehreen Khan of the FT put it, Rutte is playing the role of the anal bookkeeper. He quoted a diplomat as saying Emmanuel Macron was taken aback by Rutte's comments on French labour and pension reforms. As a quid pro quo, Rutte will try to ensure a strong degree of mutual interference in each others' economic policies.
We are not surprised to hear this. It is the logical consequence of rejecting a federal structure. We believe that such mutual interference is deeply undemocratic and will be resisted by electorates in the short or long run. This is why conditionality constitutes a treacherous path. If it has any meaning at all, it means a violation of democratic principles. Or else, it means dishonest forbearance. We struggle to see how one can build a lasting monetary union on either of those.
Another possible conflict is Rutte's unrelenting demand for a rule-of-law link to the EU budget. This relates to the EU's ability to withhold funds from member states like Hungary that are deemed to breach EU laws and principles. We agree with Luining that these are very hard to implement in practice, even if agreed. The reason is that the Visegrad-four countries, Poland, Hungary, Czechia and Slovakia, are no longer alone, but have new allies in Cyprus, Malta and other central and east European countries. If you accept a budgetary share-out based on fixed member state allocations, you are stuck with this system.
We also have stories on the uneven industrial impact of Covid-19 across countries; on how the pandemic has changed the French pension reform; on the top Greek court ordering a refund of pension cuts; on further evidence of eurozone economic weakness before Covid-19; and on how the EU overstates its climate spending.