As one of the founding members of the European Coal and Steel Community, the Netherlands, historically, has sought to maintain a pro-European stance and has arguably benefited significantly with the expansion of the European project. The current Dutch administration, headed by Mark Rutte, has however, maintained a fiscally conservative stance in its dealings with the world in general, and Europe in particular. This has been acutely displayed by the immediate dismissal of Corona Bonds, first proposed on the 25th of March by the heads of State of Belgium, Portugal, Greece, Spain, Ireland, Slovenia, Luxembourg, France and Italy. Their proposal stated the case for a common debt instrument to specifically finance necessary investments in the healthcare systems of all members of the EU.
The initial response of the Dutch Minister of Finance, Wopke Hoekstra, was to suggest that Spain’s budgetary constraints in dealing with the Pandemic should be investigated. A few days later, Hoekstra noted the lack of empathy in his response, which was described as “repugnant” by the Prime Minister of Portugal, but still maintained a red redline over Corona bonds, preferring the European Stability Mechanism (ESM). Critics however, highlight that the ESM was primarily designed for financial risks that would require the imposition of austerity measures. A condition that could not be shouldered in a pandemic situation that heaps on social and political risks.
On the eve of the Eurogroup meeting, a group of legal experts have drafted a feasible scheme to bring to life Corona bonds, while addressing its more frugal critics. The plan suggests the creation of a 1 trillion bond, housed within a public law vehicle, launched through a new treaty mechanism – dubbed the Corona Bond Treaty. The bonds are to be financed by each member state linked to their GDP based contributions to the EU budget, while also proposing distinctive taxes, across the EU or within Member States, to fund it. The Bonds will be limited in use on health, digitalization, migration, rule of law and climate related pan-European projects, while limiting individual member states to healthcare and labour and industry investments.
While Hoekstra’s continued insistence on the Netherlands contributing 1 Billion Euro, a thousandth of what the proposal of the Corona bond believe is required, it is certain that the upcoming meeting of EU finance ministers will be discordant at best. The Netherlands may want to be mindful of invoking Article 125 of the Treaty on Functioning of the EU. While it prohibits liability for member state commitments, it allows for “mutual financial guarantees for the joint execution of a specific project”, which would precisely be the goal of a well-designed and executed Corona bond. At this critical juncture, the Dutch government may well have to bend its strict approach to finance and reduce political strain all across the EU.
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