Germany and the Netherlands Asked to Support EU Debtors—Again

By Kyle Castellanos

European Commission officials are calling for the Netherlands and Germany, two eurozone economies with budget surpluses, to step up government spending. Their hope is that revived Dutch and German spending will have positive spillovers across the eurozone—but it could end up supporting the profligate spending habits of European Union member states who choose to violate EU budget rules.

On Nov. 20, the European Commission identified eight member states that risk violating the Commission’s rules for maintaining sustainable debt and deficit levels across Western Europe. Among the countries identified are Italy and France, each amassing debt worth 138% and 98% of GDP, respectively. 

This is particularly problematic due to the fact that eurozone membership is largely contingent on compliance with the European Commission’s debt and deficit rules. Existing treaties within the EU require states to keep their annual deficit below 3% of GDP and public debt below 60% of GDP. However, states have ignored these policies and have continued patterns of reckless spending.

France, Italy, Spain, and Belgium, all countries notified for breaching the European Commission’s debt and deficit policies, have shown no signs of repairing their budget holes. These states have not attempted to balance their budgets by reducing state spending or expanding their economies. Instead, these countries appear ready to enter 2020 maintaining crippling national debts. 

These high national debts present several problems to the European community at large. Most importantly, states with overwhelming national debts cannot respond to economic shocks in an effective manner. Without substantial fiscal room, even a smaller-scale economic shock can rock the economy of any of these states, sending them into a freefall—without the necessary tools to lessen the blow. As such, members of the European Union with robust economies are being asked to contribute additional funds to neighboring nations in the hopes of revamping their respective economies. 

Instead of focusing on adjusting the problematic countries’ national budgets, the European Union is holding Germany and the Netherlands responsible for supporting economic growth in these countries. Approaches emphasizing German and Dutch economic participation in neighboring debtors under the guise of regional solidarity are only furthering the dependence of the European Union on a few member states.