Germany, Finland Luxembourg and the Netherlands are the last AAA-rated countries left in the 17-member eurozone. Like the coolest kids in the local high school, they form their own clique with their own set of rules. Those rules are:
- Hold the eurozone together.
- Bail out the troubled countries, but only under the strictest conditions.
- Save the banks while imposing some pain on private bondholders.
- Push the weaker economies to cut budget deficits by any means necessary and restructure their economies for growth.
Germany is the undisputed leader of this Upright Brigade and believes this creed with all its heart.
Finland is the most eccentric member. It almost chose to exile itself last year as Finns started to wonder, why should we send our money to anybody else? Timo Soini, leader of the True Finns party, campaigned on this sentiment in the run-up to parliamentary elections:
“The party is over,” he said. “Why should Finland bail anyone out? We won’t hand over more Finnish money to be burned in the fire.”
His True Finns went on to take 19% of the vote, but ultimately lost to a more mainstream party won which then convinced the government to take part in further bailouts. (But only after Greece agreed to give it collateral.) Finland has shown itself to be an unreliable member of the Upright Brigade.
The Netherlands, on the other hand, has always been Germany’s reliable wing-man. The two have a lot in common (the first line of the Dutch national anthem mentions King Willem van Oranje’s “German blood”. ) The Netherlands may have its racy parts, but on the world and European stages it’s considered to be as responsible as its big brother. But this might change.
The Dutch have peered into their budget future, and they don’t like what they see. They predict a deficit next year of 4.5%. While Greece or Portugal could only dream about a figure so low, to the Dutch the news is as welcome as a dragon at a tea party. What now?
The government must try to get this figure under the 3% threshold that it agreed to as part of December’s grand fiscal pact. Now the Dutch will have to force the austerity medicine that they have prescribed for everyone else down their own throats. It will be hard: their coalition government is very fractured. If the strain of new budget cuts and tax increases force new elections, then the increasingly popular anti-austerity parties on the left might win. And it’s not just the leftists questioning the wisdom of cutting budget deficits in difficult times — the head of the country’s biggest industrial lobbying group is also calling for a “go slow” approach for an economy already suffering a mild recession.
Will Germany lose its best friend in the Upright Brigade? And if so, will this encourage Greece, Portugal, Ireland, Italy and Spain etc. to question Germany-encouraged austerity policies? Spain’s prime minister has already said that the country will not meet its deficit target this year — and that he’s not too bothered about missing it, either! On the question of austerity, Germany is looking more isolated these days. Will it soften its stance and help provide a bullish case for Europe?
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Editor’s note: For you fans of Euro 2012, have no fear, we know that Holland and Germany are not best friends on the pitch, just in economic and monetary affairs.