Dutch resistance stands in way of deal on EU recovery fund

With a week to go before a crunch EU summit to thrash out a deal on a €750bn economic recovery plan, Europe’s major leaders are all heading to see the man standing in their way: the Netherlands’ Mark Rutte.

After visits from French president Emmanuel Macron and European Council chief Charles Michel over the past two weeks, the Dutch prime minister meets German chancellor Angela Merkel in Berlin on Thursday — the latest and perhaps most significant visit in a diplomatic dance that is increasingly being centred on The Hague ahead of next Friday’s showdown in Brussels.

As the informal chief of the EU’s “frugal four” alliance, Mr Rutte is the man the rest of Europe’s leaders need to convince of the merits of a package of measures designed to revive Europe’s economy after months of pandemic-induced hibernation. Italy’s Giuseppe Conte, Spain’s Pedro Sánchez and Portugal’s António Costa will all head to The Hague over the next week to make their case to the Dutchman.

“The Dutch have always been difficult in EU budget negotiations, but now there is the feeling that they are really punching above their weight,” said Catherine De Vries, professor of political science at Bocconi University. “The procession of EU leaders heading to Rutte shows Dutch voters that he is fighting for their national interest.”

Mr Rutte is the EU’s third longest-serving leader and has grown in diplomatic stature since Brexit. With the UK’s departure, the Netherlands has stepped up to become the bloc’s most vocal advocate for a smaller common budget and further liberalisation of the single market. 

Mr Rutte and his conservative finance minister Wopke Hoekstra have also spearheaded a group of small “Hanseatic League” nations — an alliance of northern fiscal hawks — who successfully neutered French-driven plans for a eurozone budget last year. 

‘Frugal four’ leaders, including Mark Rutte, right, want the EU’s plan for a post-pandemic recovery fund to be amended ‘Frugal four’ leaders, including Mark Rutte, right, want the EU’s plan for a post-pandemic recovery fund to be amended © Sem Van Der Wal/EPA-EFE

The Hague now stands in the way of a landmark proposal for the EU to hand out billions of euros in grants to economies hit by the pandemic — a plan backed by France and Germany. “We simply hate it,” a Dutch diplomat said. 

Mr Rutte and his frugal quartet — made up of the Netherlands, Austria, Sweden and Denmark — want Brussels’ proposal to be amended so that only loans, which eventually have to be paid back, are distributed to crisis-hit economies and not grants.

The Netherlands is also demanding that recipient countries carry out sweeping economic reforms to their labour, tax and pension systems to drive their economies towards competitiveness. Mr Rutte wants tranches of cash to be released when governments fulfil their reform promises and the ability to withhold money in case of non-compliance. 

The stance has prompted a backlash from southern Europe, with Greek prime minister Kyriakos Mitsotakis warning this week that strict conditionality is “politically unacceptable” and akin to the “troika-style” monitoring by EU, European Central Bank and IMF officials associated with bailouts. Spain’s Mr Sanchez has said it is “not the right moment” to mix the recovery money with “another set of policies”.

The Netherlands’ democratic concerns over how to govern the recovery fund are shared by a wider group of countries that want member states to have a collective say in how each government plans to spend the money. But it is Mr Rutte who has drawn the most attention and opprobrium during the negotiations.

“The Dutch have never cared about having a pretty face in these talks. They come to Brussels to defend their national interest,” said an EU diplomat. “They irritate many because their bluntness can be seen as arrogance.”

During his blitz of bilateral meetings, Mr Rutte has presented European leaders with a quid pro quo: the price for greater financial solidarity is greater involvement in your national affairs by the rest of the EU. 

A senior diplomat said that during his dinner with Mr Rutte in The Hague at the end of June, Mr Macron was taken aback by the way the Dutch leader questioned him about his plans to continue with controversial labour market and pension reforms in France. “This is the logical consequence of what the recovery fund means. The penny is beginning to drop,” said the diplomat.

Dutch politicians say the country’s deep suspicion about funding EU spending stem from years of growing mistrust between the northern and southern parts of the eurozone over what the rules of the game should be when it comes to risk-sharing. 

Mr Rutte was prime minister during successive Greek bailout programmes from 2010 to 2015, during which his government eventually caved in and approved loans despite vociferous opposition in the country’s parliament. “The Greek crisis nearly brought down his government,” said a national official. 

By contrast, Mr Rutte’s handling of the pandemic and his obstinate stance over the recovery fund has won him plaudits at home. His ruling centre-right Party for Freedom and Democracy (VVD) is enjoying its highest level of popularity in more than three years — putting Mr Rutte in pole position to win national elections next March.

Ms De Vries said growing domestic popularity could help the Dutch prime minister sell a final deal over the recovery fund later this summer. “Rutte knows he has to compromise in the end. The Dutch see themselves as book-keepers. They are willing to give money but want to know where it is going,” she said.

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