Can the Dutch tail wag the EU budgetary dog?

The ongoing negotiations to form a new government in the Netherlands could have profound implications for the European Union. The staunchly pro-European liberal party D66 prevailed in the 29 October poll. On 2 December, D66 and Christian democrats the CDA set out a joint agenda and invited other parties to join a government with a pro-EU stance, especially on defence and further market integration.

A more open attitude by the Dutch government may help overcome traditional Dutch resistance to more budgetary integration in the EU – the Netherlands is typically considered the leading EU ‘frugal’. It could also push Germany, well aware of its crucial role in the EU, towards a more positive stance on EU integration. More generally, a Dutch pro-EU government might signal to voters in other countries that there is an alternative to the empty promises of the populists, thereby challenging the entrenched pessimism of pro-European parties.

One of the first tests for a new Dutch government (when it will be formed is unclear) will be to respond to proposals for the EU’s 2028-2034 budget (the Multiannual Financial Framework, MFF). The proposal, made by the European Commission in July, features greater flexibility and a stronger focus on European public goods (goods most efficiently provided at EU level; EPGs). On size, however, the Commission’s framing of the next MFF as a ‘€2 trillion budget’ elicited negative reactions from, among others, Germany and the outgoing Dutch government. In reality, at 1.26% of EU gross national income, which includes 0.11% for repaying money borrowed to fund the EU’s post-pandemic economic recovery, the budget would hardly differ from the 1.13% size of the current MFF.

Negativity on the budget is jarring when the EU is in dire need of common investment projects, including in defence, high-speed railways, research, hydrogen infrastructure and electricity grids, which will also contribute to security and productivity. These expenditures are inevitable, implying that EU spending on them would replace national spending, leading to a ceteris paribus decline in overall debt because of greater efficiency.

The welfare of the Netherlands and other small open economies is largely driven by international trade. They all thus share an interest in further EU integration. For a long time, the Dutch emphasis has been on minimising net contributions to the EU following the logic of juste retour, or that countries should more or less get back what they put in. However, the direct monetary advantages of this strategy are negligible compared to the benefits of direct trade within the EU and the common EU trade policy.

Moreover, resisting EU initiative is often counterproductive: initial Dutch resistance to the EU’s NextGenerationEU (NGEU) post-pandemic recovery fund had to be surrendered when Germany U-turned to support the fund. The Dutch paid a cost in terms of less influence over the design of NGEU. The same will be the case with common EU bonds: sooner or later, reality will impose itself and new EU debt will be issued for common expenditures. Standing apart from the group that shapes its design means no influence over the end product.

The new Dutch government when formed should try to bring together a coalition of countries with shared interests and should grab the opportunity to lead by proposing a package deal in which it drops its resistance to more EU budgetary integration in exchange for more market integration.

What could such a deal look like? First, unused NGEU resources at the end of 2026 (when the programme expires) could be made available to EU governments to finance major multi-country projects (Important Projects of Common European Interest, IPCEIs) and follow-up initiatives. Second, the resources of the Competitiveness and Global Funds proposed for the next MFF should be ringfenced to prevent them from being channelled as transfers to EU countries, as happened in 2020 with NGEU. Third, there should be an agreement to roll over the NGEU debt; the saved 0.11% of GNI could then be used to finance EPGs under the new MFF. The future EU budget also requires new common resources. The credibility of the deal would be greater if the new Dutch government could declare what it would be willing to support in this respect – breaking ranks with those countries whose favourite sport is shooting down Commission proposals in this area.

An investment of political capital is needed for the EU to relaunch the integration process and avoid geopolitical marginalisation. This requires EU resources sufficient to deliver on its priorities. The Netherlands could play a vital role by breaking the deadlock on the next EU budget and helping to rebuild trust.