ADVERTISEMENT

Dutch Minister Casts Doubt on June Date for Euro Reform Agenda

Substance Over Speed Is Key in Euro Reform, Dutch Minister Says

(Bloomberg) -- Euro-area governments should focus on ensuring the bloc can withstand a future crisis and not get hung up on a June deadline for plans to shore up the single currency, Dutch Finance Minister Wopke Hoekstra said.

With talks on strengthening the euro area entering a critical stage, Hoekstra’s remarks in a Bloomberg interview in The Hague highlight the difficulties the bloc faces in reaching a compromise on key issues within the coming months. A delay beyond June could pose a further challenge to French President Emmanuel Macron’s reform plans.

“Doing the right thing is much more important than doing something quickly,” he said in the interview at the Dutch Finance Ministry on Monday, adding that the euro area is trying to build something that is sufficiently robust for the next crisis and for the future. “If we manage to come up with something that is sufficiently thought-through, robust, by June than that is great, but speed is of secondary importance.”

The push to buttress the euro area, helped by Macron’s election in France last year, is part of broader efforts to strengthen the euro’s crisis-fighting apparatus. European Union President Donald Tusk set a June target to agree to a first set of reforms, seeking to use the momentum from a stronger economy and supportive governments in Paris and Berlin to take politically difficult action. The self-imposed deadline already became more difficult due to delays in forming a coalition in Germany and the entrenchment of diverging positions by countries.

Banking Union

Two key areas countries are hoping to agree on by June are completing the banking union -- a set of common rules on bank supervision and resolution for the bloc’s largest banks -- through a common deposit insurance scheme and strengthening the euro-area bailout fund. Progress in these two fields is seen as essential in order to ensure the euro area can better withstand another crisis.

Other ideas such as a common euro-area budget to boost investment, or a common finance minister are seen as more controversial. Still, despite consensus on where progress is more urgent, disagreements persist on what needs to be done.

Hoekstra, 42, who became Dutch finance chief in October, said the Netherlands is “very much in favor of the banking union” and also of a common deposit insurance scheme -- the final leg of the project, which is still under debate.

“In essence, it’s a very good thing -- it’s like a fire insurance,” he said.

He cautioned that before euro-area countries move further to pool their risks, sufficient steps need to be taken to deal with problems lurking in banks’ balance sheets, addressing both legacy issues such as soured loans and agreeing on how to deal with potential new troubles in the future.

His comments echo a view held by several countries, who would first like to see risks reduced before any risks are shared.

In a joint declaration published on March 6, eight fiscally hawkish countries including the Netherlands, the three Baltic nations and Ireland, cautioned against doing more than what is necessary and said focus should be on ensuring member states stick to fiscal rules and work on building cash buffers, which would help them weather a downturn at a national level.

For the Netherlands, one of the founding members of the EU, establishing a role as a key player is important both in the euro-area debate and on EU issues more broadly as the U.K., one of the country’s closest allies, is preparing to leave the bloc.

The Dutch minister also reiterated calls for an upfront debt-restructuring mechanism in cases where nations with unsustainable debt ask for a euro-area bailout, but stressed that this should be looked at on a case-by-case basis and not automatically. Such a mechanism is particularly important for countries such as Germany, which want private investors to take write-downs in euro-area bailouts before taxpayer money is tapped. But it is also likely to face resistance from those who worry that such a set-up could fan market volatility.

Still, for Hoekstra having a debt-restructuring mechanism in place is important for citizens who will ultimately be asked to pay when a country is in trouble.

“We think it leads to more robustness, it leads to more fairness and it will enhance trust people will have in” the EU, Hoekstra said in the interview.

--With assistance from Mark Barton

To contact the reporters on this story: Viktoria Dendrinou in The Hague at vdendrinou@bloomberg.net, Joost Akkermans in The Hague at jakkermans@bloomberg.net.

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Alan Crawford at acrawford6@bloomberg.net, Jones Hayden, Zoe Schneeweiss

©2018 Bloomberg L.P.