Jeroen Dijsselbloem at the EBF Leadership Panel

The EBF has a history of hosting events with impressive, but most of all interesting, speakers. The last EBF Leadership panel was no exception. On Wednesday, February the 22nd, the EBF organized a Leadership Panel with Jeroen Dijsselbloem, the Dutch Minister of Finance and President of the Eurogroup. He is one of the most influential persons in European Monetary Policy. In the Nieuwe Kerk in Groningen, he was interviewed by the FEB’s very own Dirk Bezemer, who is a professor in general economics and finance. In this dialogue, we touched upon several relevant themes such as the future of the Euro, the Brexit, the ECB Policy, the low interest rates and the upcoming elections in several European countries. After a short introduction on each theme, the audience had the opportunity to ask questions. The event was accessible to all students in Groningen. In this EBF Journal article, we will present you an excerpt of this interview.

We also recorded the whole event, which means you can re-watch it on our Facebook page, but first let’s start to read!

Topic one: The Brexit

Q: What will Brexit mean for the Netherlands?

A: “It is difficult to say, but probably not good news. It is a lose/lose situation for continental Europe and the UK. In the short term, it is making our products in the UK more expensive – especially the exporting companies, for example flowers, are feeling this. In the long term, the United Kingdom is an important trading partner for the Netherlands. A lot of companies are worried about trade barriers and what the future relations will look like. Next to that, the financial sector in the UK is one of the largest of the world and the largest in Europe. It is a complex situation; we cannot separate the city from our economies. It can be said that we are in uncertain times. In economic terms, I see only downsides.”

It's a lose-lose situation for continental Europe, and the UK

Q: Is there an upside of this situation?

A: “Quite a number of financial institutions in the city are now re-orientating about how they are going to do business in Europe. But only a part of the city is thinking of going abroad. They are looking at Paris, Berlin, Amsterdam and Frankfurt. Amsterdam is not doing badly. The Netherlands have a good and open economy, they are openly orientated, have good international connections worldwide and have well-educated and good English-speaking people. I expect some companies will shift services to Amsterdam.”

Q: Do you expect the UK to become a tax heaven?

A: “Some people say that the UK will become a tax heaven, offshore of the EU. I find it hard to take that serious. In combination with OECD, the UK is strongly preventing from tax avoiding by companies. If they will become a tax heaven, we are for a collision course; it will hurt our interest and also the UK’s interest.”

Q: If they will become a tax heaven, are we in competition for the lowest taxes?

A: “We have been in competition over tax policies for decades; not only the UK, but also Luxemburg and Ireland are active in this. The UK has overtaken us in tax creativity. We are working in reversing this process in the last couple of years. We have more international standards and share more information to stop different kinds of tax planning and tax avoidance. If only one country works on this, the multinationals will simply move to another country. So the only way to do it is to do it jointly. I hope the UK will stay committed to this process.”

Question from the audience

Q: Do you think it is the Euro’s fault that populist parties are rising?

A: “It maybe is, for some part. For a long time, the EU has been a guarantee for more wealth and more security. In the last 10 years, this is no longer for sure. We have had the financial crisis we have been in, what is was called, a Euro crisis. Next to that we face security crises: migration, terrorism, et cetera. Responsibility speaking, something has gone wrong. When you built a monetary union, it has to function. At the start we built a weak monetary union. Since 2008 we built new frameworks, institutions and a banking union. This helped to be more solid and shock-absorbing. We built it by taking big steps because we feel politically it is expected of us. We took away internal borders and created the Shengen Area. It took a crisis before thinking if we built something strong. For example, the migration crisis taught us, if you take away the internal borders, you have to make sure the outside borders are jointly protected and under control. So if you want to build something solid, you should not be waiting for a crisis to think about making something strong.“

Topic two: The Euro

Q: The theory of optimal currency areas says that economies should be fairly equal to share the same currency. The Euro was not shock-absorbing and not that solid, which led to a crisis. The EU probably was a good idea, but was the Euro also a good idea?

A: “The Euro had a strong political goal. Right after the fall of the Berlin Wall, European countries like France were worried about dominance of the ‘new’ Germany. Next to that, here was a long wish to strengthen European corporations. These two political wishes came together in the Euro. There was also an economic reason. Before the Euro there were many monetary crises. This created a lot of uncertainty and economic damage. The Euro was the first monetary system to connect the EU countries and was preventing different problems. So I can understand the decision of the Euro was taken. If a decision like this is taken, you have to understand the consequences.”

“For a long time, there was an economic convergence. The assumption was that convergence was stronger in a monetary union. When the Euro was introduced it had a very strange effect; the financial markets did not distinguish between countries anymore, resulting in over-crediting, huger risks and divergence. According to these financial markets, all countries had the same interest rates and shared risks, whether you were The Netherlands, Greece or Spain. The interest rates went to a very low level, same for almost all countries. This low interest rate was very new to the Southern European countries. Instead of using this money to invest in converging their economy, these Southern countries used the money to create more comfort and used it for consumption. In a very short amount of time, households in Greece spent 40% more on consumption because of the cheap credit.”

“We have to restart the process of convergence, make economies stronger,
become more shock-absorbing, and more competitive. The Euro had a lot of risks. So, in short, we have to fix these risks and become more resilient.“

The euro had a lot of risks

Questions from the audience

Q: Does the US have the same structure as Europe? What are the differences?

A: “There are huge differences with US, but also within US are huge differences. The US is seen as homogeneous; one nation with one set of rules and one government. But this is absolutely not true; there are huge differences within the US in economic standards and developments; the governments of the different states have big differences in for example tax rules, social policies are different, education standards have differences. We tend to think everything complex in EU and the US is simple. Yes, in the EU decisions can be difficult, slow and complex. But it took the US 120 years to build the central bank, while the EU build a banking union and made other major decisions in a few years. We actually have done a lot more and quicker than the US.

Q: Elections are coming up in Italy and France. Should these countries leave the EU?

A: “Devaluation is an attractive and easy way to become more competitive. In order to do that you have to have your own currency, and France and Italy have the Euro.”

“There are some problems with devaluation. The effect of devaluating is always short term. You lose the competitive advantage of the devaluation. The economic problems in for example Italy is that is has not been very efficient, it’s productivity has not increased, banks have not been dealt with, credit is very short, they are not performing loans, there is little investment and there is little money coming in. Having your own currency is a solution, but like aspirin, it does not deal with the illness. So they have to deal with the real problems. For example, the banking crisis – the problem has been here for a very long time, it was not a new problem, it just came out now. They need a European supervisor to sort it out and help increase growth in Italy. Italy is a large economy, but only has 0.5-1% growth. When the elections come, they first have to deal with the structural problems with the economy to improve their growth.

Q: Do the Northern European countries benefit from lower value the Euro?

A: “It is true that the stronger countries like Germany and The Netherlands benefit from the low value of the Euro. Still, these countries are not in favour of this monetary policy. On the one hand, this low value is very welcome at the Southern countries, which pushes down their interest rates and makes their lives easier, while the Northern countries prefer higher interest rates and do not mind a more expensive euro. The only way out of this is to normalize the monetary policy. As inflation is starting going up, you have to realize we are at a different side of the economic cycle. The growth of our countries is higher than predicted, 1.7%, and is still going up, and the consumers’ trust is very high. That is why I think the time has come for the ECP to normalize the monetary policy.”

Q: Is it feasible to have different policy rates for the north and south?

A: “The ECP has one currency and one mandate, which is to create monetary stability for the Eurozone as a whole. That is keeping the inflation below close to 2%. All this is about the Eurozone in general. I do not think the answer is to change the mandate, do not split it up. That would be dramatic for the South and also problematic for the North. Do not look for a solution in monetary policies, but rather look for solutions in the real problems of different countries. It is not true that the North is always stronger and the South weaker. The South, for example Spain, is recovering strongly and quickly, the other countries are slower. If there is one lesson to learn from the last of four years, while moving out of the crisis, is that those countries that have done macroeconomic adjustments that was needed in their specific case, are now having the highest growth. Examples are Ireland, Spain and Cyprus.”

Topic three: Greece and economic policies

Q: What causes the continuous problems in Greece, and what is the role of the Euro in this case?

A: “It is not the fault of the euro. We allowed the financial sector to take certain measurements, resulting in Greece being a threat for other European countries. The impact of the financial crisis has been huge. It has little to do with the euro, however, when introducing the euro in the financial markets, this cannot be distinguished between different countries. This is not typical for EU zone, and it did not have much to do with the deregulation in financial markets. Every country remains responsible for their own problems; this was stated in the European treaties. They were wrong in taking unnecessary risks in the beginning. So they pay part of the price as well. So the private sector had to be stabilized again, after the start of the financial crisis, since this sector was a destabilizing factor. One of the things I am trying to do is to regulate and stabilize the financial sector. I try to create a stronger supervision, and higher capital requirements. The banking and financial sector need to become a contribution for economic development, instead of being a risk.”

Questions from the audience

Q: From the German perspective: What are the (long term) risks of the low market interest rates? Since there is a strong currency. And how will the euro work out efficiently in the long term, so how to come back to having a strong and working currency?

A: “Due to the monetary expenses, people will say that there is a strong currency, however, the ECB is not only Germany. The mandate of the euro is to create a stable monetary policy for Europe as a whole, not only Germany. You cannot serve everyone in an optimal way, since all countries are in different stages of the cycle, and different levels of competitiveness. Interest rates are going down for more than 20 years now. I always look at academics to find out why this is; some say it has to do with demographics, others say it depends on the time of investment, and the change in the kind of investment. In this environment of low interest rates, the ECD has the mandate to push up inflation close to 2%. This happens regularly, however they still need to serve the eurozone as a whole. This may not be the best policy for Germany, but for Europe as a whole, it is. It is the goal to solve the tensions resulting from different interests within Europe, and dealing with macro-economic imbalances.

“The biggest responsibility for that is still the national level. Theoretically, the answer is to have a political union, to have all power in the centre. However, this will not work, it will blow up immediately, because everything then will be decided by the European commission. From a political democratic view; this is not going to work. You are then putting too much blame on Europe and Brussels. This is not right, since most of the trouble in economies are national problems. You are expecting too much answers of the centre, then you will be disappointed. We, in the Netherlands, need to deal with our own problems like the housing market. We need to take more steps to make our national systems more sustainable. So in my opinion, countries have to deal with their own issues and take responsibility, and need to stop blaming Europe.

Q: During the last 5 years, new countries entered the European Union. How did this influence the stability of the currency and the economic growth in Europe?

A: “When people talk about the eurozone, they always talk about the North and the South. There are five central European countries in Europe. Three of these countries entered Europe in the last couple of years, so during the crisis. This has changed the debate we have in the eurozone, because the differ on the level of culture and politics, and some are quite serious in reforming economies. Some have very big financial sectors, and others have very small ones. So they have different kind of roles and interests within Europe, and it changes the dynamics in the debates. When we look at examples of these central European countries, we see that they are stronger inside Europe than outside, because inside Europe they created a strong and stable economy. The economic development of the countries within Europe cannot simply be understood by looking at the euro. Countries are very different.

Topic Four: Elections in Europe

Q: In history, a number of mistakes have been made. For social democratic parties, are there points good enough to win the elections? Do they have a good story? Also when we look at Europe as a whole?

A: “In economic terms we are there not yet. Unemployment is still very high, too many people are still losing their jobs and houses. There are limited job opportunities for our next generation. Pensions are losing their values. A lot of this damage has not yet been recovered. Economic gains are ahead, so there is a positive economic mind-set, however, this takes time. So will we have enough time for this? Another issue is the country’s values, identity, and culture. With this issue, there is a strong link to the economic environment. People are optimistic and confident about their future. This results in more strength and self-confidence in dealing with issues like migration, and other threats. The end of Europe not nearby at all. I think, at the end of the year, we will have moderate governments again. For example, the upswing in Germany is pro-Europe.

Q: People are better able to deal with cultural and identity changes when economy is doing well. Dutch economies are doing well, however, there is still trouble with the populations. Where do these issues come from?

A: “We will not win the election by simply saying that we are doing well. Every election is about the future, and about defining what the big challenges are for the future, not only for the Netherlands, but also for Europe as a whole. I think the biggest challenge is about social justice, and fairness. I think society needs to be organised together: everyone needs to contribute. Large multinational companies start paying their taxes. I want everyone to pay their fair share. In this way we can invest in our education, R&D, and sustainable energy. If we want to maintain this growth and keep our society together, we will have to talk about fairness. This is a very strong social economic dimension. It is the key issue for the society to bring everyone together and to become more culturally aware. The key word is ‘social fairness’.”

Questions from the audience

Q: Can you elaborate more on the Dutch development policies you were talking about? How are these effective?

A:” It is about changing the position of the Netherlands. The Netherlands has facilitated multinationals in the avoiding of paying taxes for a very long time. We have been criticized for this. We have been denying this and saying that “we are not doing anything wrong”. However, we are part of the problem. A lot of multinationals use the Netherlands to avoid paying taxes. This is the practice, and we need to stop this. This is decided in Brussels. I had to compromise on three fronts. First of all, I am in the coalition of the right-wing party. They said: “We can’t do that.” However, in the end, it was decided that we are going to get rid of construction, but we are allowing companies more time. the second compromise was that the Dutch parliament acted very strange on this topic. There is the possibility mention if you agree or disagree with decisions made in Brussels, by using red or yellow cards. The parliament raised the yellow card. They did not want the proposal; it should be taken back. The rest of the parliament wanted the proposal to be implemented very quickly. The parliament had to make up its mind. The third compromise was in Brussels, since there was a big fight between the UK and France about the city, because this also regards the interest of the city. Sweden and Estonia asked for even more time. “So I also have to play chess on the European chess board.” We are getting rid of the construction. The goal is to have it done by 2020. I think the US will change its own tax policies as well, and start taxing big multinationals like Google, Facebook, Apple etc. A real solution would be that the US starts pulling back its companies, and I expect this to happen. In the end, sometimes you need to make compromises for things to happen, and it may take some time, however, I am satisfied that the decision was taken.”

Q: Regarding the US election. Do you think there are economic consequences for Europe since Trump is the new president?

A: “This is very difficult to say. His opinion about international trade is very negative, so this is very ineffective, since he wants to do less on trade. However, I think it can be beneficial for both parties. We need to protect our international trade because of our high standards. So I am still positive about international trade. However, it is both beneficial and dangerous. People domestically in the US are very optimistic. Changing the tax policy is a good idea. How this affects the world economy is just too early to say.”

I think at the end of the year, we will have moderate governments again

Q: Do you think it is a binding factor for Europe, since Trump is president?

A: ”Yes, I do actually. We already had the first debate in the euro group. The US leading in the international economic corporation, and in the international financial organization. The US is still leading in international and open trade. “If the US is not going to lead anymore, then we should lead.” Trump is going to renegotiate trade relations with Mexico. So in respond to this, we need to contact with Mexico and also renegotiate on trade elements. We think this could be beneficial for both Europe and Mexico. We should do this as well with Asia, Africa, and Latin-America. If the US is not going to lead, we should.”Q: When looking at the elections, and the rising interest in and amount of populists, are we prepared for that? Or do we still need to take proper precautions?

A: ”I can’t speculate. Of course, we have taken some precautions. However, nothing is going to happen. The support these political parties are getting is not much. Even if the interest rises, larger mainstream parties are never going to work with these parties. When we look at the political systems in the Netherlands or France, these populist parties are still relatively small, and the chance of these populist parties getting the power is extremely small. But of course we cannot trust this, so everyone needs to make campaigns, and really work for it.”

Q: When we ban the tax evasion policies, and planning on decreasing taxes. How do you then plan on attracting new investments in the Netherlands?

A:” So far little has happened. Furthermore, it costs money to reduce taxes. It is not very logical, because the tax pressure is highest for households. This is the case all over Europe. Regarding the incomes, the tax wage is too high. However, economically and politically the last thing I would argue is to reduce profit taxes. We should lower the taxes for working people, bringing down their tax pressure, specifically for lower-skilled workers. I don’t think we need to decrease profit taxes of companies that are already paying relatively little amount of taxes. Investments in the Netherlands are improving very well. When we look at balances of households and large companies, we see that a lot of money is available. I think the new national investment banks should support new start-up companies. So that they get finance, and get the opportunity to grow. There is much potential in that part of economy, so we need to create sufficient opportunities for these new companies. “

In good Leadership Panel-fashion, the interview ended with the question of what advice Mr. Dijsselbloem would give to everyone. His response was as follows.

“My advice to you is first of all to work hard, but more importantly, to enjoy life. Here in the Netherlands, there is social welfare, very good health care, and good educations systems. There are many opportunities, so use them.”


Maaike Broeksma & Niels van Lohuizen