The future of Europe is Dutch

Adam Bartha // 14 February 2019

Brexit has caused some turbulent political times in Westminster, but the hole left by the UK in Brussels will be felt throughout the continent.

Putting the tedious fight of Brexit negotiations aside for a moment; what kind of Europe are we going to see develop in the next 10 years, after the UK departs the union? Will France and Germany continue to take the lead and form an ever-closer union? Will the central European axis of populists in Poland, Hungary, and Italy halt any kind of reform attempts? Will the UK become a free-market, competitive paradise that will force the EU to implement market-friendly policies as well?

Liberal, free-market supporters should not bet on either. Instead, their best hope is to aid the Netherlands – to make Europe more Dutch.

Despite being one of the six founding members of the EU, the Netherlands has always been the neglected junior partner, stuffed between France, Germany, and the UK; countries that shaped the future of the union in more significant ways. However, with the UK’s departure, the balance of power is likely to change, and Dutch politicians are hoping to benefit from this realignment.

Even if the UK regains some of its international reputation after the Brexit blunders, it will lose its ability to shape the future of the continent in the same way, like it did for the past 40+ years. The European Council will lose a member that could stop the tax harmonisation attempts of the Commission. There won’t be British MEPs who could push for the completion of the single market in the service sector, or be the voice of reason when it comes to financial regulation.

France and Germany will continue to prioritise the issues most important to them; finding a common EU solution for the migration issue, more foreign policy and military cooperation, and further eurozone integration. Germany is also likely to continue endorsing further free trade negotiations, whilst remain the centrist, compromise-seeking voice within the EU (instead of a country that dares to push for bold liberalising reforms).

However, there are many new proposals from the European Commission and ideas floated by the Parliament that would be bad news for anyone who would like to see a more liberal, market-friendly Europe.

The Commission’s recent proposal to push for Qualified Majority Voting in the European Council on certain tax issues would mean that individual member states could no longer veto tax harmonisation attempts. If it passes, then the corporate tax reform, known as CCCTB, would become suddenly a lot easier to implement.

In practice this means an additional layer of tax bureaucracy, undermining member states’ tax sovereignty, and creating new hurdles for business expansion.

Multiple member states and the Commission floated the idea of a digital turnover tax, applied to major multinational tech companies. France and the UK are especially keen on this harmful policy, that would lead to less tech investment on the continent. (The fact that the whole debate revolves around misleading numbers about tech companies not paying their fair share of tax burdens is just a side note in the story.)

There are also plans to expand the social pillar of the EU – essentially protectionist measures disguised as welfare regulation and harmonisation.

Can a single EU member state, like the Netherlands, halt these harmful policy proposals and introduce ones that would truly help European citizens? The latter could include the completion of the single market in the service sector, conducting free trade agreements that lower tariff and non-tariff trade barriers alike, and passing Treaty reforms that would enable pan-European institutions to focus on big picture policies, instead of trying to micro-regulate all aspects of our lives.

The Dutch won’t be enough on their own, but they are better placed to become the behind-the-scenes brokers of EU compromises than most of their European counterparts.

The German political elite tries to avoid the image that the whole show is run by them, while the French politicians love grandiose ideas, but lack the political capital to implement them – which is often for the better, as they rarely mean more liberal, free market policies. The new EU member states still have not yet developed a significant diplomatic force – especially now that some of them have declared Brussels as their ‘#1 enemy’, they have little chance of suddenly becoming the efficient dealmakers of Brussels.

On the other hand, the Netherlands, in close partnership with the Scandinavian countries, could gather the majority support for significant reforms. It can certainly gather enough support to reduce tariff and non-tariff trade barriers with the help of Germany and the central European manufacturing powerhouses. It can work together with France, Spain, Italy, and Germany to find workable solutions for eurozone reform. It can cooperate with Scandinavian and central European countries to stop harmonising attempts in taxation policy and push for a competitive European tax environment.

Netherlands is far from a free-market liberal paradise, and it certainly has its own challenges and bad policy proposals. However, broadly speaking it is one of the most pro-trade, pro-competition, pro-decentralisation EU member states.

Despite some wishes to the contrary, the European project has become more important than ever. The policies decided in Brussels will have a significant impact on most of our lives throughout the continent, even if certain citizens in Europe will cease to be EU citizens.

It is important to make the case for a liberal, laissez-fair EU, that’s slim, efficient and enables member states to compete within the single market, whilst remaining open to the rest of the word.

This article was first published on the IEA’s blog.

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