Dutch Referendum: Euro-scepticism

Dutch Finance Minister Gerrit Zalm is in the news again. Last time I read about him it was because he had started a weblog. This time the issue is different: he describes himself as being “totally fed up” with the fact the Dutch public thinks that it was effectively robbed by the way the euro was introduced.

Behind this ‘frustration’ lies a startk reality: the controversy over the valuation of the the guilder at the time of monetary union is one of the key factors fuelling the ‘no’camp in the forthcoming referendum.

The current row over the euro erupted on 30 April, when the director of the Dutch National Bank revealed to the Amsterdam newspaper Het Parool that at the time of the introduction of the euro, the Dutch Guilder had been undervalued by 5 to 10 percent. The undervaluation of the Guilder is now being linked to high inflation following the euro?s launch in 2001 – an inflation round which made the currency unpopular among many Dutch citizens.

If it was undervalued, then of course the impact would be mildly inflationary – since you would get less euros than your guilder were really worth- but given that the inflation impact of the introduction of the euro was pretty generalised, it is hard to establish any special Dutch problem.

Whatever the impact of the euro-row, the ‘yes’ campaign seems to be having a hard time of it. In part – as the EU Observer notes – because the country?s prime minister, Jan Peter Balkenende, seems to be pretty unpopular, and in part because the issue of national identity ? which formed the political core of the political programme of the assasinated politician Pym Fortuyn – appears to now be again playing a role in the EU referendum.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

6 thoughts on “Dutch Referendum: Euro-scepticism

  1. Even if inflation was high in most EU countries during the years following the euro introduction, it was in a sense a particular Dutch problem as the Netherlands had one of the highest inflations in the EU: it peaked at 5.4% if I remember correctly. Whether this was (entirely) due to the euro is another matter.

    And another matter again is whether the guilder was undervalued with respect to the German Mark or with respect to the euro – which is a huge difference. Later statements by the same National Bank director and others seem to suggest the latter. IMO what he should have said therefore is that the Mark was overvalued.

  2. “to the German Mark or with respect to the euro”

    I’m not sure I see the difference you are getting at here. After they all moved into a fixed band under the EMU, wouldn’t a certain value vis-a-vis the German mark, or for that matter the Spanish Pesseta, have effectively been a value against a notional euro. What might be to the point is that the gilder went into the fixed band when the valuation against the Mark was too high. But then I’m sure the Italians are saying that right now about the Lira.

  3. I should react on this one, shouldn’t I?

    It is getting both worse and more interesting.
    On his weblog on May 14 Zalm already mentioned that he had a meeting with Brouwer of the Dutch central Bank about the controversy over the valuation of the guilder at the time of monetary union. Today I see that for the first time a post on his weblog is really on topic and informative about his own views. Most of his posts are on who he met, at what meetings he was and if it was easy or difficult, what he had for dinner, that kind of stuff but now he had a really substantial post. I will translate it for you.
    All in all Zalm is a special politician. He was a member of the Social Democrats (PvdA) first but exchanged them for the VVD (the party of the employers, to put it very blunt). He was minister of finance in both *purple* coalitions ? red from the PvdA+blue from the VVD -, after 70 years that never knew a government without the christian democrats.
    There is quite a row in the Netherlands on the salaries of managers from former public monopolies that now in name are privatized but with all shares or the majority of them still in the hands of governments on different levels. On his weblog Zalm refers to this high salaries with quotes implying that he does not see them as very high but for some of these semi-government organizations he did use his power as major stockholder to stop this increases.

    But now the translation (please correct me if I am wrong)

    “The debate started with an interview mr Brouwer of the DNB gave to newspaper Parool. He talked about the relation between the Dutch guilder and the D-mark. It was not about valuation of the guilder on entering the Euro.
    Brouwer said nothing new but only presented that calculations have shown that the relation between guilder and D-Mark was not correct. The guilder was undervalued compared to the Mark, or better: the German Mark was overappreciated vis-a-vis the guilder.
    This is a not the same story as the one on the valuation of the guilder at the entering of the guilder into the Euro. The CPB (Netherlands bureau for economic policy analysis) has analysed how in 1998 the value of the guilder compared to the other EU-member that were going to establish the eurozone. The analysis shows that, based on all kinds of calculation, comparison of prices etc the guilder was in balance with the other currencies n the eurozone-countries. The CPB does conclude however that the german Mark was not in balance with the other currencies and was overvalued as a result of the reunification of the germanies.

    In 1998, at the time of the decision on the exchange rate Euro-guilder, there was only one question asked in Parliament. Mr Ybema asked if the guilder was not undervalued. I answered that the guilder was in balance with the other currencies and so was not undervalued. On the occasion of other changes in the European exchangerate-mechanism before 1998 (entrance of the Finnish Markka, reentrencance of the Italian Lira, revaluation Irish pound) I never met opposition to my explanation in parliament that the guilder should remain pegged to the D-mark.
    All this calculations have nothing to do with the moment of the actual introduction of the coins. At that moment everything has simply been divided 2.20371. This did not in anyway effect how prices compared. This would have been true if everything was divided by 1, 2, 10000 or 100000: properties, houses, debts, prices everything was divided by the same 2.20371
    The valuation that was chosen did influence the relations with foreign countries. This had an economical impact. Had the valuation been 2 guilder for 1 euro, -so if there had been a revaluation-, this would have effected export and import. One should realise that such a revaluation, compared to the D-Mark would have changed the relation with the other euro-currencies and the dollar as well.
    Like Plasterk and Leen have claimed revaluation would have had the effect for the Dutch to buy foreign products cheaper. That may sound attractive but it is only one side of the story. Dutch products would get more expensive. The Dutch would buy more foreign products (rising imports) but foreigners by less Dutch product (falling export). This combination would have been a disadvantage for the growth of the Dutch economy and the employment level.
    Since 1979 successive governments followed a clear course concerning the exchange rate policy. The value of the guilder was pegged to the D-mark. Germany was the country with the strongest currency and the lowest inflation. Thanks to the peg the guilder became a strong currency too: we imported the low inflation en the low interest from Germany. Not everybody agreed with this policy. In the eighties the Netherlands had a high unemployment and many people said the guilder should devaluate because of that.
    When the economy and employment improved the support for the policy grew. The Netherlands was proud of the strong guilder which brought low inflation and low interest. The support for the peg with the Mark was strong. After 1998 there has been no pressure on the relation between the currencies of the eurozone-countries showing that the financial markets judged them credible”
    I can understand Zalm is getting a little desparate. Eventually, even if the critics were right, this has no relation with the constitution at all.
    A lot of the arguments of the *no*-camp are based on the sentiment *we will teach them a lesson*. *Them* being the incumbent national politicians or national politics in general. Some even protest on this referendum because there have been no referendum before etc. If you think your national politicians do a very bad job then how come you are so frigthened by the idea of *them* losing some of their power?

    The national politicians in the meantime do not help the case for the *yes*-camp.
    One of the ministers form the smallest party of the coalition (D66, with only six out of 150 seats in parliament. Very much in favor of referendums) reacted angry on the possibility of a majority for *No* telling there never should have been a referendum on this complex matters anyway. A referendum should be okay only for sub-national levels.
    Social-democrat Timmermans (who was deeply involved in the process of designing the constitution-treaty) in a most populist way reacted with suggesting that the minister with that comments suggested that the voters are stupid.

  4. “I should react on this one, shouldn’t I?”

    Yes, you should :), and thanks for the lengthy summary of the state of play.

    On the relative valuations,and the point about the mark being too high at the time of euro entry. This is one of the disadvantages of a common currency: if the relative parity isn’t right at the outset it is very difficult to change it later. Hence this valuation is one part of the prolonged and painful period of readjustment that Germany is experiencing right now.

    Another example of this kind of problem is that it would be very helpful for Italy now to have a Lira to devalue. But unfortunately ……….

    “If you think your national politicians do a very bad job then how come you are so frigthened by the idea of *them* losing some of their power?”

    Very nice point :).

    “The national politicians in the meantime do not help the case for the *yes*-camp.”

    This has a resonance with what Detlef is saying in the Turkey post comments below. Also this seems similar in France. People feel that they are being ‘taken for granted’ by the ‘yes’ politicians, and part of the ‘no’ vote can be people wanting to flag to the politicians “hey, I’m here you know”.

    “One of the ministers form the smallest party of the coalition (D66, with only six out of 150 seats in parliament. Very much in favor of referendums) reacted angry on the possibility of a majority for *No* telling there never should have been a referendum on this complex matters anyway”

    This whole issue is important. British political life had for generations rejected the referendum on exactly the grounds suggested above. Curiously one of the impacts of the ‘Europeanisation’ of British political life has been the increased recourse to the referendum, which eurosceptic traditionalists seem to have embraced with open arms.

    I don’t think that saying that the text of a constitution is not a suitable topic for a referendum is to say that people are stupid, it is to say that this is not the best way to handle this. An alternative eg. would be to have a referndum consultation on whether people wanted a constitution in principle or not, and then leave the text to the politicians and the commissions etc.

    I also have another difficulty. Each country decided at some stage or another whether or not to join the EU project. Any country is free to leave. What I don’t find coherent is that any *one* country should be able to decide for everyone about the constitution.

    A common procedure should be decided: whether this be parliamentary vote or referendum (for all). The majority decision (two thirds if you like) should then be accepted. Of course this again gets us into these interminable arguments about the weighting procedure, that the constitution itself is partly intended to resolve, but still. If we are to break the circle we have to do it somewhere.

    In sum: debate to continue when we see what has happened on 29 May and 1 June.

  5. Just a quick update. This link reiterates a lot of what Frans is explaining:


    In particular:

    Half of the people who plan to vote against the EU Constitution will do so as a protest against the introduction of the euro currency or the possible entry of Turkey into the European Union, according a new opinion poll in the Netherlands.

    One in four of the 1,300 people questioned also said they are being influenced by a lack of confidence in the coalition government led by Prime Minister Jan Peter Balkenende. The survey was carried out by the regional press service GPD and Tilburg University’s CentERdata research bureau.

    Obviously the Turkey factor comes back time and time again. If there are ‘no’ votes then possible Turkish membership would appear to be the first casualty.

  6. Unlikely. Turkish membership is 10 years off and when the average Dutchman things about going on holiday he thinks of a charter to Turkey.
    The real reason why there is a likely no vote is the way the goverment and the big parties have campaigned for a yes vote. You would swear that they are following the “secretly i want a no” strategy. They couldn’t get Bush but they used every other trick.

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