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France and the Netherlands Strike Back

BRUSSELS – In 2005, France and the Netherlands both voted no to a constitutional treaty for the European Union, derailing years of integration efforts. They seem to be poised to disrupt Europe once again.

On April 21, the Dutch coalition government collapsed, after right-wing populist Geert Wilders refused to endorse the spending cuts needed to limit the budget deficit to 3% of GDP. The next day, candidates who advocated backtracking on European integration captured one-third of the vote in the first round of the French presidential election. On May 6, France is expected to turn left and elect François Hollande, who questions the EU’s German-inspired fiscal compact, agreed last December, and has called for Europe to emphasize growth.

These are the first skirmishes in a highly significant debate for Europe. The debate revolves around two major issues: austerity and integration.

Start with austerity. The question here is not whether deficits should be reduced. They must be, given the dire state of European public finances, and also because the countries whose competitiveness deteriorated during the first decade of monetary union must tighten fiscal policy in order to deliver the necessary adjustment of wages and prices.