EU fights over money, divorce coming?

The European Union argues about money every few years. The negotiations will probably end in a half-hearted compromise again, but sooner or later real decisions have to be made.

Have you ever had a serious discussion about money with your partner? Then you are not alone. According to consumer organization Nibud, more than a quarter of couples occasionally argue about financial matters. Arguments over money are one of the best predictors of divorce, according to an American study.

That does not bode well for the European Union. The countries are constantly at odds with each other about how much money individual member states should contribute and how that money is spent. This week, budget discussions revolve not only on budgets for the coming years, but also on a major economic recovery plan.

hard on the brake
The main topic of discussion is a proposal from the European Commission to release €750 billion for an economic recovery plan. The money is mainly intended to boost the economies of the hard-hit southern European countries.

A third of the amount is provided as loans, while the remaining €500 billion is a gift. The European economy could really use a helping hand right now, but of course that money has to come from somewhere. It is therefore not surprising that the Netherlands, as one of the largest net contributors to the EU, is stepping on the brakes very hard.

Miserable or sensible four?
The Netherlands is not alone in protesting the European Commission's plans. Denmark, Austria and Sweden would also much rather see the amount provided as a loan. This can then be subject to the condition that the southern European countries must put their finances in order.

The chance that these 'singy four' will get their way without support from Germany is not very great. And even if a half-hearted compromise rolls out of the budget talks, the real problem will of course not be solved. Italy's public debt is unsustainably high, so it's only a matter of time before Northern European countries have to step in again.

Two choices
Europe actually has two choices. We can further strengthen financial ties, for example by establishing a fiscal union. Individual member states then transfer control of their own budget to a future European tax authority. This means more control over the spending pattern of problem countries, but the downside is that a larger part of Dutch tax revenue flows to Europe. The alternative is to dissolve the EU or - for individual countries - follow the Brexit lead.

For an open economy like that of the Netherlands, the economic damage of a Nexit is likely to be proportionally greater. Moreover, you almost forget that in Europe we will never again be stuck in traffic jams at the border and can pay everywhere with the same currency.

In addition, European cooperation is a matter of course for young generations. Hopefully, the choice will ultimately fall on further strengthening financial ties. The currency world seems to agree, as the euro gained ground when the €750 billion plan was announced.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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