Dutch, German Left Demand Concessions on Fiscal Treaty

Governments in Germany and the Netherlands need opposition support.

Opposition social democrats in Germany and the Netherlands want concessions in exchange for supporting a European fiscal compact that is supposed to go into effect next year.

German left-wing leader Frank-Walter Steinmeier said his party will only back new eurozone budget rules if the continent adopts a financial transaction tax.

Chancellor Angela Merkel needs his support in order to ratify the new fiscal treaty. A two-thirds majority in both houses of parliament is required.

Left-wing parties, like their counterparts in the Netherlands, have previously backed European bailouts of Greece, Ireland and Portugal.

Possibility of a tax

Merkel’s liberal coalition partners have said that they will only accept a financial transaction tax if it is implemented across Europe. Because the United Kingdom, which opposed such a levy, has refused to join the fiscal compact, that may be possible.

Steinmeier told the Frankfurter Rundschau that “additional measures to promote economic growth” must also be enacted.

“For this, you would obviously need the funds that must come from things like a tax on financial markets,” he said.

French and Dutch support

The French Socialist Party candidate François Hollande, who is likely to replace the incumbent conservative, Nicolas Sarkozy in May, argues for a financial transaction tax as well. He has called “the world of finance” his “enemy”.

But he has also said he wants to “renegotiate” the fiscal compact so it puts greater emphasis on growth. Presumably that means more room for deficit spending.

The Dutch Labor Party has already convinced the Netherlands’ minority center-right government to considering rolling out a bank tax.

Ronald Plasterk, a candidate for the Labor Party leadership, has lamented, “Everyone is tightening their belts except the sector that caused the crisis.”

Fiscal rules

The fiscal treaty that was signed by European leaders, except the British and Czech prime ministers, in January. It calls on countries to write balanced budget requirements into their national laws and reaffirms the Stability and Growth Pact’s deficit and debt limits of 3 and 60 percent of gross domestic product, respectively.

Countries that break the rules can be fined up to .1 percent of national income.