Artwork © Dominik Herrmann

After almost a decade in office and 14 years at the helm of his party, the liberal-conservative People’s Party for Freedom and Democracy (VVD), Prime Minister Mark Rutte remains the dominant figure in Dutch politics. Each of his governments have had a completely different make-up. The first was a minority government together with the Christian Democrats (CDA), the second a grand coalition with the center-left Labor Party (PvdA), and the current is a four-way center-right coalition. In each case, however, Rutte managed to keep everyone together by networking incessantly, deploying his disarming smile and willingness to compromise. The question now is whether he will run again next year or whether he will, for instance, take on a high-level position in the EU instead.

A Bit Boring

Mark Rutte was born in The Hague in 1967, the youngest in a large family. As a child he spent a lot of time playing the piano and even dreamed of attending a conservatoire.  But by the age of 16 his interest had shifted to politics and he joined the VVD’s youth organization, the JOVD, although by his own account he wasn’t a convinced liberal yet (this came later). Studying history at Leiden University, he gradually worked his way up in the JOVD and spent three years as its national head, learning the art of managing many and varied stakeholders along the way.

After belatedly graduating—due to all his political activities, it took him eight years to complete his studies —Rutte went to work for Unilever, in the human resources department. In his early years in politics he would pride himself on having strong opinions about the best laundry detergent brands and would quip that he would go back to the peanut butter factory if his political career didn’t work out.

He is a life-long bachelor who describes himself as “a bit boring” and, surprisingly for someone who leads a party that stands up for the entrepreneurial class, has little interest in material possessions, often proclaiming that “possession is ballast.” His personal life was a talking point only during his first election campaign in 2006, when there was some media speculation about his lack of a partner. Since then, it has mostly vanished as a topic of discussion.

Political scandals never seem to do him much harm, even the significant number revolving around cabinet members from his own party. His jovial mannerisms—one of his catch phrases is pointing out how much of a cool country the Netherlands is—his willingness to deflect incoming attacks by rapidly apologizing for any wrongdoing, and his debating skills have meant that any difficulties usually slide off him. He has earned the nickname “Teflon Mark.”

Fragmentation Manager

The political system in the Netherlands fragmented earlier than in many other countries: the Dutch have experienced the decline of traditionally dominant mainstream parties, the rise of right-wing populism, and an increasingly volatile electorate since the 1990s. As a result, large coalitions, often consisting of ideologically disparate parties, are common. Rutte has thrived in this political environment.

Straight after he was plucked away from his desk at Unilever and installed as state secretary for social affairs and employment, he demonstrated his political skills by using his charm and willingness to engage directly with political opponents in order to push through controversial social welfare reforms. Putting his apparently infinite energy to good use in a strategy that would become his hallmark, he spoke to everyone involved and used his jovial style and approachability to get people on board through constant engagement with all stakeholders.

Even political opponents rarely leave a room after a meeting with Rutte without the feeling that they have built a special relationship with him. He subsequently cultivates these relationships by staying in touch with a large number of people he has met over the years, spending more time on his phone than the average teenager.

Following a stint as state secretary for education (a pet portfolio), he ran for the party leadership in 2006 against the popular minister for integration and asylum affairs, Rita Verdonk. The support he had built up within the party through the years of networking helped him win the nomination.

However, it took him until the election of 2010 to  craft a political profile that resonated with Dutch voters. Having initially charted a more progressive course, including a political strategy dubbed “GreenRight,” referencing the name of the Dutch green party GreenLeft, he moved his party to the right. Setting personal ideological considerations aside, he made the VVD the largest political force in the Netherlands, winning just over 20 percent of the popular vote. This pragmatism would become the hallmark of his political career.

The Wilders Challenge

He managed to become the first liberal prime minister of the Netherlands in almost a century by creating a minority government with the CDA, supported in parliament by the far-right populist Party for Freedom (PVV), led by Geert Wilders. Cooperating with Wilders, who had broken away from the VVD in 2004, led to severe criticism, both domestically and internationally. With the PVV refusing to take on government responsibility, it also meant having to placate Wilders all the time. Eventually, the government fell when the PVV refused to accept a new budget, Rutte turned to the centrist opposition and successfully passed a spending plan including significant cuts and tax increases before the next election.

The subsequent election turned into a contest between Rutte and the leader of the center-left PvdA, Diederik Samson. Voters on the left flocked to Samson, hoping to keep Rutte out of office, while those on the right opted for Rutte over Samson. The end result was a coalition of the two main protagonists. As Rutte’s VVD was still the largest party with a (by Dutch standards) whopping 26 percent of the vote, he remained prime minister. Although his coalition had a solid majority in the lower chamber of parliament, its lack of a majority in the upper chamber meant passing legislation still required constant deal-making with the opposition. Rutte’s interpersonal skills and, possibly even more importantly, his ideological flexibility and willingness to compromise made it happen.

Managing a difficult coalition has become even more important during his current term. In the 2017 election campaign he fought off the challenge from Wilders, whom he described as representing the “wrong kind of populism.” He did so by moving further to the right on issues such as integration and immigration. After 225 days of government-building talks, he formed a four-party coalition, resting on a one-seat majority. In part thanks to the rise of a second right-wing populist challenger, the Forum for Democracy (FvD) led by Thierry Baudet, Rutte’s new coalition lost its majority in the upper chamber halfway through its term. This has forced him to again use all his process management skills to get anything done and keep his government together until the next election in 2021.

European Player

Rutte’s political style is one that could be taken as a model for many other European leaders faced with increasingly fragmented political systems. According to his biographer, Dutch columnist Sheila Sitalsing, he manages the decline of previously dominant mainstream parties of the center-left and right by taking the ideological contest out of politics. He combines a willingness to compromise with an ability to push through large chunks of his party’s program at the expense of coalition partners—something the PvdA can attest to after losing three-quarters of its seats in 2017 because it was seen as having enabled VVD policies. Rutte, meanwhile, retained his core support.

Within the EU, Rutte has played less of a connecting role. He has always been a soft supporter of European integration, preferring to focus on the economic benefits it brings, and he has often relied on his finance ministers to act as the bad guys in Brussels for him. More recently, he moved himself into the firing line by seeking to prevent any significant further integration and especially any fiscal transfers.

Following the Brexit vote, the Dutch realized that they were about to lose an important liberal and pro-free trade ally within the EU, one that the Dutch have often hidden behind. In response, they are now taking the lead at the helm of a group of fiscally conservative countries, the so-called New Hanseatic League. This group played a large role in torpedoing the introduction of a eurozone budget, which France had pushed for, after suggestions that Germany might back the idea. Recently, Rutte became the informal leader of the even more pithily named Frugal Four, a group of net contributors to the EU budget (the Netherlands, Austria, Sweden, and Denmark) that opposed higher spending.

His often controversial positions within the EU notwithstanding, there was much speculation last year that Rutte could be in line for an EU top job. As a liberal from one of the Benelux countries, who is held in high regard by many colleagues, including German Chancellor Angela Merkel, he appeared to be perfectly suited for Council president in particular. However, the fact that early on he put his weight behind compatriot Frans Timmermans for the commission presidency suggested Rutte did not actually want the job.

This would fit with Rutte’s earlier claims that he will leave politics behind after his stint in the “little job”—as he likes to refer to the Dutch premiership. However, it would not be the first time that he has changed his mind if he does eventually decide to leave The Hague behind for Brussels, possibly after the election in 2021.

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Following the European Central Bank’s announcement in September that it will restart its bond-buying program, several national central bank governors voiced unprecedented public criticism of the decision. “In my view, [outgoing ECB president Mario Draghi] has gone too far,” Bundesbank chief Jens Weidmann told German tabloid BILD. A group of former central bankers quickly followed with similar complaints.

All this comes on the back of strong condemnation in recent years of the eurozone central bank’s monetary policy from parliamentarians and other officials, particularly in countries such as Germany and the Netherlands.

The issue is not just that this damages public trust in the independence of the ECB. Such objections also tend to ignore the source of the current low-rate environment. For example, the ECB is constantly under fire in Germany, even though the German government’s unwillingness to spend and invest more has played a role in forcing Europe’s central bank to intervene and in keeping interest rates low. Criticism of the ECB coming from those in charge of fiscal policy is particularly galling because, over the last decade, the eurozone has relied almost completely on support from the ECB to stimulate its economy.

Too Much Saving

The ECB’s critics complain that it keeps interest rates artificially low, causing savers to lose out, distorting markets, reducing pressure on governments to reform, and putting pressure on banks’ business models and on pension funds’ funding positions. However, they tend to ignore the causes of the low interest rate environment and overstate the power of the ECB to control financial conditions. This critique also disregards the fact that interest rates have been on a downward trend since the 1980s. In fact, this trend in rates continued largely unchanged after the start of the ECB’s bond-buying program in 2015. Nevertheless, critics tend to blame this practice, which they often incorrectly describe as “money printing,” for the current state of financial conditions.

The bottom line is that too many people, and countries, are trying to save more than they invest. And as the demand for borrowing is lower than the supply, the price of borrowing, i.e. the interest rate, is falling. This is clearly visible in the eurozone, which as a whole consumes and invests significantly less than it produces, with the gap at about 3 percent of its gross domestic product. Ageing populations are often assumed to be a driving factor of this; a relatively larger group has to save more for their retirement. The fact that so many investors are searching for safe assets, often government bonds, pushes up their prices and thereby reduces their yields. On top of these private sector savings, many European governments are now running fiscal surpluses, further decreasing the supply of safe assets and pushing up their prices.

Counterproductive Fiscal Policy

While the ECB will never acknowledge that it has run out of tools to stimulate the eurozone economy, its repeated calls for government spending highlight that it cannot do the job alone. For several years now the ECB has been pointing out to governments that it needs support from fiscal policy to boost economic growth in the eurozone. But many governments have responded by doing the opposite: tightening fiscal policy, and in many cases running large fiscal surpluses for several years, often by increasing tax burdens and cutting back on public investment.

In spite of repeated calls for Germany to loosen the purse strings, including from the IMF, both governing German parties remain committed to the so-called “schwarze Null policy” of making no new debt. Olaf Scholz, the finance minister, recently indicated that Germany would be willing to increase spending in the event of a crisis comparable to that in 2008, but this sets an absurdly high bar—that was, we hope, a once-in-a-generation global economic crisis.

Germany did engage in fiscal stimulus during the global financial crisis in 2009-10, but this turned out to be a short-lived experiment. By 2011, it was already tightening again. That fiscal stimulus helped the German industrial sector through the slump, and Berlin might repeat the trick now to cushion the impact of the current industrial downturn, for instance through state support for reduced working hours. This would be welcome in the short term, but it runs the risk of crowding out the types of spending and investment needed for the medium to long term. Under the schwarze Null, every euro spent paying factory workers to stay at home is a euro not spent renovating schools, or improving low-carbon transport.

How to Kick the ECB Habit

Unemployment may be approaching historically low levels in the eurozone, but the persistence of low inflation points to a continued demand deficit. The ECB under Draghi has responded to this, but governments have barely contributed to these efforts. Through increasing spending, particularly investment, they could help create the conditions that would allow interest rates to be increased. Instead, some are calling on the ECB to tighten policy now in the same disastrous way it did in the past, unnecessarily cutting short economic recoveries.

There have been some tentative calls even from influential voices within Germany to increase spending, with the idea usually being to invest more in areas such as green technology. While this would be a good step, Germany and other countries in comfortable fiscal positions need a change in thinking, need to increase investment on a wider scale. Due to the current healthy state of its public finances, for Germany this would not even necessarily mean going beyond the headline budget targets set out in the European rules or violating its constitutional debt brake, which—unlike the schwarze Null—allows limited debt spending.

Beyond the modest positive economic spillovers to the rest of the eurozone, doing so could also encourage the bloc to rethink its fiscal rules. These could be made more accommodating to public investment in order to avoid situations in which governments cut down on this to reach headline budget targets. Such a shift in attitudes towards fiscal policy would be difficult to achieve, not least because the opposition to spending is not just driven by ideological considerations but also simply resonates well with many electorates. However, taking a new approach could help ease relations between the member states and could be achieved without letting go of prudent fiscal management altogether.

Europe needs investment in infrastructure, education, digital technology, and research to get it ready for the future and to boost the competitiveness of some economies, particularly peripheral ones. Public investment fell from 3.3 percent of eurozone GDP in 2008 to 2.7 percent in 2018. This is partly the result of secular spending pressures, as ageing populations pushed up healthcare and pension spending, but also of deliberate prioritization by policymakers.

In pursuit of these targets, European governments ignored investment in the long-term strength of their economies. Now that government bonds carry negative interest rates, and governments are thus effectively being paid to borrow, there is no excuse to continue to do so. Only by letting go of the arbitrary fiscal targets and stimulating investment and consumption demand in the eurozone can governments get Europe’s economies to a position where the ECB is able to withdraw its monetary policy support over time.

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