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This article has been automatically translated from Dutch. Click here to see the orginal article including all links to sources.
Over the past week, it has once again become clear how the European Union is increasing its grip on national finances. Despite a motion opposing it, the Netherlands still supports the plan for joint European debt issuance. As a result, Dutch interest rates have surged—how will this affect you? But even that is not enough. As European debt continues to pile up, Ursula von der Leyen now wants more control over your savings. Read on!
This week, the Dutch House of Representatives voted in favor of a motion opposing joint debt issuance through the ReArm Europe plan. In last week’s widely read Weekly Selection, titled “Is the End of the Euro and the Welfare State Looming Due to EU Defense Plans?”, we extensively covered the EU’s new plans to increase debt, borrow jointly, and abandon budgetary rules. We also saw that Schoof had already agreed to the plan without prior consultation. The €150 billion in joint debt now appears inevitable, despite a parliamentary majority opposing it.
Dutch Government Bond Yields Soar (source: tradingeconomics)
The coalition parties found a “trick” to bypass the motion. Some saw this coming, as Brussels is desperate for money. Earlier this week, Arno Wellens pointed out that Dutch bond yields were rising—a sign that financial markets were already pricing in the Netherlands’ approval of the plan. Apparently, markets no longer consider the Dutch Parliament relevant; the decision had already been made in Brussels.
The yield on 10-year Dutch government bonds has now risen well above 3%. This will make future investments in climate policy, defense, and infrastructure significantly more expensive. Many Dutch citizens will also feel the impact directly, as student loan interest rates are linked to Dutch government bond yields. Mortgage rates will also be affected since lenders use government bond yields as a benchmark.
Prominent economist Lex Hoogduin, a critic of Brussels’ plan, wrote on X: “The irony is that there isn’t even a plan… if only there were a plan.” Like Arno Wellens, he sees the plan as primarily a mechanism to create a large pool of money. He also notes that the European Commission mainly seeks to establish a foothold in defense, despite it being a national competence.
The idea that a large Brussels-controlled pool of money, filled with joint debt, will not be spent as intended is far from unprecedented. Former Senator Henk Otten pointed out that 30% of the NextGenerationEU COVID recovery fund was used to finance Frans Timmermans' Green Deal: “Wind turbines against the coronavirus.”
Last Tuesday, an article appeared in ESB, an economic journal, discussing these Brussels COVID debts. The Netherlands received only a small portion but contributes significantly to repayment. When these loans were issued, it was agreed that repayments would not come from the regular EU budget. Consequently, the EU has sought new revenue sources, including CO₂ taxes. However, these will not be sufficient to repay the COVID debts, meaning the Dutch contribution to Brussels is expected to increase by €4.5 billion per year from 2028.
Spanish Government Bond Yields Surge (source: tradingeconomics)
The first Southern European country to seek broader use of ReArm debt has cautiously stepped forward. Spanish Prime Minister Pedro Sánchez wants climate and cybersecurity to be classified as defense spending. Spain spends less on defense, as a percentage of GDP, than any other NATO country, with 2024 spending projected at just 1.28%. If approved, ReArm funds could be used more broadly, and budgetary rules would come into play.
The EU has already exempted certain defense-related expenditures from budgetary rules. The Telegraph’s Martin Visser wrote this week that loosening budget rules undermines the euro even more than the €150 billion in eurobonds. Under the plan, member states could increase their national debt by €650 billion, despite many already having excessive debt levels.
Ursula von der Leyen (source: European Parliament)
Investors see European debt levels soaring, increasing financial instability. Consequently, interest rates in other European countries are also rising, making investments significantly more expensive. Fortunately, Ursula von der Leyen—who today announced a €4.4 billion European grant to South Africa for its energy transition—has a plan. She wants to mobilize European citizens' savings for investment. A staggering €10 trillion is sitting in European savings accounts. Economist Daniel Lacalle writes: “What the EU wants is to take control of your money.”
French Government Bond Yields Also Rising (source: tradingeconomics)
In the Savings and Investments Union, Brussels plans to link savings with the most productive investments—a form of central planning reminiscent of the Soviet Union. The exact mechanism remains unclear, but a look at the European country that most resembles Soviet-era central planning provides insight.
Since 1818, France has had a mechanism known as the Livret A, originally designed to repay Napoleonic war debts. This is a savings account offering tax benefits with a fixed interest rate set by the central government. The current Livret A rate is 2.4%, significantly lower than the French government’s 10-year bond yield.
Typically, these savings fund social housing and infrastructure. However, Macron has pressured his ministers to increase defense spending. Last week, we briefly highlighted France’s defense interests—read it here. French Minister of the Economy Eric Lombard announced this week that he plans to mobilize savings, including Livret A funds, for defense. The French hope to finance additional defense spending without increasing national debt while avoiding cuts to the welfare state or climate policy. Not everyone trusts the government's ability to spend this money wisely.
Price Levels in the Eurozone & the Netherlands (source: Jeroen Blokland)
Whether this is wishful thinking or whether savings mobilization will take shape in other EU countries remains to be seen. With additional debt plans mounting, inflation is far from over. Traditionally, Germany could be relied upon to curb Southern European debt appetites, but those days appear to be over. Merz speaks in the Bundestag of a “Great Leap Forward”—not only for defense and competitiveness but also for climate protection. You may recall that the Great Leap Forward was a Chinese Communist Party campaign that ultimately led to mass famine. Merz hopes to win over the Greens by incorporating climate policy into the additional debt Germany plans to take on by relaxing its debt brake.
We end this week as we did last week: more inflation and unrest seem likely. Historically, gold has been the best protection against both.
