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“Money For Nothing And Growth For Free”: Dutch Considering €50BN Growth Fund Financed With Negative Rate Debt

August 31, 2019

“Money For Nothing And Growth For Free”: Dutch Considering €50BN Growth Fund Financed With Negative Rate Debt

  • The Dutch coalition government is reportedly considering a EUR 50 bn investment fund to support economic growth, to be financed by borrowing at negative rates
  • Many details are yet to be determined, but the Netherlands should have sufficient fiscal space to finance additional investment spending on this scale in the years ahead
  • This represents a notable shift from the debt-averse political consensus in the Netherlands and it could increase pressure on Germany to use fiscal policy to support growth.

News leaked last week that the Dutch coalition government is considering setting up a fund for investing in economic growth. Details are scarce, but media reports suggest a fund of up to €50 bn that would most likely be announced along with the rest of the Dutch budget in mid-September. It could be financed by borrowing from the market and spent on growth-friendly initiatives in areas such as infrastructure, innovation and education. Policy makers appear keen to capitalize on negative rates along the entire Dutch state yield curve.

Despite potential new borrowing, Dutch state debt levels would still be modest compared to other European countries and below the 60% Maastricht debt limit. The degree to which the fund actually results in additional investment and whether this will help growth, will depend on the governance around it.

From an international perspective, the idea of a government investment fund could impact the debate about the role of fiscal policy in supporting growth, in particular the special role of investment (in contrast to spending on (re-)current items). With limited space for additional ECB stimulus, the central bank has called on countries with available fiscal space to use their budget to support growth. The central bank’s policies have also made negative yields possible, giving governments an opportunity to finance such policies.

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