Frugal Four

The Frugal Four is the nickname of an informal cooperation among like-minded fiscally conservative and ideologically neoliberal European countries, including Austria, Denmark, the Netherlands and Sweden. It partly evolved as a successor of the New Hanseatic League that was set up to make up for the loss of the like-minded United Kingdom in the European political arena after Brexit.[1] However, it was never founded as a transnational organisation like similar cooperations of countries in the European Union with shared interests.

The Frugal Four

Members of the Frugal Four after Germany's departure (shown in blue).
Membership
Area
• Total
618,800 km2 (238,900 sq mi)
Population
• 2017 estimate
41,000,000

Along with like-minded Germany the Frugal Four advocate for national rebates for themselves, tight fiscal policies in the Eurozone governed by the Stability and Growth Pact, no large distributive European budget and no collective EU debt.[2] Despite of their populist plot they are not Eurosceptic.[3]

The Frugal Four experienced widespread media coverage throughout the COVID-19 pandemic in Europe.

Position

In an op-ed by Austria's chancellor Sebastian Kurz published in the Financial Times, he described the goals of the Frugal Four as a focus on budget contribution to the EU remaining stable, namely at a maximum of 1 per cent of the EU's gross national income, as well as devoting at least 25 per cent of it to fighting climate change. Furthermore, the Frugal Four wish for spending conditions that are tied to supporting the effective implementation of EU-wide policy objectives and the upholding of the rule of law.[3] These positions came as a response to those countries within the bloc that see a need for higher contributions to the EU's budget after Brexit. The Frugal Four also disagrees with the idea of Eurobonds, a tool for joint bonds within the eurozone, as well as taking mutualised debts within the EU.[4] As a consequence, the group stands opposed to the idea of corona bonds as well.

Frugal Four heads of government in 2020

The Netherlands as a tax haven

Analysis of the Tax Justice Network shows that NL is a tax-haven costing EU countries $10 billion in corporate tax losses every year, whereof the NL collect only $2 billion in additional tax, i.e. about 20%; the other 80% is lost. Instead of declaring profits in EU-countries where they were generated, corporate focused firms shift their profits into empty companies in the NL where corporate tax rates are very low or via NL into no-tax offshore locations. These fiscal tricks, dubbed Dutch sandwich, undermine the tax systems of other EU member states.[5]

Annual tax-losses of EU-countries to the NL in $ billion[6]

EU-member Profit shifted to NL Revenue loss
Spain-4,19-0,99
Italy-5,20-1,55
Germany-7,05-1,54
France-7,78-2,73
Belgium-4,58-1,03
Netherlands+43,78+2,15
Austria-1,60-0,53
Portugal-1,08-0,25
Sweden-1,23-0,28
Ireland-1,97-0,25

National rebates

With the departure of the UK, there was hope of phasing out the perk of national rebates in the EU.[7] But instead of this, the 2021–2027 budget of the EU provides Germany and the Frugal Four with even larger rebates, in total 53.2 billion €[8] funded by all Member States according to their GNI.[9]

Annual national rebates for the 2021-2027 period in € billion[10]

EU-member amount
Denmark0,377
The Netherlands1,921
Austria0,565
Sweden1,069
Germany3,671

Fiscal impact of the coronavirus pandemic

A summit of EU leaders on March 26, 2020,[11] where Germany and the Frugal Four refused a joint European recovery initiative, proved that the EU didn't live up to the pandemic threat.[12] When the virus killed tens of thousands, locked down millions and paralyzed economies across Europe, the situation got untenable and Germany U-turned. In May 2020 French President Emmanuel Macron and German Chancellor Angela Merkel refloated the initially dismissed recovery fund in joint European debt and non-repayable grants.[13]

Although the Frugal Four in a Non-paper vetoed any deal “leading to debt mutualisation”,[14] eventually, abandoned by Germany, had no other choice but to accept the joint European Next Generation EU fund on the European Council in July 2020.[15]

Bottom Line

The Frugal Four advocate for tight fiscal policies in the EU, but the beggar thy neighbor policy of the Dutch tax-haven is precisely what prevents this from happening.

Their anti-covid19 policies turned out to be a disaster: Along with Germany in spring 2020 they refused to come to Italy's assistance to fight the massive virus outbreak in Lombardy eventually causing its spread across Europe. Their national approaches, the "intelligent lockdown" in the NL or achieving herd immunity in Sweden or the difficulties in Austria to close down its ski-towns,[16] failed and they had to take on southern Europe lockdown policies,[17] deemed inacceptable by themselves only a few months ago.[18]

In the EU power play the Frugal Four rely on Germany. When Germany changed the game during the coronavirus crisis, they drew a blank. As a consolation, along with Germany they refloated national rebates, a very controversial tool introduced into the EU by Margaret Thatcher decades ago in 1984.[19]

Notes
  1. "The EU's new Hanseatic League picks its next Brussels battle". Financial Times. Retrieved 23 May 2020.
  2. "After Brexit, who will be the British of the EU?". Economist. Retrieved 23 May 2020.
  3. Kurz, Sebastian. "The 'frugal four' advocate a responsible EU budget". Financial Times. Retrieved 23 May 2020.
  4. "'Frugal four' nations counter Franco-German EU initiative". DW. Retrieved 23 May 2020.
  5. Netherlands, blocking EU’s Covid19 recovery plan, has cost EU countries $10bn in lost corporate tax a year Retrieved 20 January 2021.
  6. Time for the EU to close its own tax havens Retrieved 20 January 2021.
  7. The history of national rebates in the EU Retrieved 20 January 2021.
  8. European Council 2020, chpt. 152.
  9. European Council 2020, chpt. A30.
  10. European Council 2020, chpt. 153.
  11. Video conference of the members of the European Council, 26 March 2020 Retrieved 15 January 2021.
  12. EU leaders clash over economic response to coronavirus crisis Retrieved 15 January 2021.
  13. The coronavirus recovery plan Retrieved 15 January 2021.
  14. Non-paper EU support for efficient and sustainable COVID-19 recovery Retrieved 15 January 2021.
  15. Special European Council, 17-21 July 2020 - Main results Retrieved 15 January 2021.
  16. The Austrian ski town that spread coronavirus across the Continent Retrieved 15 January 2021.
  17. January 19, 2021: Dutch COVID-19 lockdown extended by three weeks Retrieved 25 January 2021.
  18. Coronavirus: Why Dutch lockdown may be a high-risk strategy Retrieved 20 January 2021.
  19. 'Frugal four' battle to maintain EU budget rebates Retrieved 15 January 2021.

References
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