Dutch in same boat as EU strugglers

The Netherlands is in the same fiscal boat as the leading peripheral eurozone states it has criticised for missing budget targets, and it needs spending cuts and structural reforms to revive a slumping economy, state think-tank CPB said.

The forecaster, whose estimates are used by the cabinet to decide on budget policies, gave predictions yesterday for wider budget deficits both this year and next.

It said the country needed “credible measures” to retain investors’ confidence.

The Netherlands needs to find an estimated €16bn of austerity measures to trim its deficit to the EU threshold by next year while, according to European Commission estimates, its economy will shrink by 0.9% — worse than all eurozone states barring Greece, Italy Spain and Portugal.

“The Netherlands is confronted with the same problems as Italy and Spain,” the think tank said in a report. “Budget cuts are equally required in these countries in order to regain control of the government budget, whereas reforms must be implemented simultaneously in order to ensure economic growth.”

The government is struggling to secure majority support in parliament for a large enough austerity package, meaning there is a risk the Dutch might be tempted to follow Spain’s lead in seeking leeway from Brussels on fiscal targets.

Their track record, along with Germany, as a notably harsh critic of failures by the region’s peripheral nations to hit deficit-reduction targets, suggests they will get a frosty reception.

“The Netherlands has been pushing other countries so much to reduce their deficits the cabinet [is]... in an impossible position to go to Brussels and ask for more time”, said BNP Paribas economist Raymond van der Putten. But while it has been in recession since July, the country has an equally solid record of hitting its economic targets.

That means its rank as one of only four eurozone countries still holding a full set of AAA ratings from the three main credit agencies does not look under threat for now, despite the Dutch parliament saying last month a downgrade could occur.

“The situation in the Netherlands is... perhaps... a little bit worse than expected by the market,” said Michiel de Bruin, head of euro government bonds at asset manager F&C Investments.

“[But] I think the rating is not at risk because the Netherlands has a very good track record in reducing spending and bring finances back in order,” De Bruin said.

Dutch yield spreads for 10-year debt against Germany’s benchmark Bund have been among the tightest in the eurozone, but they widened in February after a new bond was issued.

The Netherlands economy has suffered setbacks including a 10% slump in house prices from a 2008 peak, slowing export growth and lower pensions.

If the three coalition parties did not agree on spending cuts, van der Putten said, the Dutch triple-A rating could then be at risk.

The CPB slightly raised budget deficit forecasts, predicting a gap of 4.6% of gross domestic product this year and the next in the absence of spending cuts.

Raising the pension age and reducing unemployment benefits were examples of reforms that would stimulate economic growth, according to the CPB.



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