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The Dutch, Europe's apostles of austerity, feel the economic pain
August 16, 2013 / 8:22 AM / 4 years ago

The Dutch, Europe's apostles of austerity, feel the economic pain

A doll wearing a t-shirt with pictures of the Dutch Royal family is seen in a cannabis shop in Amsterdam April 28, 2013. REUTERS/Cris Toala Olivares

AMSTERDAM (Reuters) - The Netherlands, outspoken advocate of fiscal pain as a cure for euro zone ills, found itself in unwelcome company this week as the bloc’s economic recovery left it among a handful of laggards still in recession.

Policymakers in southern states such as Greece and Spain may have had a moment of Schadenfreude when official data showed the northern Dutch among those still contracting while a Franco-German motor pulled the bloc as a whole back to growth.

For the austerity-touting core euro zone state critical of budget laxity elsewhere, things are not likely to change soon. Growth is forecast to be worse than expected next year and the Dutch budget deficit is swelling.

The deficit to GDP projection was just increased to 3.9 percent from 3.7 percent for next year, compared with the euro zone target of 3 percent.

And while moderate growth in Germany and France lifted the region as a whole out of recession last quarter, Dutch gross domestic product shrank both quarter-on-quarter and year-on-year, by 0.2 and 1.8 percent respectively.

In July, 25 companies were declared bankrupt every day, the highest reading since 1981. Unemployment hit another record high in the month, reaching 8.7 percent of the workforce.

The latter is minimal compared with places like Spain, but the Netherlands is nonetheless being hit by deeply pessimistic consumers, the highest unemployment rate in decades and plummeting home values.

“You can no longer speak of a European problem, but failing Dutch policy,” said Arnold Merkies, opposition member of parliament for the Socialist Party. “While unemployment falls in the countries around us, it continues to rise in our country.”

Leading banks ING and Rabobank said additional austerity planned by the government of pro-business Liberal Prime Minister Mark Rutte will wipe out any growth in 2014 because of the need to make additional spending cuts.

Rutte’ government is sticking to its austerity plans, although it has said it will take longer to bring finances back into order.

But it got a downbeat statistical outlook on Wednesday from official economic forecaster, the Central Planning Bureau.

It cut a quarter of a percentage point off growth forecasts for 2014 to 0.75 percent. Dutch GDP will shrink 1.25 percent this year, the CPB said, compared with a previously forecast contraction of 1.0 percent.

LAGGING BEHIND

Along with their German neighbors, the Dutch have been among those taking the hardest line over aid for euro zone countries seeking bailouts to help economies crippled by the financial crisis.

During election campaigning last year, Rutte said the Dutch would not give “a penny more” to Greece, though his government later supported another bailout tranche when Athens agreed to strict austerity measures and reforms.

The country’s European Central Bank member, Klaas Knot, is one of the bank’s more hawkish members.

And Dutchman Jeroen Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, said in March that a rescue deal for Cyprus forcing losses on uninsured depositors would be a model for dealing with future euro zone banking crises.

The bloc backtracked quickly.

No one is suggesting the Netherlands is even close to needing a bailout and is fiscal numbers are far better than those in much of the south. But it’s economic performance makes it harder to preach fiscal rectitude to others.

In the four years since the second quarter of 2009, the Dutch economy has been in recession three times and has grown just 1.0 percent. That compares with between 4-8 percent in Germany, France, Belgium and Austria.

It is because the Dutch face a double whammy of hefty austerity cuts and years of declining consumer spending due to the housing market crisis, ING economist Dimity Fleming said.

“A lot of people are stuck because they can’t sell their homes and their mortgages are higher than the value of their property,” he said.

The Netherlands, the euro zone’s fifth-largest economy, is implementing a cumulative 46 billion euros ($61 billion) in budget cuts to bring down government spending, with an additional 6 billion euros under discussion for 2014.

Some economists see signs of a bottoming out, citing a slowing fall in home prices in recent months and the first positive purchasing managers index reading in half a year.

Still, most experts don’t expect growth to pick up in earnest until 2015 or 2016, with eight out of 10 Dutch nationals pessimistic about the future.

Nearly 10 percent of the population is below the poverty line, prompting relief group Cordaid, the Catholic Organization for Relief and Development Aid which is active in 36 countries, to plan new anti-poverty projects at home.

“We cannot shut our eyes to what is happening in our own back yard. We must respond,” Cordaid said

Reporting By Anthony Deutsch; editing by Stephen Nisbet

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