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Aug 29, 2013 | 10:12 GMT

6 mins read

The Dutch Government Agrees on New Austerity Measures

The Dutch Government Agrees On New Austerity Measures
Evert-Jan Daniels/AFP/Getty Images
Summary

It is questionable whether the Netherlands, despite a new austerity package, will meet the European Union's 3 percent budget deficit target in the coming years, and Brussels is likely to pressure the Netherlands to introduce further cuts. In light of the deepening crisis in the Netherlands, opposition to the perceived dictate from Brussels is likely to mount. The government is still likely to follow through with planned austerity measures and reforms but will reduce its efforts to strictly adhere to the deficit target to mitigate the crisis domestically, undermining the EU's central authority.

Dutch Finance Minister Jeroen Dijsselbloem said Aug. 27 that the government coalition had agreed on a new austerity package necessary to reduce the Dutch budget deficit next year. The package, which includes pay freezes for civil servants and tax increases, is expected to amount to 6 billion euros ($8 billion) — around 1 percent of the Dutch gross domestic product. More detailed plans will be presented to the parliament Sept. 17, and the package is likely to undergo changes during parliamentary debate.

By introducing further cuts, the Dutch government is trying to meet the EU deficit limit of 3 percent of GDP. The Dutch deficit for 2013 is estimated to be 3 percent of the country's gross domestic product, down from 4.1 percent in 2012, but the deficit is expected to rise again in 2014 because of the Netherlands' ongoing economic contraction.  

Locator Map - Netherlands

The Netherlands as an Indicator

The Netherlands, one of the northern eurozone economies already deeply affected by the European crisis, is a bellwether for the troubles at the core of Europe. Political and economic developments there can gauge the support for European integration in the wealthier northern economies. As a creditor country in bailouts for other struggling eurozone economies, the Netherlands has long been one of the strongest advocates for austerity measures and for compliance with EU deficit rules. However, the Dutch government is finding it hard to meet the same demands it has made of other countries as its economy faces problems like those of southern Europe. 

While still relatively low compared to countries such as Spain or Greece, Dutch unemployment was at 7 percent in July according to Eurostat — the highest rate in more than 15 years. As has been the case in Spain and Ireland, a crisis in the real estate market is compounding the economic crisis. In the Netherlands, house prices have fallen by nearly 20 percent since peaking in 2008, and they are expected to drop further (in Spain they have fallen by around 30 percent since the start of the crisis). By the end of 2013, as many as 25 percent of mortgages could be higher than the value of the houses that secure them. Loan delinquencies are rising, and while the rate of delinquencies is not comparable to those in crisis countries such as Spain or Ireland, the troubles in the housing market threaten the Dutch banking sector.

The rising unemployment and falling house prices are weakening Dutch domestic consumption. On Aug. 20 the Dutch statistical office reported that the spending power of Dutch households fell by 1 percent in 2012, the largest drop since 1985, and is expected to drop further. In the first half of 2013 Dutch exports grew by 0.2 percent compared to the same period last year while imports contracted by 1.3 percent. The economic stability of Germany, the Netherlands' largest export market, gives the Netherlands hope that exports can be sustained, but this is not likely to offset the weakness of the domestic market.

The Dutch Crisis

The Netherlands has been in recession for a year. Because of the continued economic contraction, the government is under pressure from Brussels to meet the EU deficit target next year by enacting budget cuts larger than initially expected (upon taking office in November 2012, the government coalition agreed to austerity measures totaling 16 billion euros over four years).

The Dutch Bureau for Economic Policy Analysis, an advisory body for the Dutch government, announced earlier this month that it expects the Dutch economy to contract by 1.25 percent this year instead of 1 percent as previously estimated and grow by only 0.75 percent in 2014 instead of the previously anticipated 1 percent. The bureau estimates that the Dutch budget deficit will amount to 3.9 percent of gross domestic product next year, although this figure will be updated once the government has presented the details for its austerity package. Looking to calm voters and facilitate negotiations with opposition parties, whose support is needed in parliament for the austerity package to pass, government officials have said that the new measures will not exceed 6 billion euros.

Just as in the struggling peripheral eurozone countries, the economic crisis and austerity measures are weakening support for the government in the Netherlands. A recent poll conducted by Dutch pollster Maurice de Hond showed that the two parties in the current government coalition would get a total of 34 out of the 150 seats in parliament instead of the 79 seats they got in the elections in 2012. Two Euroskeptical parties, the right-wing Party for Freedom and leftist Socialist party, currently are the most popular and would win 30 and 24 seats, respectively. While national elections are not scheduled until 2016, the elections for seats in the European Parliament in 2014 will be the next popularity test for the parties.

Euroskepticism Grows

The Dutch government is trying to appeal to voters attracted to the opposition parties' Euroskeptical platform by taking a somewhat more Euroskeptical stance itself. In June, the Dutch Cabinet issued a report saying that the Netherlands ought to evaluate which powers should be delegated to Brussels and which areas should remain national prerogatives. On Aug. 17 in an article for the Dutch newspaper De Volkskrant, Dutch Social Affairs Minister Lodewijk Asscher warned about the possible negative consequences of the free movement of people within the European Union that can result in wage pressure and marginalization of local Dutch workers. Because of the economic crisis, protecting the Dutch labor force is becoming a greater priority amid concerns that outsiders, particularly workers from Eastern Europe, will take away jobs and weaken the social security system.

Although the Netherlands was a founding member of the European Union, Euroskepticism has long played an important role in Dutch politics. In a referendum in 2005, Dutch voters rejected the proposed EU constitution, highlighting the Dutch uncertainty with European political integration. While the Netherlands — a trade-dependent economy — profits greatly from the economic integration of Europe and the eurozone, the domestic crisis is likely to strengthen Dutch skepticism about deepening EU integration, which is often seen as leading to more dictates from Brussels.

The development of the Dutch position toward the European Union is important to follow because it often encapsulates the views of several northern EU members — for example, Austria, Finland, the United Kingdom, Denmark and Sweden — that fear a domination of Europe by a French-German duopoly. These countries are dubious of providing aid to other countries or giving Brussels more authority even though they might support stronger economic ties within Europe.

As the European crisis spreads to these northern EU economies, voters in these countries are likely to question the benefits of certain aspects of EU integration and expansion that have been achieved over the past decades. This will lead the governments of these northern countries to emphasize political independence while ensuring that the countries' strategic economic integration with Europe is maintained.

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