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Jul 19, 2013 | 05:29 GMT

4 mins read

Questions Surround the Netherlands' Future

It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

In a new indication that the economic crisis has reached the eurozone's core countries, the Dutch statistics office announced today that seasonally adjusted unemployment reached 8.5 percent in June, up from 6.3 percent the previous year. Clearly the EU unemployment crisis is far from over, and the bloc's structural weaknesses continue to affect even Europe's politically and economically stable nations.

The rise in unemployment comes in the context of the Dutch economy's third recession since 2009. In June, the Dutch Central Bank announced that it expected the country's gross domestic product to contract by 0.8 percent in 2013, and only meager growth is projected for 2014. Recent statistics also show declining industrial activity.

The Dutch economic slowdown has caused Prime Minister Mark Rutte's popularity to plummet. In a recent opinion poll, only one in three voters said they want the ruling coalition, which comprises Rutte's center-right People's Party for Freedom and Democracy and the Labor Party, to complete its four-year mandate. While support for Geert Wilders' nationalist Party for Freedom dropped in the 2012 elections, polls suggest that its popularity is rising once again.

What is a Geopolitical Diary? George Friedman explains.

In light of its economic problems and its leadership's waning popularity, the Netherlands will likely soften austerity measures in the short- and medium-term. In May, the European Commission gave The Hague permission to miss its deficit target for 2013. The country will probably fail to meet the required EU deficit goals again in 2014 — the Dutch government has become increasingly worried about the negative effects of expedited spending cuts. While the European Commission is likely to pressure The Netherlands to implement additional spending cuts, it probably will not punish the country when it does not comply with those demands.

In the early stages of the eurozone crisis, The Hague supported the fiscal consolidation policies designed by Brussels and defended by Berlin. But as the crisis reaches Europe's core, the Dutch are opting for a more moderate approach. This goes beyond austerity measures; the Dutch parliament is currently assessing its broader relationship with the European Union. In a document released in June, the Dutch Cabinet indicated that no additional concessions of sovereignty should be made to supranational institutions, and that The Hague should keep as many of its own prerogatives as possible.

The Netherlands' tempered stance on the European Union corresponds with the situation in France. When the international financial crisis exploded in 2008, Paris immediately joined Berlin in its demands for structural reform in southern eurozone members. But when the crisis reached the French economy, particularly after Francois Hollande became president, the French government began to openly question Brussels' authority to design policy for EU members. In May, Hollande said the EU Commission could not dictate policy to France.

Because of its physical location in Europe, the Netherlands keeps strong political and economic ties with France and Germany. The Dutch will avoid any meaningful policy decisions until after Germans elections, which are scheduled for late September. The Hague will not openly criticize Berlin or Brussels as Paris has, but it will pursue a more independent fiscal policy by relaxing austerity at home in order to avoid a further drop in popular support.

Regardless of who governs Germany after September, in the short term Europeans will have to debate measures to reactivate financing for small- and medium-sized companies to try to stimulate economic growth and create new jobs. In the long term, Germany and France will have to begin discussions for reforming European treaties. EU institutions and member states simply are reaching the limits of what they can do in the bloc's current institutional framework.

Both negotiations will force the Netherlands to define its position in Europe. As a country that traditionally relies on trade, the Netherlands will support any measure that protects the European free trade agreements — which means that The Hague will not opt out of the European Union. But in the context of weak economic growth and nationalist pressures at home, the Netherlands will want to preserve Dutch sovereignty, so it will probably reject substantial concessions to Brussels. This will further complicate any negotiations about the future of Europe.

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