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Saturday, 10 December 2016

Why the former CEO of the Dutch Central Planning Bureau and current professor in economics at Cambridge University is so right about the devastating effects of excess austerity in The Netherlands

Coen Teulings, the former CEO of the official Dutch Central Planning Bureau and current professor at Cambridge University is a very outspoken economist. And one who is not afraid to counter the ‘communis opinio’ in The Netherlands and abroad.

One of the things that professor Coen Teulings dared to do, both during his time at the Central Planning Bureau as now at Cambridge, is questioning and countering the enduring austerity policy of both cabinets of Prime Minister Mark Rutte and his predecessors. About this Dutch austerity policy I stated on this blog:

Nevertheless, I don’t expect something good to come out of this hopelessly weak Cabinet Rutte II in the coming months or years.

The cabinet sticks to mindless austerity measures and tax increases for the middle class, which ‘annihilate’ consumption and put the economy further in decline. At the same time, the cabinet expects ‘the market’ to have a magic wand, which magically solves all financial and economic problems in The Netherlands. Of course the market … does not!

There is no ‘grand vision’ in this Cabinet:
  • No industrial policy for the manufacturing industry, which should aim at bringing back The Netherlands among the leading industrial nations in Europe and the world;
  • No grand scheme for children’s education or for lower and higher professional education and scientific education. In the vision of the cabinet schools should do more with less money, but they end up doing much less with less money. At the same time too little has been done about the excess salaries for executive managers in the large school conglomerates;
  • There is no real debate upon healthcare and the aging process in The Netherlands. The only formulas of this cabinet are: sobering up the conditions and granted treatments within the mandatory health insurance  policy and again trying to do more with less money, which fails hopelessly;
  • No strategy for the future to clean up the excess capacity in the building and construction industry or rejuvenate the Dutch housing market by taking the hard decisions (abolishing the Mortgage Interest Deductability for instance) and the pain right now;
  • No thorough ideas and strategies concerning the globalization and the effects of this towards employment and employability in The Netherlands;
  • No new concepts towards renewable energy and ways to stop global heating. Concerning renewable and environmentally-friendly energy, The Netherlands is again among the weakest countries in Europe;
  • The renewable energy targets for The Netherlands in 2020 will be missed by a lightyear;
  • There is a deafening silence on almost any aspect of the big energy questions for the future, in spite of the fact that one of the architects of this Cabinet, Diederik Samsom, has been a prominent member of Greenpeace.

Now, 3-odd years after this article, it seems that prosperity has indeed (slightly) returned to The Netherlands, as the country has shown very acceptable growth rates during the last two years. 

Consequently, these favourable growth figures were reason for quite a lot of boasting among the cabinet members, including liberal-conservative Prime Minister Mark Rutte and Social-Democrat Minister Lodewijk Asscher: 

Thanks to our prudent austerity policy and our successful approach of the crisis, growth and prosperity have returned to The Netherlands. Without us, that would not have been possible”. 

Well, you know the drill of explaining economic tailwinds to your advantage, thus making yourself the main responsible for the economic success.

However, Coen Teulings stated – to these eyes justly – that he doubted whether this cabinet’s policy of austerity has actually helped the economic crisis to be overcome and he even dared to suggest that this policy hampered the economic recovery in The Netherlands. He did so by comparing the Dutch economic data with – very painful – economic data of the “not so usual suspect”… France!

France, to many Dutch eyes “the giant on straw feet” of Europe (i.e. a very large economy, but absolutely not a strong and agile one), had actually shown much BETTER economic data during the crisis than The Netherlands did, even though the Dutch economy is intrinsically much stronger than the French.
Coen Teulings in Het Financieele Dagblad:

The French economic policy has an ill repute in The Netherlands. France has been battling with high unemployment for many years, mainly as a consequence of high minimum wages and rigid protection against dismissal. One would expect that this country “would get one on the chin” from the crisis and would recover very slowly. The opposite is true. The French economy performed much better between 2010 and 2013 – the years of fierce austerity in The Netherlands – than The Netherlands did, according to the accompanying chart.

Economic growth of France vs The Netherlands during the crisis years
Picture courtesy of
Click to enlarge
When The Netherlands shows a full percent more growth than France in the whole year 2017, the country will finally have equalled France at the end of 2017.

The economic recovery is – as a matter of fact – not so much a success of the established government policy, as the result of postponed investments and catch up (i.e. latent) growth, to mitigate the earlier crisis damage. When the Dutch arrears in comparison with France have been dissolved at the end of 2017, both countries are leveled again at the level of 2010. However, the loss of Gross Domestic Product over these 7 crisis years is unrecoverable. In this seven year period, this amounts to 13% of our GDP, or €80 billion.That is multiple times the cost of saving the Dutch banks.

There you have it. The economic golden boy of Europe The Netherlands has achieved less than France, the economical laughing stock of Europe, during the crisis years since 2008. The sheer fact that the Dutch economy now outperforms France has little to do with a solid foundation, but everything with ‘catch up’ growth. 

This is why the current economic growth can not so much be owed to Cabinet Rutte II, but – to the contrary – occured in spite of Cabinet Rutte II, as a consequence of latent growth and lagging investments.

The main cause for the much deeper crisis in The Netherlands than strictly necessary, according to Teulings: the austerity policy.

Again Teulings:

The question is why this policy, in spite of the present counter-indicators, has been supported so broadly? Why The Netherlands has been subject to this blatant tunnel vision? Economists are always frightened to look at our nature. 

But nevertheless: PM Colijn was the last to drop the golden standard in the Thirties of last century. Professor in Economy Bas Jacobs points out that ‘debt’ and ‘guilt’ in Dutch are translated with exactly the same word: “Schuld”. Financial obligations are a moral sin to the eyes of many in The Netherlands.

The second explanation is the deep recession in our country around 1982. The first cabinet of Ruud Lubbers has rescued the country. And now the generals tried to win “that 1982 war” all over again. That is probably the reason for these pundits’ massive blindspot for the immense differences between that [inflation-fueled] recession and this [deflatory balance] recession nowadays.

However, the most important explanation lies in the mutual distrust within the Eurozone and in our ostensible alliance with our powerful neighbour in the east: Germany. We are frightened for the “prodigality” in Southern Europe and feel aversion against handing one euro out to the Greeks. Only stricter budget rules can protect us from that.

The Netherlands campaigned for that in Europe, which did not do much for our belovedness and sympathy in Europe. And when the signatures had been set, there was no way back anymore. From a governmental point-of-view there was of course – Europe would undoubtedly have agreed with one Dutch exceeding of the budget – but politically this was a no-go area.

With a bit of good will, the Dutch policy can be seen as the unintended consequence of our hard line against the Greeks. A tell-tale is a conversation that I have with a financial spokesman from the Second Chamber of Parliament: 

“Maybe the European regulation has been too tough for us, but by sticking to it, we rescued Europe”.

Professor Coen Teulings is astouned by this moronic statement of this financial spokesman and so am I, as a six year blogger on the European economy, to be frank. This austerity policy has caused so much damage in Southern Europe, as well as in our own country and it has put the European Union so much on the brink of implosion, without ever really solving things for any country, that one wonders when people finally start to see the fatal flaws of it.

Due to the fact that Germany and The Netherlands sticked to this austerity policy as ‘the single medicine for all diseases’ and refused to look for the possibilities of debt reduction on behalf of f.i. Greece and Italy, the European crisis lingered on for many years, without anything being solved for good.

Greece is still a very sick country and – on top of that – a country that is “a refuge of last resort“ for many Syrian and African refugees. And so is Italy: equally sick and equally vulnerable to an influx of refugees. Unemployment is still unacceptably high in these countries and the problems are still way too huge to cope with them. The European leadership and especially the stubbornness of the Northern European countries with respect to the necessary mitigation of these problems has caused much more crisis pains than strictly necessary.

And all this time, the crisis remains in Europe like a festering scar, which could bring the EU to the brink of implosion, as it feeds upon the growing populist feelings living among the European citizens. Not only in the PIIGS countries or Eastern Europe, but also in the “successful” Northern European countries, like 
The Netherlands and Germany, who could have grown much harder than they did during the last eight years.

And now the economic crisis might be over seemingly, but the depression in the hearts and minds of the European citizens is definitely not. And the Dutch leadership can be partially blamed for that.

Still, I have not abandoned all hope that the European leadership comes to its senses and realizes that executive action is required to solve the problems in both Italy and Greece – and as a matter of fact the whole PIIGS zone, as well as in the Northern and Eastern European countries. As in these countries too the citizens are more and more lured by the pied pipers of populism, promising them a brave new world in which all their problems will be solved.

There won’t be an easy solution to redeem the current economic depression, but the solution is there “somewhere behind the rainbow”. Yet, the leading European politicians must dare to look there and not maintain the administering of a medicine that has proven, beyond a reasonable doubt, to not have worked in earlier years. The fact that a renowned economic professor and former official of a leading government institution has come to these insights is encouraging. And now the rest should follow!

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