Today, the Dutch
Central Planning Bureau (www.cpb.nl) presented the long-awaited update of its economic
and budget forecast for 2014 to the conservative-liberal/social-democat cabinet
of PM Mark Rutte (VVD) and vice-PM Lodewijk Asscher (PvdA). This forecast had
been long-awaited indeed, as it presents (increasingly reliable) predictions on
the Dutch budget deficit for the current year and coming year 2014.
During 2012 and
2013, this Dutch budget deficit has been closely watched by economists and
policy makers, due to its relation with the European Union Stability and Growth
Pact (SGP), with its desired budget deficit threshold of 3.0% for the member
states of the European Union.
In recent years,
The Netherlands came under heavy scrutiny of the European Union and some of its
member states.
During the beginning
of the Euro-crisis (2009-2010), The Netherlands fiercely and aggressively
criticized the PIIGS-countries (Portugal, Ireland, Italy, Greece and Spain), when
these countries failed to meet the demands from the SGP. Harsh words fell on
the ‘irresponsible behavior’ of especially Greece, spoken by Finance Minister
Jan Kees de Jager and the subsequent PM’s Jan Peter Balkenende and Mark Rutte.
However, The
Netherlands also failed to meet the exact demands from the SGP itself for a
number of years in a row (2011-2012), as it had to deal with budget deficits
considerably higher than the 3% threshold. This must definitately have led to
some scornful laughter from the earlier criticized PIIGS countries and to watchful
eyes from the European Commission.
Nevertheless, the small
financial crisis in The Netherlands could hardly be compared to the financial/economic
drama’s in the PIIGS-countries (large state debts, enormous budget deficits and
large unemployment). Besides that, the budget and financial situation in The
Netherlands had always been considered to be quite healthy fundamentally, in
spite of the huge private debt and the firmly locked up Dutch Commercial and
Residential Real Estate markets. The Netherlands is still one of the richest
countries in Europe and an economic powerhouse.
This was the reason
for the European
Commissioner for the Budget Olli Rehn to declare recently that he would ‘generously’ allow The Netherlands to miss
the 3% SGP budget deficit threshold by a few tenths of a percent, under the
condition that the Dutch Cabinet Rutte would book in for €6 billion in
additional austerity measures for 2014, on top of the €16 billion in existing
austerity.
However, while the CPB
data in June already showed a deteriorating
financial situation, today’s CPB data were even worse. Here are the
pertinent snips from the press release by the CPB:
Today, CPB Netherlands Bureau for Economic Policy
Analysis presents the Dutch Cabinet with its updated macroeconomic projections
for 2013 and 2014, for the finalisation of the decision-making process around
the 2014 national budget.
These projections not yet include possible additional
spending cuts by the Cabinet. Without implementation of these possible
additional spending cuts, CPB projects gross domestic product (GDP) to decrease
in 2013 by 1,25% and to increase by 0.75% in 2014. Unemployment in 2013 is expected
to rise by 150,000 people to 620,000, and in 2014 this will be up to 670,000.
The budget deficit in 2013 is 3.0 %, and in 2014 this will be 3.9%.
According to these intermediate projections, the
development of the Dutch economy is less favourable than in last June’s
projections. With a 1,25% decrease, GDP volume will shrink in 2013 by a quarter
percent more than projected earlier. Economic growth (GDP growth) for 2014 has
been adjusted downward by 0,25% to 0,75%.
Unemployment for 2014, is projected to increase by
35,000, which is mainly due to the Central Bureau of Statistic's downward adjustment of GDP growth in the
first quarter of 2013 and the projected, slower growth in world trade for 2013
and 2014. A weaker development in real wages will contribute to less growth in
private consumption in 2014. These CPB projections include the National
Accounts 2012 and the preliminary GDP data by CBS on the second quarter of
2013.
The current projections present a budget deficit for
2013 of 3.0% against 3.5% in those of last June. For 2014, this is 3.9 against
3.7 in June’s projections.
Combined with this
press release, the CPB sent the following economic data:
 |
| Economic forecast data for The Netherlands for 2013 and 2014 Data courtesy of: Central Planning Bureau (www.cpb.nl) Click to enlarge |
Although I consider
the CPB data in this table to be more realistic than on earlier occasions, I
still challenge some of the data.
Why would the world
trade volume rise to 3.75% in 2014? Especially the BRIC’s and Japan are
already showing signs of economic fatigue and the growth in the US will only go
on as long as ‘Uncle Ben’ Bernanke pays the tab. Hints from Bernanke on
stopping QEIII at the end of this year were enough to bring sheer panic in the
international financial markets.
Why would the exports
of Dutch products and produce and especially the imports grow, when more and
more people in The Netherlands are earning less salary or even get unemployed
at the moment? Also the largest exporter in the world, China, is showing some
real economic fatigue, if you read between the lines of the overly optimistic ‘official’
economic reports. The Netherlands is an important transit country for Dutch
exports and will suffer from this Chinese economic cooldown.
And is the growth
in the rest of the European Union so stable that it could really spur Dutch
exports?! I doubt it seriously.
How could the
average income in The Netherlands rise next year, while we
read last Monday that the average income has declined over the last
five years and the number of unemployed people is still soaring?! That doesn’t
figure.
And will labour
productivity really rise with 1.75%, while it only dropped over the last two
years and there is still too little innovation in The Netherlands to spur this
productivity?
Besides that, I
consider the forecast that The Netherlands will meet the 3% budget deficit threshold
in 2013 to be too optimistic. The 3.9% (or more) budget deficit for 2014 does
sound quite realistic to me, albeit that this data seems to be based on too
optimistic presumptions.
I can imagine that
Euro-commissioner Olli Rehn has not been exactly ‘pleased’ when he learned
about the latest CPB data from The Hague. A budget deficit of 3.9% for 2014 is considerably
more than the exceeding of the SGP threshold ‘by a whisker’, which he had
allowed earlier.
Nevertheless, the
reaction of Cabinet Rutte II to these disastrous CPB data spoke volumes. The Dutch
Volkskrant printed the reaction of Finance Minister Jeroen Dijsselbloem to the
CPB data today:
The Cabinet accepts that The Netherlands won’t meet
the 3% SGP budget deficit threshold next year. There will be no additional
austerity measures on top of the €6 billion in additional austerity measures
that already had been decided upon earlier. This was stated by Finance Minister
Jeroen Dijsselbloem in a reaction upon the latest forecasts by the CPB.
Also PvdA-MP Henk Nijboer and VVD-MP Helma Neppérus
decided that extra austerity measures were undesirable. ‘We stick to €6 billion
in additional austerity measures. Brussels said: this is what you have to do
and we’ll stand by that’, according to MP Neppérus.
‘The CPB and CBS data [ I will come to that at a later
stage - EL ] were not surprising,
but nevertheless disappointing, as you hope that the economy recovers earlier’.
This was stated by Finance Minister Dijsselbloem. ’The most important problems
can be found at the Dutch housing market. These problems compromise economic
recovery and they are devastating for consumer confidence’.
According to Dijsselbloem, the Cabinet will come with
a stimulus package on Prinsjesdag (i.e. Dutch ‘State of the Union’on third
Tuesday of September) and with additional measures to set the Dutch housing
market free.
I give a
translation of what Jeroen Dijsselbloem stated in the aforementioned lines and in
the remainder of the article (not printed here):
[My translation
of Jeroen Dijsselbloem’s words]: “We will add €6 billion in additional
austerity measures. That is what the doctor ordered. Not a penny more. Not a
penny less…
At the same time we are totally clueless about how we
should set the Dutch economy in motion. We will try another stimulus package,
although we know that it doesn’t help much. We take additional measures to set
the Dutch housing market free, although earlier measures failed blatantly.
We understand that the additional austerity might kill
any economic growth at the spot, but we do it anyway, otherwise the boss will
be angry. We don’t have any idea why we do this really, but if Rehn wants it,
he can get it.
Earlier this year, we tried to fool the social
partners (i.e. employers and labour unions) with a fake social agreement, in
which we promised to take away the €6 billion in additional austerity, if the
economy would grow sufficiently. We really can’t understand why they bought it,
but they did. Now these guys are angry, but they were so dumb they believed our
fake promise. Stupid fools… Of course the economy didn’t grow as we did really nothing
to make it grow.
Therefore we (i.e. political PvdA leader and chief
whip Diederik Samsom) figured out a plan yesterday to take €8 billion instead
of €6 billion in austerity measures, but immediately bring €2 billion back into
the economy as a kind of stimulus. That will help the economy. Or won’t it?!
Oooh, this is hard.
Every day we come up with a new plan to rob Dutch
citizens from their life savings, pension savings and annuity policies, as it
is a shame to let this money just hang around. We rather squander this money on
any stupid plan right now than leave it at the people who might need it in the
future”.
Dijsselbloem's reaction and
the whole five years since the crisis started in 2008 contain clear signs of the
failed Dutch policy throughout these years.
Even Belgium, which
suffered from a huge political crisis for a record period of time, does considerably
better financially and economically than the country that is slowly turning
into the ‘Dopey’ of the European Union: The Netherlands. And that is
something to be really ashamed about.
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