|The Netherlands is a triple A country, for now....|
Sunday, 15th April 2012
Source : Rabobank
Stress has arisen in recent weeks due to economic and political developments in the Netherlands; some analysts wonder whether the Netherlands is still part of Europe’s core.
Much of this unrest seems exaggerated. The actual figures show that the Dutch economy is fundamentally healthy.
While Dutch government debt as a percentage of GDP is indeed rising, it is still lower than Germany’s. Even though it is often said, the Netherlands does not live on credit as a nation. It, in fact, has a high structural savings surplus. Per capita income in real terms is the second highest in the eurozone after Luxembourg.
The Netherlands also has the world’s best pension funds, still low unemployment and a solid competitive position.
The Netherlands is structurally still in good shape. So if it were to lose the triple A status, while countries such as Germany, the UK and the lovely but small Finland were to keep it, it would primarily demonstrate that you cannot leave country risk assessments to rating agencies.
AAA rating is not a given
But let there be no doubt: the Netherlands’ current strong position is not thanks to the policy of recent years. The AAA rating is not a given.
It is attributable to a result from the past and politicians are also subject to the rule that past results are no guarantee of future performance. Because there is a lot of work to be done.
It is an unpleasant realisation that the Dutch budgetary situation is getting out of hand in a year that Dutch politicians have preached the importance of sound government budgets to almost all of Europe.
This has inflicted both financial and considerable reputation damage. The Netherlands’ standing in Europe has already taken a blow and this will only make the damage worse.
'to walk the talk’
As the Americans put it so aptly, now is the time ‘to walk the talk’. Like it or not, the Dutch government deficit must be eliminated. It will not be easy as the required interventions will surely place economic growth under pressure.
There is a good chance that the CPB Netherlands Bureau for Economic Policy Analysis will conclude later this year that the spending cuts have worsened the recession and that the forecasts for 2013 are being revised downward. The deficit will consequently once again turn out to be higher than expected and new spending cuts will be needed. And so forth.
Greece knows all about this and the Dutch did not pity it in the least. So the Netherlands should not count on too much understanding from Europe, despite the country´s aforementioned structural strength. I am afraid Europe does not think the Netherlands is very nice right now.
Dutch economy is strong enough
The Dutch opposition will undoubtedly rant that the current Dutch government’s spending cuts are killing the economy. That is naturally exaggerated because the Dutch economy is strong enough to take considerable abuse. That has been proven over the past few years.
And it is not only the current Dutch government, but also previous Dutch governments that failed during the good times to put the budgetary house in order, raise the pensionable age and implement the necessary labour market, healthcare and housing market reforms.
While it will be painful, there is no need to act as if the world is coming to an end. The Netherlands will still be one of the world’s richest countries per capita at the end of 2013.
Ad hoc spending cuts, no matter how badly needed, will not be enough. It is high time to make structural reforms to the economy. But they should not include returning to a controlled wage policy based on a 1950’s model. The Netherlands was not yet a triple A country back then.