The Netherlands, outspoken advocate of fiscal pain as a cure for eurozone ills, found itself in unwelcome company this week as the bloc’s economic recovery left it among a handful of laggards still in recession.
Policymakers in southern states such as Greece and Spain may have had a moment of Schadenfreude when official data showed the northern Dutch among those still contracting while a Franco-German motor pulled the bloc as a whole back to growth.
For the austerity-touting core eurozone state critical of budget laxity elsewhere, things are not likely to change soon. Growth is forecast to be worse than expected next year and the Dutch budget deficit is swelling.
The deficit to GDP projection was just increased to 3.9 per cent from 3.7 per cent for next year, compared with the euro zone target of 3 per cent.
And while moderate growth in Germany and France lifted the region as a whole out of recession last quarter, Dutch gross domestic product shrank both quarter-on-quarter and year-on-year, by 0.2 and 1.8 per cent respectively.
In July, 25 companies were declared bankrupt every day, the highest reading since 1981. Unemployment hit another record high in the month, reaching 8.7 percent of the workforce.
The latter is minimal compared with places like Spain, but the Netherlands is nonetheless being hit by deeply pessimistic consumers, the highest unemployment rate in decades and plummeting home values.
“You can no longer speak of a European problem, but failing Dutch policy,” said Arnold Merkies, opposition member of parliament for the Socialist Party. “While unemployment falls in the countries around us, it continues to rise in our country.”
Leading banks ING and Rabobank said additional austerity planned by the Government of pro-business Liberal Prime Minister Mark Rutte will wipe out any growth in 2014 because of the need to make additional spending cuts.
Rutte’s Government is sticking to its austerity plans, although it has said it will take longer to bring finances back into order.
But it got a downbeat statistical outlook on Wednesday from official economic forecaster, the Central Planning Bureau.
It cut a quarter of a percentage point off growth forecasts for 2014 to 0.75 per cent.
Dutch GDP will shrink 1.25 per cent this year, the CPB said, compared with a previously forecast contraction of 1.0 per cent.
Along with their German neighbours, the Dutch have been among those taking the hardest line over aid for eurozone countries seeking bailouts to help economies crippled by the financial crisis.
In July, 25 companies were declared bankrupt every day, the highest reading since 1981
During election campaigning last year, Rutte said the Dutch would not give “a penny more” to Greece, though his Government later supported another bailout tranche when Athens agreed to strict austerity measures and reforms.
The country’s European Central Bank member, Klaas Knot, is one of the bank’s more hawkish members.
And Dutchman Jeroen Dijsselbloem, who heads the Eurogroup of eurozone finance ministers, said in March that a rescue deal for Cyprus forcing losses on uninsured depositors would be a model for dealing with future eurozone banking crises.
The bloc backtracked quickly.
No one is suggesting the Netherlands is even close to needing a bailout and its fiscal numbers are far better than those in much of the south.
But its economic performance makes it harder to preach fiscal rectitude to others.
In the four years since the second quarter of 2009, the Dutch economy has been in recession three times and has grown just 1 per cent. That compares with between 4-8 per cent in Germany, France, Belgium and Austria.
It is because the Dutch face a double whammy of hefty austerity cuts and years of declining consumer spending due to the housing market crisis, ING economist Dimity Fleming said.
“A lot of people are stuck because they can’t sell their homes and their mortgages are higher than the value of their property.”
The Netherlands, the eurozone’s fifth-largest economy, is implementing a cumulative €46 billion in budget cuts to bring down government spending, with an additional €6 billion under discussion for 2014.
Some economists see signs of a bottoming out, citing a slowing fall in home prices in recent months and the first positive purchasing managers index reading in half a year.