The Netherlands will make no attempt to bring its 2013 budget deficit under the EU limit of 3 per cent of gross domestic product, an ironic outcome for a country that was one of the toughest proponents of the deficit limits at European summits during the euro crisis.
After seeing its economy shrink nearly 1 per cent in 2012, one of Europe’s wealthiest countries is now poised to miss the very deficit target it backed.
That became clear after a report by the Netherlands’ official Central Planning Bureau on Thursday projected the country’s budget deficit will come in at 3.3 per cent of GDP in 2013, with the economy expected to contract by 0.5 per cent.
The government, a coalition between the centre-right Liberals and the centre-left Labour party, had been waiting for the CPB report before deciding whether to pursue further austerity measures to meet the 3 per cent limit.
With the report out, the parliamentary leaders of both parties ruled out any further budget cuts or tax rises for 2013, while leaving the door open for further austerity in 2014. The CPB projects the deficit in 2014 at 3.4 per cent of GDP.
In principle, the European budget commissioner, Olli Rehn, can impose penalties on countries that violate the norm. But Mr Rehn gave the Netherlands some breathing room when releasing EU forecasts last week, saying the projected Dutch deficit overshoot was mainly due to the country’s nationalisation this month of failing bancassurer SNS Reaal.
On its longer-term structural budget deficit, Mr Rehn said: “The Netherlands has taken effective action.”
“We feel we can get away with it for the current year,” said Mark Harbers, the Dutch Liberal party’s finance spokesman.
In a statement on Thursday, Labour leader Diederik Samsom opposed further cuts in 2013, but said for 2014 the government would need to take “further austerity measures”.
If the Netherlands did request a delay, it would join France as the only eurozone country not receiving EU economic aid to be considered for such leeway. Two bailout countries, Portugal and Greece, have been given one-year delays, as has Spain, which received EU funds to shore up its banking sector last year.
The burgeoning number of eurozone countries seeking delays has sparked a heated debate within policy making circles, with two German central bankers – Jörg Asmussen of the European Central Bank and Jens Weidmann, head of the Bundesbank – calling on Brussels to force countries to stick to their targets regardless of their economic situation.
New austerity measures would test the strength of the Liberal-Labour coalition, which has struggled to push through its original austerity package for 2013 despite its majority in the lower house of parliament.
The government does not have a majority in the Dutch upper house, or Senate, which has traditionally played a minor role in politics.
But under pressure of austerity, opposition parties are now threatening to veto legislation in the Senate, forcing the government to seek their support.
“Effectively, it is a minority cabinet,” said Wouter Koolmees, finance spokesman of the left-liberal D66 party.
The deteriorating economy has undermined Jeroen Dijsselbloem, finance minister from the Labour party, appointed in November with what looked like a strong mandate for reforms.
At the time, the CPB expected the economy to grow 0.8 per cent in 2013, with a budget deficit of 2.7 per cent of GDP. Since then, consumer spending has dropped, the housing market has worsened and unemployment has risen to over 6 per cent.
The Liberals, who won 27 per cent of the vote in September, have fallen to 16 per cent in the latest polls, while Labour has dropped from 25 per cent to 14 per cent.
On Wednesday, Mr Dijsselbloem made a highly publicised tour of opposition parties to gain support for future budget cuts and other major reforms.
He will need to make concessions in order to meet the EU's timetable. The government must submit its 2014 budget plans to Brussels for approval by April.
“Obviously [the government] will have to politically wheel and deal,” said Pieter Omtzigt, an MP for the opposition Christian Democrats.
Get alerts on Netherlands when a new story is published