European debt crisis dampens Dutch growth

Press release
Date 11 June 2010

The recovery of the Dutch economy is subdued. Economic growth in 2010 will be 1.2%, according to new forecasts for the Dutch economy by DNB. As a result of the European debt crisis, the prospects for 2011 and 2012 are surrounded by major uncertainties. The sustainability of the European and the Dutch recovery hinges on the decisiveness of European governments.

In view of the turbulent developments in recent months, European governments urgently need to credibly consolidate public finances. This will dampen Dutch growth. In a scenario in which governments follow the European agreements under the Pact for Stability and Growth, the Dutch economy is expected to grow by 1.3% in 2011 and 1.7% in 2012. The cutbacks implemented by trade partners will depress foreign demand for Dutch products. In the Netherlands, lower public expenditure and higher taxes will hold back growth in private spending.

Letting public finances slide is not an option, however. In the unhoped-for event that euro countries fail to sort out their public finances, negative confidence effects and high interest rates would keep growth hovering at low levels for a prolonged period. That scenario also contains the threat of a further erosion in market parties’ confidence in European public finances, generating new financial turbulence. The Netherlands would be seriously impacted through pension funds, insurers and banks’ holdings of European government bonds.

Intervention in European public finances is hence essential. It would mean more stability and resilience for the European economy. The benefits realised by restoring public finances would be felt for many years to come. Governments with a lower debt burden would have larger financial buffers to absorb setbacks. Households and businesses would also have more confidence in the economy. Finally, governments would place less demand on the capital markets, keeping long-term interest rates low.

To prevent future problems with European public finances, Member States must show more responsibility for a disciplined fiscal policy. They could do so by anchoring the objectives of European rules, and their observance and enforcement, in the law. The observance and enforcement of the Pact for Stability and Growth should also be improved.

End of press release

For more information, please contact Tobias Oudejans (Tel. + 31 (0)20 5243100, + 31 (0)652496961) or Herman Lutke Schipholt (+ 31 (0)20 5242712, + 31 (0)652496900).