The Netherlands’ finances are looking shaky. Bond yield spreads over German debt have risen sharply, while Dutch yields have also diverged from Finnish ones. The country is thus no longer considered as safe a bet as other typically reliable northern European states. This is due to the news that the budget deficit could rise to 4.6% of GDP this year, well above the 3% target laid down by the EU’s new fiscal treaty.
What the commentators said
How embarrassing for the Dutch, said John Mauldin on Investorsinsight.com. They have always been paragons of fiscal discipline and have “penned a rather incendiary little diatribe” on how states that flout EU fiscal rules should face tough sanctions and consider leaving the eurozone.
“Physician, heal thyself,” said Richard Barley in The Wall Street Journal. But it will be very difficult. Further fiscal tightening to close the budget gap will merely exacerbate the current recession: the economy shrank by 1.1% in the second half of 2011. The trouble is that austerity is likely further to rattle consumers, who are concentrating on paying down their debt load worth 126% of GDP rather than spending.
There have also been calls for new elections after a member of the Freedom Party, which supports the governing coalition, resigned and left the government with just 75 of 150 seats. So politics may not only undermine an austerity package but also thwart reforms on “hot potatoes like pensions [and] healthcare”, said Rabobank’s Danijela Piljic. That will add to doubts over “the solvency of Dutch finances”.