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Athens on the North Sea

Wednesday 25 September 2013

photo Dutch newspapers

Budgetary trickery puts the Netherlands on a par with Greece, writes Rens van Tilburg.

Dominic Barton, head of global management consultancy McKinsey, recently visited the Netherlands. He has had more meetings with business leaders than you and I have had hot dinners and his Dutch schedule was predictably busy.

Barton told newspaper NRC he had spoken to six top CEOs and that none of them had anything positive to say about the state of the Dutch economy. One of them even qualified the Netherlands as ‘Greece on the North Sea’. It is said that children and drunkards tell the truth but CEOs, among themselves at least, seem to have the knack as well.  

The comparison with Greece will have hit the Dutch Labour party hard. It already spent a year on an electoral rack precisely because it wants to avoid uncontrolled Greek-style government spending. According to the polls it halved the party’s votes. 80% of the population is opposed to more taxes and cutbacks. In spite of this, the cabinet decided to double next year’s already considerable pain by proposing a fresh €6bn austerity package.

Sacrosanct

Euro norms are sacrosanct to eurogroup chairman Jeroen Dijsselbloem. Only if the Netherlands abides by the 3% rule can the southern European countries, who are facing even worse budgetary holes, be asked to keep to the agreements. Portugal - 16% unemployment, a shrinking economy and a tottering coalition – is begging for some budgetary breathing space. Dijsselbloem is implacable: an agreement is an agreement. And that goes for the Netherlands as well. He is loath to ask Brussels for leniency.

Economists were predicting the austerity package Dijsselbloem cobbled together with European budget boss Olli Rehn would crush the fragile Dutch economic growth of 0.5% and cause further shrinkage. But lo and behold, the figure crunchers at the CPB macro-economic planning agency found the package would shave off a mere quarter of a percentage point, a modest enough contribution to the saving of the euro.

Tricks

If it seems too good to be true that is because it is. There isn’t a structural intervention – such as a break on mortgage tax deduction – in sight. Instead Dijsselbloem the finance minister has delved into his bag of tricks coming up with such gems as turning a €750m medications windfall from last year into a 2014 cutback. €250m is booked in because there is a health care accord in which ‘we’ have solemnly promised to be more efficient while the effects of the tax hikes remain invisible - according to the CPB model these won’t lead to lower government spending until 2015.

A whopping €1.25 is ‘earned’ from a tax break given to those who agree to a pay-out of a severance pay piggy bank, (the so-called Stamrecht BV) in 2014. Where this amount springs from is anybody’s guess. The only thing that is certain is that the Stamrecht BV trick, which defers the payment of tax on severance pay, will continue to make holes in the national tax balance sheet for years to come. But who cares about the long-term?

It sounds familiar, doesn’t it? Which country was it that entered into a complex financial deal with business bank Goldman Sachs in 2001 in order to make government debt look smaller? It got them into the euro but ended up costing billions and caused state debt to balloon. Yes, it was Greece. In this instance no business bank is running away with the profits. The Dutch budgetary trickery is ‘only’ going to cost 45,000 people their jobs in 2014.

It turns out, by the way, that the economy is much more allergic to tax hikes than the CPB previously thought. Growth was down by 2%, or €12bn, this year compared to the agency’s predictions and the likelihood is that the predictions for this year will be similarly off.

Hubris

But what is worse is that the Netherlands is obviously happier to resort to tricks to make it seem the norm is complied with than to openly confront the sense and nonsense of the current European budget policy. It is the sort of sleight of hand we previously only expected from countries south of Marseille. The rigid European norm is not only damaging the economy, it is also gnawing at the foundations of our institutions.

This cabinet is in the grip of pride and arrogance, the classic Greek theme of blinding hubris, with the inevitable downfall at the end. And that is how we find ourselves with a eurogroup chairman based in a city which CEOs and others in the corridors of European power are already surreptitiously calling ‘Athens on the North Sea’. 

Rens van Tilburg is an economist and senior researcher at the Centre of Research on Multinational Corporations (SOMO)

This article was published earlier in the Volkskrant

© DutchNews.nl




 
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