As expected, the European Commission is giving the Netherlands until 2014 to get its budget deficit under control, a year past the original deadline.

European commissioner Olli Rehn told a news conference on Friday the current deficit is due to the nationalisation of financial services group SNS Real and ‘economic conditions which are more serious than expected’.

‘That leads to changes in the recommendations; the deficit should be reduced to under 3% in 2014,’ Rehn said. This means further cuts will be inevitable, commentators said.

Fragile

The budget deficit is currently around 3.6% and may rise slightly next year without extra austerity measures, according to the Commission’s latest economic forecasts.

Describing the Dutch situation as showing a ‘very fragile and gradual recovery’, the Commission says inflation will stabilise at 2.8% this year before falling back to 1.5% in 2014.

The agreement between unions, employers and ministers reached last month included freezing a €4.3bn package of cuts due to impact on next year’s government spending.

Cuts

Although unions are adamant the cuts will not go ahead, ministers indicated the package may be back on the table if the economy does not pick up by then.

But ministers hope the ‘social accord’ can contribute to economic growth. The deal includes postponing planned cuts on jobless benefit and redundancy pay.

The Commission estimates show the Netherlands is one of 10 EU countries where the economy is contracting. Only Cyprus, Greece, Spain, Italy, Portugal and Slovenia are turning in a worse performance.

The EU forecast in detail