Dutch must not abandon reforms as economy picks up

Reform hurts, says economist Mathijs Bouman, but calling a halt to the reforms will hurt more.

In the middle of the euro crisis reforming the economy seemed an important and unavoidable priority. But once the ECB saved the euro and started buying bonds European capitals began to feel much less convinced. The principle is still valid; it is a truth universally acknowledged that only structural reform – principally in the labour market but also the pension and tax systems – will lead to a sustainable economic recovery.

But the pressure’s off and European politicians seem to be going for the old postponement reflex. The French need to reform but don’t want to. The Belgians want to but can’t. The Germans can but don’t want to try. The Greeks try but never seem to last more than a day.

And the Dutch? They have shown themselves to be veritable champions of structural reform in the last couple of years. Two cabinets led by Mark Rutte have produced an impressive list of taboo-breaking modernisations. The pension age has gone up significantly and tax relief on mortgage payments were scaled back, forcing first-time buyers to pay off their mortgages in full. Dismissal procedures were changed and with the participation law benefit rules have become stricter. The Netherlands is truly the uncrowned structural reform king of Europe. It used the crisis to modernise the economy. Hats off to the Netherlands!

But reform is an ongoing process. It needs to be sustained even if the consequences become painfully obvious. Reforms hurt. Now that the economy is recuperating at pace and the money seems to be piling in again, the question that presents itself is: do we turn back the clock or press ahead with reform? The first signs are not encouraging. The Netherlands seems to be shying away from its will to reform.

The pension hike has been under fire for a while now, as high earners like to hang up their hats a year earlier than less fortunate drones. Critics don’t think that is fair. First-time buyers are being thwarted by strict mortgage rules which means they can’t compete with rich baby boomers.

The Supreme Court ruled that the new dismissal rules are unfair and said that in some cases employers should cough up extra to buy off fixed contracts. And the new participation law is being undermined with the cabinet’s consent by letting five local councils experiment with benefit schemes with hardly any strings attached. The Dutch are brave in the face of reform but cowardly when it starts to hurt.

Meanwhile there is still the tax reform to come, the reform of the supplement merry-go-round and the pension system, all matters that can’t really wait but will now be chewed over for much longer now that things are looking up. Without a sense of urgency the polder is returning to the slow lane. You would almost wish for another crisis.

 This article appeared earlier in the Financieele Dagblad



Thank you for donating to DutchNews.nl.

We could not provide the Dutch News service, and keep it free of charge, without the generous support of our readers. Your donations allow us to report on issues you tell us matter, and provide you with a summary of the most important Dutch news each day.

Make a donation