Netherlands delays austerity plans

Posted: April 18, 2013 in Finance and Business, Politics
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By Matt Steinglass in Amsterdam

Dutch Prime Minister and Liberal party VVD-leader Mark Rutte speaks to members of his party

The Dutch government has postponed the introduction of austerity measures needed to meet EU deficit limits as part of a deal with trade unions and business interests over its 2014 budget.

The so-called social accord, announced on Thursday night, is the latest in a series of retreats from tough austerity policies by a Dutch government that has spent the last several years arguing for budget discipline in Brussels, but now faces a worsening recession at home.

The accord postpones government plans to cut the length of unemployment cover from three years to less than two and to reduce workers’ legal employment protection. It strikes compromises on issues such as reducing tax preferences for pensions and requiring businesses to hire more people with disabilities.

Most significantly, the plan delays until September a decision on whether to implement €4.3bn in tax rises and spending cuts that the government’s own forecasts say are needed to hold the Netherlands’ budget deficit below the EU limit of 3 per cent in 2014.

Mark Rutte, prime minister, said he believed that the accord itself could inspire renewed consumer confidence and improve the economy sufficiently to make deficit cuts unnecessary.

“We hope and expect that if everyone pitches in, and everyone feels that confidence is being created which can lead to a strong economy, we won’t need [the austerity measures],” he said.

This appeared to mark a departure from the government’s previous insistence that the key to restoring consumer confidence was to implement austerity measures and cut the budget deficit.

The new accord is the latest in a series of measures to water down or delay reforms the government announced when it took office in November.

Analysts were unconvinced that it would have a near-term positive effect on the economy.

“It’s wishful thinking,” said Carsten Brzeski an economist at ING, the Dutch banking group. “If it is intended to restore confidence, it is questionable whether changing your programme every two to three months has a positive impact.”

Mr Brzeski questioned whether the European Commission, which must review member states’ budgets in May and June to ensure they comply with deficit limits, would accept the new accord. Olli Rehn, EU budget commissioner, has refrained from imposing sanctions on the Netherlands, despite the country’s violation of the 3 per cent limit this year, but based that decision on his conviction that the government’s reforms were reducing the structural budget deficit in the medium term.

Mr Rutte told Dutch television on Thursday the new accord would raise the annual structural budget deficit by €600m.

The accord stems from negotiations between the government and leaders of the country’s national labour federation, FNV, and of its largest business federation, the VNO-NCW. Such negotiations are a traditional part of the Dutch “polder model” of economic policy making including all stakeholders.

The government was in particular need of a business-labour accord because it lacks a majority in the Dutch Senate. Without national support, it feared it would be unable to pass a budget.

But opposition parties, whose support the government needs in the Senate, criticised the agreement on Friday.

“This is the third time the governing programme has been revised [since the cabinet took office],” said Arie Slob, leader of the Christian Union party. “I don’t know what this cabinet stands for any more.”

Read original article here.

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