26th April 2012
This week has seen the crisis in the Euro zone reach the Netherlands as her government has called an election as it cannot get agreement on further austerity measures. So we have now seen the Euro crisis reach what is considered to be the inner core of nations. In my "Three Euros" the Netherlands would be in the Good of "the Good the Bad and the Ugly". So to see her political parties arguing over 9.5 billion Euros of further austerity has shown that it is not just the periphery of the Euro zone that is struggling with this programme.
Are the public finances of the Netherlands that bad?
If we look at the latest report from statistics Netherlands we see this.
"Dutch government deficit amounted to 4.7 percent of gross domestic product (GDP) in 2011. In 2010 the deficit was 5.1 percent of GDP. Government debt rose further to 65.2 percent of GDP."
So we can see that compared to many nations the situation is in fact relatively calm and under control. If we look for a little more detail we see this.
"Government revenues rose by only very little, 0.8 percent, while spending was 0.2 percent higher than in 2010. As a result, the deficit fell slightly and came to 28 billion euro in 2011."
Not brilliant perhaps but many countries would like to be in that situation! However there were some troubling signs.
"Revenues from VAT were over 1million euro lower because of weaker consumption."
And in another hopeful sign we saw the reverse of something that is becoming rather familiar in the Euro crisis.
"Municipal deficits accounted for a significant part of the decrease in government deficit"
Spain is of course the leader or perhaps I should say laggard in this area as she is having serious problems in getting her regions to control their spending and hence their deficits.
But with a national debt of 65.2% of economic output which relates to 393 billion Euros the Netherlands seems quite fiscally conservative. However the report does point out a fly in the ointment.
"These figures mean that the Netherlands has now exceeded the European norms for deficit and debt for the third year in a row."
So we see the nub of the current crisis where she is supposed to have a deficit of 3% of GDP (in 2013) and a national debt of less than 60% of GDP. Of course the Fiscal Stability Treaty which calls for balanced budgets is also in the background but that particular act of lunacy is likely to be kicked into the long grass before long I think.
"Oh and there is a consequence of the Euro crisis for both her deficit and her national debt.
On the other hand, loans of nearly 3billion euro to the ailing EU countries increased the debt slightly.
dividend revenues from the Dutch Central bank were 1.4 billion euro down"
I have discussed in my past articles the accountancy standards of central banks and the Dutch one has raised its and begun to account for losses made by the European Central Bank on bond purchases in the peripheral Euro nations. So well done to them.
But we are left with Dutch help to other Euro nations raising both her fiscal deficit and her national debt. Yet by doing so the Dutch have come under pressure from the rules of the Euro to cut further. No wonder her government has found that a hard nut to crack, or rather difficult to get her people to agree too!
And we have a new entry for my new financial lexicon as apparently 3 billion Euros only raises the Dutch national debt "slightly". Would they be kind enough to increase my bank account slightly?
If we look at the credit crunch era we see that economic growth as represented by Gross Domestic Product or GDP has again been better than many others. Since 2008 her GDP growth has been, 1.8%,-3.5%,1.7%,1.2%. But we know that 2012 is going to be a difficult year so let us look as far as we can into the crystal ball that is the future.
The Dutch statistics agency has this week updated its manufacturing sentiment index and in April it has fallen to -3.3%. Even worse the expected activity index has fallen to -6.1%. Looking back we can see that both numbers have indicated falls since last July and that somewhat ominously there appears to be a build-up of stocks (2.6%). The danger of a stock build-up is that it is temporary and likely to be reversed if the falls continue. So what is called the "stock cycle" could easily turn negative in a falling market.
If we look at industrial production (excluding construction) we see growth in 2011 of 3.3% which in December had risen to 3.6%. But in 2012 we have seen -1.4% in January followed by -3.3% in February.
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