Slowly, slowly people……….first check out the date!
The following article was posted on Bill Mitchell’s blog on 16 March 2012. Of course the information contained in the article is dated and of historical interest only. Nevertheless, it has some contextual value in connection with my current theme of “The Euro in Crisis”.
I came across this story whilst I was researching info for another post. Since there is a reader of my blog who is Dutch, I succumbed to the temptation and in the words of the singer Dido, “I just couldn’t help myself”.
So here it is:
by Bill Mitchell (16 March 2012)
There was a Wall Street Journal article (March 14, 2012) – Default and the Nature of Government – which demonstrates how a recall to history can be misused if key additional (contextual) information is left out of the discussion. The article in fact tells us nothing meaningful about the likelihood of sovereign debt default. The sub-title relates to the latest news from the Netherlands which suggests that the strident rhetoric of their leadership about the failure of the “southern” states to meet their obligations to the Eurozone might now be coming back to haunt them. If they are not, then they should. If the Dutch are to be consistent then massive and destructive penalties should now be imposed on them by Brussels. They won’t be – but that just tells you how dysfunctional the Eurozone is!
Reflect back on this Reuters report (November 15, 2011) – Dutch push for “budget tsar” in midst of crisis – which is representative of many press releases, speeches, news reports coming out of Den Hague over the last several months..
In it we read that:
When it comes to thinking ahead in the midst of a crisis, look to the Dutch.
With upheaval in Italy and Greece threatening the euro zone’s very existence, the critical issue for the Netherlands is creating a ‘budget tsar’ with powers potentially to expel unruly members and prevent future debt crises.
At emergency meetings from Poland to Luxembourg, Dutch Finance Minister Jan Kees de Jager has rarely missed an opportunity to make his point — that only intense oversight of others’ budgets can prevent another meltdown.
De Jager has been one of the most strident Northern Europeans pushing for austerity and harsh treatment of the southerners. That’s him below looking well fed and far from unemployed.
The Reuters article quotes him as saying:
You can’t solve a debt crisis with more money, that is the lesson from this crisis … You need more tools, you need budget oversight.
When a crisis is principally caused by a lack of spending then more “money” is exactly what is required.
This character has been one of the leading voices advocating for “creating an EU budget authority run by a powerful commissioner who could intervene in government budgets if countries ignored debt targets, gradually taking over their finances and potentially expelling them from the euro zone”.
De Jager has advocated:
… aggressive, automatic sanctions for those that break debt and deficit rules and a budget tsar with the power to withdraw EU subsidies and force countries to raise taxes.
The Dutch Europe Minister is also part of the Dutch austerity chorus and was quoted as saying:
Some people might say our focus is too much long term, but the market looks at future risks and prices it in … It is imperative to get a grip on enforcement of budget discipline rules. We should never have a repeat of any country, big or small, flouting the rules.
The Dutch are unhappy with the current SGP rules (“penalties for those that run deficits of more than 3 percent and have debts greater than 60 percent of GDP”).
They are fierce advocates of the fiscal compact (balanced budgets) and want harsh penalties for breaches.
So I suppose Meneer De Jager will be getting the cheque book out as I type and start signing the cheque to send to Brussels for being serial offenders with respect to the current fiscal rules. He will presumably also be ringing the Dutch mint and getting them to start the guilder printing presses again given that the Netherlands, using their own logic will have to exit the Eurozone.
The Dutch economic advisory bureau – the Central Planning Bureau – has just published its updated – Main Economic Indicators 2011-2015 in the light of its slowing economy.
The revised forecasts are not pretty.
The CPB say that the Dutch economy is now likely to worsen on their most recent forecast (December 2011) “mainly due to the unfavourable economic developments … a decrease of consumer spending levels, most likely due to lower consumer confidence levels, deteriorated (pension fund) wealth and decreasing housing prices”.
The failing economy will impact on the forecast budget deficit as a result of operation of the automatic stabilisers. The CPB forecasts for the budget deficit and public debt (as a percentage of GDP) for the period 2012-2015 are shown in the following graphs.
The first graph shows the budget deficit forecasts. Now a little bit of interactive time. Locate -3 on the vertical axis of the first graph and trace it across the bars.
Research task 1: See if you can find any bar over the forecast period that is lower than the traced out line in the graph.
The second graph shows the public debt ratio forecasts. Now locate +60 on the vertical axis of the second graph and trace it across the bars.
Research task 2: See if you can find any bar over the forecast period that is lower than your traced out line in the graph.
The CPB says that:
The forecasted budget deficit in 2013 is 4.5 percent. This means that the EMU-ceiling of 3 percent budget deficit will be passed by 9 billion euros. Should public policies remain unchanged the deficit will be 4.1 percent in 2014 and 3.3 percent in 2015. Unemployment increases to 6 percent in 2013, which amounts to 545.000 persons.
So not only will the Dutch economy violate the SGP rules as they presently are, but they have no hope within the next three years at least of getting close to the fiscal compact rule that they have been vehemently promoting.
And in the meantime, unemployment will rise.
Pity the Dutch population, if the Finance Minister starts to practice what he so fervently preaches.
This, of-course, is part of the spreading crisis which is seeing recession hit the European strongholds of Germany and the Netherlands. It demonstrates the failure of the leaders to both understand what the problem is and to implement a satisfactory solution. The second follows the first.”