|Euro Stress Crosses Border Into Netherlands. seldom on anybody’s watch list. Until now. facing a crisis that could have tarnished the country’s sparkling credit rating, a caretaker government maneuvered to pass a 14 billion euro ($18.5 billion) plan for spending cuts and tax increases. But political leaders acknowledge that the belt-tightening will further retard an economy already in recession. |
Euro Stress Crosses Border Into Netherlands.
By LIZ ALDERMAN Published: May 1, 2012
AMSTERDAM — Of all the people rocked by the debt and austerity tumult rattling Europe, the famously prudent but prosperous Dutch were seldom on anybody’s watch list. Until now.
This bastion of probity became a flash point of euro zone turmoil last week, when the government fell in a showdown over how to cut the budget to keep the nation from getting caught in Europe’s long-running debt crisis. The drama focused fears in other European capitals that austerity, rather than helping to put countries back on their feet, will impede growth and make it harder for them to recover.
It is the Netherlands’ toughest test of economic resolve since the nation became a founding member of the euro currency union in 1999. Last week, facing a crisis that could have tarnished the country’s sparkling credit rating, a caretaker government maneuvered to pass a 14 billion euro ($18.5 billion) plan for spending cuts and tax increases. But political leaders acknowledge that the belt-tightening will further retard an economy already in recession.
Rather than protesting in the streets, though, as the people of Greece, Spain and Italy have done, many Dutch are facing hard times with characteristically grim determination.
“This country has always paid its debts, and the government needed to press ahead with austerity to bring our finances under control,” said Ellen Bijl, a sales clerk at a boutique of Montblanc pens and other fine writing instruments on Kalverstraat, Amsterdam’s busiest shopping street.
“People are afraid for the future,” she said, gesturing toward the 50-percent-off stickers throughout the shop that are aimed at increasingly wary consumers. “But it’s better to get it over with quickly and move on.”
Ms. Bijl speaks from experience. For 20 years, she lived as an expatriate running her own small business in Greece, before its economic collapse sent her scurrying back to her homeland two years ago to seek financial security.
Along with Germany, the Netherlands been one of the sternest voices insisting on fiscal rectitude for the rest of the euro zone. Until recently it has profited greatly from being a member of the 17 European Union nations that use the euro, which has created an essentially borderless European market and enabled the Dutch to price their goods and services more cheaply than when they had their own strong currency.
Despite its tiny size and population of only 16.6 million people, the Netherlands has always punched above its weight, as a global leader in trade with a core of industrial giants like Unilever, Philips, Heineken and Shell.
These strengths have turned the Dutch economy into the world’s seventh largest by gross domestic product, and given the Netherlands a coveted spot in the small club of wealthy northern-tier euro zone countries that have retained their top-notch, AAA credit ratings, alongside Germany, Finland and Luxembourg.
But the Netherlands recently slipped into its second recession in three years as the euro crisis weakened the nations around it. Eighty-five percent of the country’s 509 billion euro economy consists of exports sent mostly to Europe, where trade has cooled. An hour south of Amsterdam, at the port of Rotterdam, Europe’s largest, shipping activity is expected to be flat this year.
The heads of the biggest Dutch companies recently signed a joint letter imploring European leaders to “act decisively and creatively” to resolve the region’s debt crisis, now in its third year.
Some companies say austerity measures around the region have made matters worse. In its recently issued annual report for 2011, Unilever, the consumer products giant whose brands include Dove soap and Lipton teas, cited government cutbacks, falling income and rising unemployment as reasons for an erosion in consumer spending.
Still, many Dutch executives see the new budget measures at home as necessary for repairing the nation’s finances and returning the country to growth as quickly as possible.
“This political impasse was very negative for the Netherlands, Dutch industry and Dutch citizens,” Frans van Houten, chief executive of the electronics company Philips, said through a spokesman. “We now need to see that this agreement is executed.”
Austerity comes to the nation at a delicate time, though. Dutch unemployment crept to 5.9 percent in the fourth quarter. While that is still one of the lowest rates in the euro zone today, jobs are getting harder to come by, especially for the young.
“People are talking about a new lost generation of young people in the Netherlands,” Suzanne, 27, a jobs recruiter who would only give her first name, said as she prepared to join a throng of bike-riders near Amsterdam’s outdoor flower market. “You want a job, but because of the crisis, there is no work.”
Piet Van Diepen, a spokesman for Foodbank Amsterdam, said there had been “explosive growth” in the numbers of people using food banks since January. “People coming here have spent through their savings, and now they have debts, so there’s not much food in the fridge,” he said.
To add to the trouble, the Dutch property market is in a slump that has depressed prices and pushed unsold inventory to levels more typical of those along Europe’s poorer southern nations.
Dutch households on average now owe nearly 2.5 times their annual income — the highest level in the euro zone and up from 1.4 times in 1999. And they owe more on mortgages than the total size of the nation’s economy. That could spell trouble for the Netherlands’ already vulnerable banking sector, rocked by a 32 billion euro government bailout of the troubled Dutch financial giant ABN Amro.
Dutch consumers had already started to tighten up on spending. But they are cinching their purse strings even more amid concerns over cutbacks in public funding, new taxes and an extension of the retirement age to 67 from 65 to grapple with a ballooning bill for pensions.
The Netherlands’ national debt, at 65.2 percent of G.D.P., is considerably below that of France (85.8 percent) and even Germany (82.1), according to the European statistics agency Eurostat.
But the Dutch budget deficit, at 4.6 percent of G.D.P., is well above the 3 percent limit required by the European Union, and the recession is making it ever harder to pay down bills.
Faced with violating the euro zone’s deficit rule, the finance minister, Jan Kees de Jager, pushed through the compromise budget package last week in the nation’s fractured Parliament. That calmed the chaos that erupted just days earlier, when Prime Minister Mark Rutte resigned after the populist Freedom Party leader, Geert Wilders, rejected the austerity measure as one that would hit the most vulnerable in society.
Mr. Wilders was ultimately marginalized, and the Dutch have handed their budget blueprint to the European Commission for inspection. But Mr. Wilders’s revolt was a reminder of the appeal that far-right politicians are gaining across the euro zone in the backlash against austerity, which is increasingly tinged with anti-immigrant sentiment.
Clinching an 11th-hour budget deal was typical in a Dutch culture of compromise that dates back centuries, when opposing factions had to work together to prevent flooding of their lowlands. “Our tradition is to repair things as soon as possible,” said Bernard Wientjes, the head of the main Dutch employers’ association, VNO-NCW.
“We are accepting a little pain,” he said, “but in the end, it will be better for the country.”
Not everyone agrees. “The medicine — fiscal austerity everywhere — only makes the patient more ill,” said Bas Jacobs, professor of economics and public finance at Erasmus University in Rotterdam.
At a large outdoor market on Albert Cuyp Street, merchants said the slowdown had already led shoppers to buy cheaper fish and other goods. Many worried that more fiscal belt-tightening could make matters worse.
“When you cut too much it doesn’t help the economy, but it hurts growth,” said Sharon Drieman, as she waited on customers sampling olives, cheeses and meats at the fine-foods stand she runs with her husband.
The austerity debate has riveted Ms. Bijl, the pen shop clerk, considering what happened in Greece. After lecturing the rest of the euro zone, the Dutch government needs to get its own finances in order, she conceded. But she worries that the Netherlands could find itself on the same slippery slope as Greece.
For two decades, Ms. Bijl and her Greek husband lived near Athens in a comfortable home, raised two children and put them through college. Then the Greek crisis hit.
“We thought we’d worked so hard and made it,” she said wistfully. “I returned to Holland, thinking that one of Europe’s strongest economies would be a safe haven. But it’s been hard to start all over here.”
It took her several months to find a make-do job at P. W. Akkerman, a luxury pen retailer that has been in business since 1927. But with customers thinking twice these days about expensive trinkets, she is helping her boss prepare to vacate the shop and consolidate it with a sister store in a less expensive part of town.
“People are scared,” Ms. Bijl said. “Everyone is wondering what will happen next.”