So long seen as one of Germany’s staunchest allies in the fight for fiscal responsibility, the Netherlands is now really struggling to deliver the austerity demanded by Europe’s new fiscal compact. Yesterday’s resignation by Prime Minister Mark Rutte complicates the budget process still further. It turns out that, in his new caretaker role, Rutte and his Finance Minister Jan Kees de Jager will now present a package of measures designed to reduce the budget deficit to under 3% (from 4.7% last year), although obtaining parliamentary approval for this will now be even more challenging.
With the Dutch economy in recession, it is no surprise that these enormous political obstacles have appeared. Consumers in Holland have their hands firmly glued to the inside of their collective pockets in response to falling take-home pay – real household disposable income dropped in 2011 for the fourth year running. Unemployment has jumped over the past year, to 6.1% last month from 5.3% a year earlier. House prices continue to decline, down another 5% in the year to March. Dutch businesses are hesitant, with new orders down sharply last month, especially domestically-based orders.
Against this highly-charged backdrop, achieving a political consensus on budget cuts has been understandably problematic. Dutch politicians will need to show the courage and fortitude they have demanded of their European brethren to avoid incurring the wrath of the fiscal overlords in Brussels.