EU DEBT CRISIS - WILL HOLLAND BE NEXT IN LINE TO FAIL?

 

 

Yesterday's euphoria of Holland's first King in one hundred years (King Alex, pictured), has given way to a hangover in the cold hard light of today.

The Dutch Government is committed to a further €4.3bn in budget austerity to meet EU deficit targets but has attracted harsh criticism from Holland's Bureau for Economic Policy Analysis (CPB), which said Dutch leaders did not seem to understand how private credit busts interact with fiscal cuts to create havoc.

The Bureau says that the Dutch government is not acknowledging the damage done by austerity.

Yet this is not just a case of botched fiscal policy, the CPB says. It is a case of misaligned monetary policy. Holland has been a rich sophisticated economy caught in a post-bubble crunch, having lost control of its currency and central bank and monetary levers. This would have happened to Britain without the Bank of England, and the US without the Fed.

The Dutch crisis has crept up quietly. Most people used to place Holland in with Germany, Finland and Austria, the hardline AAAs who dictate terms.

Unemployment was very low until the dam broke. It is now soaring as fast as in Cyprus. The rate has doubled over the past two years, jumping from 7.7pc to 8.1pc in the single month of March.

The economy has been in recession since early 2011.

Holland's Liberal Prime Minister Mark Rutte now says that austerity will be reigned in to stimulate growth.

That move is likely to anger Germany's Angela Merkel, who has hailed austerity measures as the solution to a financial crisis that left the fate of the euro hanging in the balance. Bailouts for Greece, Ireland, Portugal and now Cyprus have all been agreed in return for massive cuts.

Last month Holland announced it would slash its 2014 budget by a further €4.3bn to respect a 3pc of GDP European Union deficit limit.

Mr Rutte said that commitment would be re-evaluated in September to decide if the austerity measures should in fact be implemented, in part or in whole.

"When we finalise the 2014 budget in September, the government will evaluate whether economic growth will be sufficient, not to have to apply extra austerity measures," he said in a statement.

Mr Rutte's announcement follows an agreement with social partners, including unions, which includes postponing a planned reduction in the amount and duration of unemployment benefits until 2016.

Holland is one of just four eurozone countries still to have a triple-A rating from the three major agencies.