Given the latest assessment by the Bureau for Economic Policy that the Dutch economy will shrink by 3.5 percent in 2009, Finance Minister Wouter Bos says the budget deficit is set to rise to 5.5 percent in 2010. This is not only well above the two percent limit agreed by the three ruling parties in the coalition agreement, it also breaches the agreed limit of three percent for countries in the euro zone.

The junior partners in the coalition, the Labour Party and Christian Union, had already been arguing that a relaxation of the budget deficit rules was unavoidable. The Christian Democrats maintained that the government should stick to the target and make the necessary budget cuts to meet it. However, the leader of the Christian Democrats in parliament, Pieter van Geel, now says the damage to the economy would be too great if the deficit were held below the two percent maximum.

Slump in world trade
Until recently the government was stressing that the Netherlands was entering the economic slow-down from a position of strength, with a one percent budget surplus. However, as a trading nation the country's economy is being hard hit by the dramatic slump in world trade. Unemployment is set to rise to 425,000 in 2009, and 675,000 the following year.

The opposition is split over the best way to tackle the crisis. The parties on the left, Green Left and the Socialist Party, would rather see a larger budget deficit than sweeping cuts in benefits and subsidies. On the right, the conservative VVD party and the populist Freedom Party would prefer to see cuts in areas like development aid and free school books.

 French Finance Minister Christine Lagarde speaks with Dutch Finance Minister Wouter Bos (R) prior to an Economic and Finance Meeting(ECOFIN) on February 12, 2008 in Brussels. German Finance Minister Peer Steinbrueck insisted today that France was still bound to respect a 2010 target for balancing its budget, although Paris has said it was unlikely to be able do so.

The employers' association VNO-NCW would like to see all government expenditure frozen, including benefits. It is also calling for a national agreement on pay restraint. Meanwhile, the trade unions have called on the government to invest seven billion euros in the economy.

Spending power remains steady
Despite the shrinking economy, consumer spending power is set to remain steady in the coming year, as prices on world markets fall. Nevertheless, a poll by leading Dutch research bureau peil.nl found that the Dutch are increasingly pessimistic about the country's economic prospects. A growing number of people expect to see their own income drop, and confidence in the government's ability to cope with the crisis is dwindling.

The Bureau for Economic Policy is presently hard at work on its Central Economic Plan, due for release on 17 March. The bureau is keen to stress that between now and then the economic expectations for the coming years may have to be adjusted again. So we may see a brighter flicker of light at the end of the tunnel or more doom-laden economic headlines in a month's time.

Michael Blass
Radio Netherlands