Budget battle looms in Holland over extra cuts

19 February 2004

AMSTERDAM — Despite signs of an improving economy, the three Dutch coalition Cabinet parties are locked in a conflict over possible extra budget cuts to stave off a threatened breach of the Eurozone Stability Pact.

The government’s macroeconomic think tank, the Central Planning Bureau (CPB), recently warned that the budget might hit 3.3 percent of Gross Domestic Product (GDP) this year, breaching the pact designed to maintain the stability of the euro currency.

A budget deficit above 3 percent will cause a major embarrassment for the Netherlands as Dutch Finance Minister Gerrit Zalm lost a battle last year to penalise Germany and France for breaches of the pact.

Zalm’s Liberal VVD is therefore keen to implement further economising, but the Christian Democrat CDA of Prime Minister Jan Peter Balkenende has warned that the elastic is already tightly stretched.

And during an emergency debate on Wednesday in the Lower House of Parliament, the Tweede Kamer, smaller coalition member D66 urged for caution to prevent ruining the economy and society.

The budget cuts could occur as early as the spring, but the CDA and D66 have warned against cuts in sectors such as social security, which has already been forced to absorb large economising measures. MPs are concerned that low income earners will be financially hurt again.

All three coalition parties said they felt bound to the government accord which specified that the budget deficit will not breach the critical 3 percent limit.

The government has already cut EUR 5.7 billion from the budget to achieve a 2.5 percent deficit in 2004. It plans to slash EUR 17 billion from spending by 2007 to achieve a deficit of about in that year of 0.5 percent.

The economy pulled itself out of a nine-month recession in the third quarter of 2003 and recorded 0.3 percent GDP growth in the fourth quarter. Despite the recovery, the economy contracted 0.8 percent for the full 12 months of 2003.

Zalm has indicated he does not intend to make further budget cuts to achieve the forecast 2.5 percent deficit and is not keen to exceed more than the minimum EUR 1.5 billion needed in extra cuts to stay under the 3 percent limit. The Finance Ministry is to re-examine the figures before a final decision is taken.

Subject: Dutch news