The Dutch will miss targets in 2013 but refuse to institute more austerity

Well, well, well, it seems we have a problem in Euroland. The Dutch have now confirmed what I have been saying all along: they have run into so many fiscal problems that they will need to relax their targets instead of doubling down on austerity. This is going to have far-reaching consequences.

The Netherlands confirmed it won’t seek extra austerity measures this year to meet European Union budget targets, making it more likely that it won’t meet its commitment to cut its budget deficit to less than 3% of annual output.

Presenting a package that would add austerity measures beginning in 2014, Dutch Prime Minister Mark Rutte said Friday he would combine extra cutbacks next year with economic stimulus measures, as he seeks to revive a sluggish economy. “The Dutch economy needs to be pulled out of the crisis,” he told a news conference in The Hague.

The Netherlands remains committed to the budget rules, said Mr. Rutte, adding that he hopes the European Commission, the EU’s executive arm, will allow it more breathing room.

Mr. Rutte’s comments came one day after the Dutch government’s budget watchdog said the country’s deficit will continue to breach the EU limit in 2013 and 2014, despite a package of sweeping austerity measures already under way.

The statements come amid widespread questions over whether the euro zone’s focus on austerity is the right prescription for its economic ailments. The focus on austerity is coming under more intense scrutiny even in the Netherlands, one of the bloc’s more robust members, as the economy struggles to deal with high levels of private debt in the aftermath of a property boom.

There is no way that the Dutch can openly flout targets this way without Spain and France (and Italy and Portugal) being allowed to do so as their economies and job markets are much worse than the Dutch. And Rajoy and Hollande have publicly requested their targets be relaxed while Rutte goes ahead and just does it unilaterally (see here in Spanish on Hollande: Francia pide relajar los objetivos de déficit y reclama estímulos a Alemania | Economía | EL PAÍS). Olli Rehn has said Spain’s targets were likely to be relaxed. Now that the Dutch have unilaterally decided to relax their targets, this is almost sure to happen. And note that it was exactly one year ago today that the Spanish made the unilateral decision to raise their deficit target. And that is what prompted a renewed crisis in the eurozone which made OMT inevitable.

Europe is in big trouble.

Source : The Wall Street Journal