(2)The 2020 country report for the Netherlands was published on 26 February 2020. It assessed the Netherland’s progress in addressing the country-specific recommendations adopted by the Council on 9 July 2019, the follow-up given to the recommendations adopted in previous years and the Netherlands progress towards its national Europe 2020 targets. It also included an in-depth review under Article 5 of Regulation (EU) No 1176/2011, the results of which were also published on 26 February 2020. The Commission’s analysis led it to conclude that the Netherlands is experiencing macroeconomic imbalances. In particular, the high stock of private debt and the large current account surplus are sources of imbalances and have cross-border relevance.

(1)On 17 December 2019, the Commission adopted the Annual Sustainable Growth Strategy, marking the start of the 2020 European Semester for economic policy coordination. It took due account of the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. On 17 December 2019, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified the Netherlands as one of the Member States for which an in-depth review would be carried out. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area.

(3)On 11 March 2020, the World Health Organization officially declared the COVID-19 outbreak a global pandemic. It is a severe public health emergency for citizens, societies and economies. It is putting national health systems under severe strain, disrupting global supply chains, causing volatility in financial markets, triggering consumer demand shocks and having negative effects across various sectors. It is threatening people’s jobs, their incomes and companies’ business. It has delivered a major economic shock that is already having serious repercussions in the European Union. On 13 March 2020, the Commission adopted a Communication calling for a coordinated economic response to the crisis, involving all actors at national and Union level.

(4)Several Member States have declared a state of emergency or introduced emergency measures. Any emergency measures should be strictly proportionate, necessary, limited in time, and in line with European and international standards. They should be subject to democratic oversight and independent judicial review.

(5)On 20 March 2020, the Commission adopted a Communication on the activation of the general escape clause of the Stability and Growth Pact. The clause, as set out in Articles 5(1), 6(3), 9(1) and 10(3) of Regulation (EC) 1466/97 and Articles 3(5) and 5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe economic downturn. In its Communication, the Commission shared with the Council its view that, given the expected severe economic downturn resulting from the COVID-19 outbreak, the current conditions permit activation of the clause. On 23 March 2020, the Ministers of Finance of the Member States agreed with the assessment of the Commission. The activation of the general escape clause allows for a temporary departure from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term. For the corrective arm, the Council may also decide, on a recommendation from the Commission, to adopt a revised fiscal trajectory. The general escape clause does not suspend the procedures of the Stability and Growth Pact. It allows Member States to depart from the budgetary requirements that would normally apply while enabling the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Pact.

(6)Continued action is required to limit and control the spread of the pandemic, strengthen the resilience of the national health systems, mitigate the socio-economic consequences through supportive measures for business and households and to ensure adequate health and safety conditions at the workplace with a view to resuming economic activity. The Union should fully use the various tools at its disposal to support Member States’ efforts in those areas. In parallel, Member States and the Union should work together to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition and the digital transformation, and drawing all lessons from the crisis.

(7)The COVID-19 crisis has highlighted the flexibility that the single market offers to adapt to extraordinary situations. However, in order to ensure a swift and smooth transition to the recovery phase and the free movement of goods, services and workers, exceptional measures that prevent the single market from functioning normally must be removed as soon as they are no longer indispensable. The current crisis has shown the need for crisis preparedness plans in the health sector, which include in particular improved purchasing strategies, diversified supply chains and strategic reserves of essential supplies. They are key elements for developing broader crisis preparedness plans.

(8)The Union legislator has already amended the relevant legislative frameworks to allow Member States to mobilise all unused resources from the European Structural and Investment Funds so they can address the exceptional effects of the COVID-19 pandemic. Those amendments will provide additional flexibility, as well as simplified and streamlined procedures. To alleviate cash flow pressures, Member States can also benefit from a 100% co-financing rate from the Union budget in the 2020-2021 accounting year. the Netherlands is encouraged to make full use of those possibilities to help the individuals and sectors most affected by the challenges.

(9)On 28 April 2020, the Netherlands submitted its 2020 National Reform Programme and, on 29 April 2020, its 2020 Stability Programme. In order to take account of their interlinkages, the two programmes have been assessed at the same time.

(10)The Netherlands is currently in the preventive arm of the Stability and Growth Pact and subject to the debt rule.

(11)In its 2020 Stability Programme, the government plans the headline balance to deteriorate from a surplus of 1,7 % of GDP in 2019 to a surplus of 0,1 % of GDP in 2020. The surplus is projected to decline to 0,0% of GDP in 2023. After decreasing to 48,6% of GDP in 2019, the general government debt-to-GDP ratio is expected to decrease further to 46,3% in 2020 according to the 2020 Stability Programme. However, the macroeconomic scenario underpinning those budgetary projections no longer appears realistic and the Programme does not take into account a significant number of the measures announced by the Netherlands in response to the COVID-19 pandemic. The Spring Budget Memorandum contains an update of the budgetary projections. Based on the Memorandum, the government headline balance is planned to deteriorate to a deficit of 11,8 % of GDP in 2020 and the general government debt-to-GDP ratio is expected to increase to 65,2% in 2020. The macroeconomic and fiscal outlook is affected by high uncertainty due to the COVID-19 pandemic.

(12)In response to the COVID-19 pandemic, and as part of a coordinated Union approach, the Netherlands has adopted budgetary measures to increase the capacity of its health system, contain the pandemic, and provide relief to those individuals and sectors that have been particularly affected. According to the 2020 Stability Programme and the Spring Budget Memorandum, those budgetary measures amount to 2,7% of GDP. The measures include strengthening health care services, emergency aid for distressed sectors, income support to self-employed and employees. In addition, the Netherlands has announced measures that, while not having a direct budgetary impact, will contribute to support liquidity to businesses. Those measures include tax deferrals for corporate income taxes (4,6% to 5,9% of GDP) and loan guarantees (1,8% of GDP). Overall, the measures taken by the Netherlands are in line with the guidelines set out in the Commission Communication on a coordinated economic response to the COVID-19 outbreak. The full implementation of those measures, followed by a refocusing of fiscal policies towards achieving prudent medium-term fiscal positions when economic conditions allow, will contribute to preserving fiscal sustainability in the medium term.

(13)Based on the Commission 2020 spring forecast under unchanged policies, the Netherland’s general government budget balance is forecast at -6,3% of GDP in 2020 and -3,5% in 2021. The difference of 5,5 percentage points between the Spring Budget Memorandum forecast and that of the Commission is driven by a different accounting of the tax deferrals (4,6% to 5,9% of GDP), which in the Commission forecast are not booked as revenue-decreasing in 2020. General government debt is projected to reach 62,1% of GDP in 2020 and 57,6% in 2021.

(14)On 20 May 2020, the Commission issued a report prepared in accordance with Article 126(3) of the Treaty due to the Netherlands’ projected breach of the 3% of GDP deficit threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.

(15)After robust growth in recent years, the COVID-19 pandemic has put an abrupt end to six consecutive years of economic expansion in the Netherlands. This year, the Dutch economy is set to experience its sharpest contraction in the country’s post-war history. All demand components, except public consumption, are expected to decline sharply this year, with a projected trough in economic activity in the second quarter. In 2021, the economy will likely rebound at a rate well above trend growth, reflecting a gradual normalisation of economic activity and the recovery of domestic demand and global trade from a depressed level. However activity levels are expected to remain below those of 2019. According to the Commission forecast, unemployment is expected to increase to 5,9% in 2020, mainly due to mandated business closures and the abrupt overall decline in economic activity but then to recover to 5,3% in 2021. Employment protection measures, in particular the Temporary Emergency Bridging Measure for Sustained Employment and additional income support for the self-employed, should help dampen employment losses. Nevertheless, the deterioration of the labour market is expected to accelerate in the coming months as firms in heavily affected sectors inevitably shed labour, especially workers with flexible and temporary contracts.

(16). In response to the abrupt economic fallout and the evaporation of demand in specific sectors, the Dutch government has adopted a comprehensive package of emergency measures to help avoid structural damage to the economy. This strong policy response is aimed at the areas most affected by the crisis and focuses on employment protection and household purchasing power, direct financial compensation for severely hit industries, as well as tax deferral and loan guarantees to support the flow of credit to the private sector. It should thus prevent temporary liquidity problems from morphing into insolvency issues. Furthermore, automatic stabilisers should help dampen the depth of the downturn. The Dutch central bank has also reduced systemic capital buffers for the largest banks and is postponing a measure to introduce a risk weight floor for mortgages, thus freeing up bank capital and enabling banks to significantly expand lending to households and businesses.

(17)The Dutch health system is performing comparatively well in terms of contributing to the overall health of the population and ensuring the accessibility of health services. As part of the immediate response to the crisis, the Netherlands put in place a control strategy involving general public health measures and adopted tailored health financing measures. Nevertheless, the onset of the COVID-19 has tested the resilience of the health system. In this regard pre-existing concerns have come to the fore. The capacity of the workforce would benefit from tackling existing shortages, in particular of nurses and in primary healthcare. The overall governance of the health systems and their capacity to ensure integrated service delivery across the care continuum could be improved by further strengthening data governance and scaling up the deployment of eHealth tools. The COVID-19 outbreak has therefore highlighted the need to continue to improve the resilience and the crisis preparedness of the health system by addressing such structural challenges.

(18)While in 2019 and in early 2020 the labour market continued to improve and performed well overall, the COVID-19 crisis has reduced economic growth and is expected to lead to a considerable increase in unemployment. A series of unprecedented economic measures were taken to protect people’s jobs and livelihoods and to minimise the impact on self-employed people, small and medium-sized enterprises and major companies. To preserve employment, employers expecting to lose at least 20 per cent of their revenue due to the crisis, can apply for an allowance (up to 90 per cent of the company's wage bill, depending on the loss of turnover) that will enable them to pay their employees' wages for three months. The self-employed will have recourse to an expedited procedure allowing them to apply for additional income support up to the amount of the social minimum wage, which will help them pay their costs of living for a three-month period.

(19)Mitigating the employment and social impact of the crisis for those hardest hit should be part of the recovery strategy. Despite the package of measures taken to preserve employment, people in a less favourable labour market position and/or vulnerable social situation have been hit harder. Unemployment increased, in particular for people working on flexible contracts, such as the young, temporary agency workers and people with migrant background. The COVID-19 crisis also highlighted significant challenges in terms of access to adequate social protection for the self-employed that are more often underinsured (or not insured at all) against sickness, disability, unemployment and old age.

(20)Liquidity support to businesses through loans and guarantees, with a focus on small and medium-sized enterprises, has been of utmost importance. The distribution of liquidity support to firms must be effectively and swiftly implemented by intermediaries while sustaining their resilience. Allowing the deferred payments of taxes and social contributions and speeding up contractual payments by public authorities can further help improve the cash-flow of small and medium-sized enterprises. Newly-founded start-ups and scale-ups may need specific support, e.g. in the form of equity stakes by public institutions and incentives for venture capital funds to increase their investments in these firms. This may help avoid fire sales of strategically important European firms. As allowed and within the conditions set out in the temporary State aid framework, equity or quasi-equity support should be ensured for all undertakings and not only for those who meet the Commission’s definition of small and medium-sized enterprises. Efforts should also be maintained to offer access and efficient digital public services for individuals and businesses.

(21)To foster the economic recovery, it will be important to front-load mature public investment projects and promote private investment, including through relevant reforms. Targeted policy action, including investment in sectors with the strongest prospects to raise potential growth for the wider economy, can help to tackle the challenges accelerated by the recent crisis. In particular, investments in R&D embedded in the ‘mission-driven top sectors and innovation policy as well as human capital can help support long-term productivity growth and maintain a strong innovation capacity. This is notably the case for start-ups, scale-ups and innovative SMEs that are crucial to enhance competitiveness and job creation. Investment in initiatives from the Netherland’s Climate Agreement and National Energy and Climate Plan to address climate change and promote the energy transition can make a key contribution to wider societal goals, including the need to ensure sustainable and resource-efficient economic growth. Furthermore, although the Netherlands is a frontrunner in decarbonising its transport sector, the use of renewable energy in transport is below the EU average. Finally, investment in new housing is needed to alleviate the current housing shortage. The programming of the Just Transition Fund for the period 2021-2027 could help the Netherlands to address some of the challenges posed by the transition to a climate neutral economy, in particular in the territories covered by Annex D to the country report. This would allow the Netherlands to make the best use of that fund.

(22)Technical and digital skills and qualified professionals are crucial for the Dutch economy's capacity to innovate and for sustainable and inclusive productivity growth. Investment in basic and/or digital skills, education and training, including upskilling and reskilling opportunities for all, also remains crucial to improving access to the labour market in particular to strengthen the employability of those at the margins of the labour market (including people with a migrant background and people with disabilities), while fostering equal opportunities and active inclusion.