Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of the Netherlandsand delivering a Council opinionon the updated Stability Programme of the Netherlands 2011-2015
Date: 2011-06-07
Institutions: European Commission
Subjects: Netherlands, budget deficit, economic policy, employment policy, innovation, pension scheme, population ageing, social rights

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 813 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of the Netherlands 

and delivering a Council opinion 

on the updated Stability Programme of the Netherlands 2011-2015 

{SEC(2011) 727 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of the Netherlands 

and delivering a Council opinion 

on the updated Stability Programme of the Netherlands 2011-2015 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(3) thereof, 

Having regard to the recommendation of the European Commission2, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission’s 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and, on 21 
October  2010,  adopted  a  decision  on  guidelines  for  the  employment  policies  of  the 
Member States3, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

1 
2 
3 

OJ L 209, 2.8.1997, p. 1. 
OJ C , p. . 
Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On  12  January  2011,  the  Commission  adopted  the  first  Annual  Growth  Survey, 
marking  the  start  of  a  new  cycle  of  economic  governance  in  the  EU  and  the  first 
‘European semester’ of ex-ante and integrated policy coordination, which is anchored 
in the Europe 2020 strategy.  

On  25  March  2011,  the  European  Council  endorsed  the  priorities  for  fiscal 
consolidation  and  structural  reform  (in  line  with  the  Council’s  conclusions  of  15 
February and 7 March 2011 and further to the Commission’s Annual Growth Survey). 
It  underscored  the  need  to  give  priority  to  restoring  sound  budgets  and  fiscal 
sustainability,  reducing  unemployment  through  labour  market  reforms  and  making 
new efforts to enhance growth. It requested Member States to translate these priorities 
into  concrete measures to be included  in their Stability or Convergence Programmes 
and National Reform Programmes.  

On 25 March 2011, the European Council also invited the Member States participating 
in  the  Euro  Plus  Pact  to  present  their  commitments  in  time  to  be  included  in  their 
Stability or Convergence Programmes and their National Reform Programmes. 

On  29  April  2011,  the  Netherlands  submitted  its  2011  Stability  Programme  update 
covering  the  period  2011-2015  as  well  as  its  2011  National  Reform  Programme.  In 
order to take account of the interlinkages, the two programmes have been assessed at 
the same time. 

In  spite  of  a  previously  robust  performance,  as  the  crisis  unfolded,  the  very  open 
Dutch  economy  suffered  significantly:  real  GDP  contracted  by  almost  4%  in  2009. 
The recovery started in the second half of 2009, led by a pick-up in external demand, 
and gained  momentum in the first half of 2010, resulting in a  GDP  growth of  1.8%. 
The impact of the crisis on the labour market was relatively contained. Unemployment 
is expected to decrease gradually over the next two years from 4.5% in 2010 to 4% in 
2012. The crisis impacted Dutch public finances heavily, with the general government 
deficit  rising  to  5.5%  of  GDP  in  2009  and  5.4%  in  2010.  Government  operations  to 
support financial institutions and stabilise the financial markets entailed an increase in 
the  government  debt  ratio  by  15  percentage  points  of  GDP,  with  the  debt  ratio 
reaching 60.8% of GDP in 2009. 

Based  on  the  assessment  of  the  updated  Stability  Programme  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario underpinning the budgetary projections presented in the Stability Programme 
is plausible. The programme is based on slightly more prudent growth projections for 
2011  and  2012  than  the  Commission  services’  Spring  2011  Forecast.  The  Stability 
Programme  plans  to  reduce  the  general  government  deficit  below  the  3%  reference 
value  in  2012,  which  would  be  one  year  ahead  of  the  deadline  set  by  the  excessive 
deficit procedure. Based on the figures in the Stability Programme, the medium-term 
objective (MTO), a structural deficit of 0.5% of GDP, will be almost achieved by the 
end of the programme period, as the structural balance calculated by the Commission 
comes out at -0.8% of GDP in 2015. The budgetary strategy is fully underpinned by 
sufficiently specified measures up to 2015, though their implementation is subject to 
some  risks,  mainly  with  respect  to  the  ability  to  offset  health  care  overruns  and  to 
monitor  local  government  expenditure.  The  average  annual  fiscal  effort  is  0.75%  of 
GDP over the period 2011-2013, in compliance with the Council Recommendation of 
2 December 2009 under the EDP procedure. For the years following the deadline for 

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correcting  the  excessive  deficit  (2014  and  2015),  the  recalculated  structural  balance 
improves  by  0.25%  in  2014  and  0.5%  in  2015,  thereby  slightly  falling  short  of  the 
required 0.5% improvement in the structural balance until the MTO is reached. 

(9) 

The  budgetary  consolidation  planned  and  implemented  by  the  Dutch  authorities 
strongly relies on largely structural expenditure cutbacks, amounting to approximately 
3% of GDP by the end of the programme period (2015) compared to the baseline. The 
resulting adjustment path envisages a reduction in the general government deficit from 
3.8%  of  GDP  in  2011  to  2.4%  of  GDP  in  2012,  falling  further  in  annual  steps  of 
around  0.5%  in  the  period  2013-2015.  The  Netherlands  is  firmly  committed  to 
reaching those targets. Safeguarding growth-enhancing policy areas such as education 
from budgetary cuts would avoid hampering the future potential for economic growth, 
and contribute to achieving a sustainable correction to the excessive deficit. 

(10)  Besides  short-term  consolidation,  one  of  the  main  challenges  is  improving  the  long-
term  sustainability  of  public  finances,  which  is  negatively  affected  by  the  strong 
increase in age-related expenditure. The long-term cost of ageing is clearly above the 
EU  average,  notably  in  long-term  care  and  pensions.  The  expected  increase  in  long-
term  care  expenditure  is  the  highest  in  Europe,  as  shown  in  the  Commission’s  2009 
Ageing Report. The main reason for this is the existence of an already comprehensive 
system  of  formal  long-term  care  (e.g.  public  long-term  insurance  covering  personal 
care,  nursing,  assistance,  treatment  and  stay  in  an  institution),  while  informal  care 
plays a more limited role in the Netherlands. 

(11)  The  Dutch  labour  market  is  characterised  by  relatively  high  participation  rates,  high 
productivity  per  hour  worked  and  low  unemployment.  However,  the  main  challenge 
for the labour market will be to increase the utilisation of untapped labour potential, in 
particular to compensate for the expected decrease in the working age population as a 
result of ageing. The average amount of hours worked per year is the lowest in the EU, 
as  confirmed  by  the  latest  available  data.  The  low  number  of  hours  worked  results 
from the very large share of people working part-time, particularly women, reflecting 
personal preferences but also the existence of financial disincentives for either entering 
the  labour  market  or  for  extending  the  hours  worked.  Currently,  one  of  the  main 
disincentives  for  second-income  earners  to  enter  the  labour  market  or  to  work  more 
hours in the Netherlands is the high marginal tax rate on second incomes, which can in 
some cases turn out to be above 80 %, as a result of inter alia the general tax credit and 
the reduction in income-dependent benefits such as childcare subsidy.  

(12)  For an increasing and heterogeneous group of partly disabled, long-term unemployed 
who  face  a  growing  risk  of  structural  unemployment,  the  implementation  of  active 
labour market policies has apparently not produced positive results. Non-EU nationals 
are experiencing particular difficulties, thereby amplifying the persistent employment 
and unemployment gaps.  

(13)  The  Dutch  research  and  innovation  (R&I)  system  has  succeeded  in  maintaining  its 
innovative  capacity,  but  the  low  share  of  the  private  sector  in  research  and 
development (R&D) investment may negatively affect future economic growth and the 
competitiveness  of  the  Dutch  economy.  The  government  aims  to  create  an  attractive 
climate  for  R&I-intensive  firms,  including  firms  from  abroad,  in  terms  of  fiscal 
incentives,  space  for  entrepreneurs  and  excellence  of  research.  Due  to  the  need  for 
budgetary consolidation this year, some subsidies for companies may, however, not be 

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continued while others will be streamlined and targeted towards ‘top economic areas’ 
and shifted to more generic tax instruments. 

(14)  The business environment is negatively affected by the congestion levels in road and 
rail transport. These congestion levels are among the highest in the EU. In this context, 
a  relatively  inefficient  transport  infrastructure  negatively  affects  labour  mobility  and 
thus  potential  growth  through  productivity.  Workers  are  faced  with  long  commutes, 
unreliable travel times and high congestion costs. The latter are expected to increase 
further until 2020 in the absence of policy changes. Improvements in the efficient use 
of  infrastructure,  for  example  through  road  pricing  measures,  would  contribute  to 
increasing labour mobility and productivity and thus to potential growth.  

(15)  On  4  April  2011,  the  Netherlands  announced  a  number  of  commitments  under  the 
Euro Plus Pact4. These include measures to foster competitiveness (introduction of a 
new business policy based on more generic reductions in taxation and administrative 
burdens)  and  employment  (making  social  security  more  activating  and  reducing 
dependence  on  unemployment  benefits),  to  contribute  further  to  the  sustainability  of 
public  finances  (anchoring  the  stability  and  growth  pact  in  national  law)  and  to 
reinforce  financial  stability  (more  power 
institutions).  These 
commitments  refer  to  all  areas  of  the  Pact.  They  represent  a  continuation  of  the 
broader  reform  agenda  outlined  in  the  Stability  and  National  Reform  Programmes. 
However, there is a lack of detail in terms of their timing and the measures that will be 
needed  to  implement  them.  These  commitments  have  been  assessed  and  taken  into 
account in the recommendations. 

to  supervisory 

(16)  The  Commission  has  assessed  the  Stability  Programme  and  National  Reform 
Programme, including the Euro Plus Pact commitments5. It has taken into account not 
only  their  relevance  for  sustainable  fiscal  and  socio-economic  policy  in  the 
Netherlands but also their conformity with EU rules and guidance, given the need to 
reinforce the overall economic governance of the European Union by providing EU-
level  input  into  future  national  decisions.  It  considers  that  the  fully  specified  Dutch 
budgetary  consolidation  strategy  should  be  implemented  as  envisaged,  while 
preserving  expenditure  in  areas  most  conducive  to  long-term  growth.  Further  steps 
should be taken to improve the long-term sustainability of public finances, notably in 
the areas of pensions and long-term care, to increase labour market participation and 
integration, and to address the issues arising from transport congestion. 

(17) 

In the light of this assessment, also taking into account the Council Recommendation 
of  2  December  2009  under  Article  126(7)  of  the  Treaty  on  the  Functioning  of  the 
European  Union,  the  Council  has  examined  the  2011  update  of  the  Stability 
Programme  of  the  Netherlands  and  its  opinion6  is  reflected  in  particular  in  its 
recommendation under (1) and (2) below. Taking into account the European Council 
conclusions  of  25  March  2011,  the  Council  has  examined  the  National  Reform 
Programme of the Netherlands, 

4 
5 
6 

More details on the commitments made under the Euro Plus Pact can be found in SEC(2011) 727. 
SEC(2011) 727. 
Foreseen in Article 5(3) of Council Regulation (EC) No 1466/97. 

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HEREBY RECOMMENDS that the Netherlands should take action within the period 2011-
2012 to: 

(1) 

(2) 

(3) 

(4) 

(5) 

Implement the budgetary strategy for the year 2012 and beyond as envisaged. Ensure 
that  the  correction  of  the  excessive  deficit  is  sustainable  and  growth-friendly,  by 
protecting  expenditure  in  areas  directly  relevant  for  growth  such  as  research  and 
innovation, education and training.  

Take  measures  to  increase  the  statutory  retirement  age  by  linking  it  to  life 
expectancy, and underpin these measures with others to raise the effective retirement 
age  and  to  improve  the  long-term  sustainability  of  public  finances.  Prepare  a 
blueprint for reforming long-term care in view of an ageing population.  

Enhance  participation  in  the  labour  market  by  reducing  fiscal  disincentives  for 
second-income earners to work and draw up measures to support the most vulnerable 
groups and help them to re-integrate within the labour market.  

Promote  innovation,  private  R&D  investment  and  closer  science-business  links  by 
providing  suitable  incentives  in  the  context  of  the  new  enterprise  policy  (‘Naar  de 
top’).  

Continue to reduce the high congestion costs in transport networks by shifting from 
fixed to variable road transport charges, targeted expansion of the rail network and 
introducing road pricing.  

Done at Brussels, 

For the Council 
The President 

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