Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in the Netherlands
Date: 2013-05-29
Institutions: European Commission
Subjects: Netherlands, budget deficit, budgetary equilibrium, economic situation, medium-term forecast, stability pact

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 392 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to bringing an end to the situation of an excessive government deficit in the 
Netherlands 

{SWD(2013) 392 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to bringing an end to the situation of an excessive government deficit in the 
Netherlands 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(7) thereof, 

Having regard to the recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

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2 

According  to  Article  126  of  the  Treaty  on  the  Functioning  of  the  European  Union 
(TFEU) Member States shall avoid excessive government deficits. 

The Stability and Growth Pact is based on the objective of sound government finances 
as  a  means  of  strengthening  the  conditions  for  price  stability  and  for  strong 
sustainable growth conducive to employment creation. 

On 2 December 2009, the Council decided, in accordance with Article 126(6) TFEU, 
that  an  excessive  deficit  existed  in  the  Netherlands  and  issued  a  recommendation  to 
correct the excessive deficit by 2013 at the latest1, in accordance with Article 126(7) 
TFEU  and  Article  3  of  Council  Regulation  (EC)  No  1467/97  of  7  July  1997  on 
speeding up and clarifying the implementation of the excessive deficit procedure2. In 
order  to  bring  the  general  government  deficit  below  3%  of  GDP  in  a  credible  and 
sustainable manner, the Dutch authorities were recommended to implement the fiscal 
measures in 2010 as envisaged in the 2010 budget and, starting consolidation in 2011, 
put  an  end  to  the  excessive  deficit  situation  by  2013.  To  this  end,  they  were 
recommmended  to  ensure  an  average  annual  fiscal  effort  of  ¾%  of  GDP  over  the 
period 2011-2013, specify the measures that were necessary to achieve the correction 
of  the  excessive  deficit  by  2013,  cyclical  conditions  permitting  and  accelerate  the 
reduction  of  the  deficit  if  economic  or  budgetary  conditions  were  to  turn  out  better 
than  expected  at  that  time.  The  Council  established  a  deadline  of  2  June  2010  for 
effective action to be taken. 

On 15 June 2010, the Commission concluded that based on the Commission services' 
2010 Spring Forecast, the Netherlands had taken effective action in compliance with 
the  Council  recommendation  of  2  December  2009  to  bring  its  government  deficit 
below  the  3%  of  GDP  reference  value  and  considered  that  no  additional  step  in  the 
excessive deficit procedure was therefore necessary at that point in time.  

All  documents  related  to  the  excessive  deficit  procedure  of  The  Netherlands  can  be  found 
at:http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/netherlands_en.ht
m  
OJ L 209, 2.8.1997, p. 6 

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(5) 

(6) 

(7) 

(8) 

According to Article 3(5) of Regulation (EC) No 1467/97, the Council may decide, on 
a  recommendation  from  the  Commission,  to  adopt  a  revised  recommendation  under 
Article 126(7) of the TFEU, if effective action has been taken and unexpected adverse 
economic  events  with  major  unfavourable  consequences  for  government  finances 
occur  after  the  adoption  of  that  recommendation.  The  occurrence  of  unexpected 
adverse economic events with major unfavourable budgetary effects shall be assessed 
against the economic forecast underlying the Council recommendation. 

In accordance with Article 126(7) TFEU and Article 3 of Council Regulation (EC) No 
1467/97,  the  Council  is  required  to  make  recommendations  to  the  Member  State 
concerned  with  a  view  to  bringing  the  situation  of  an  excessive  deficit  to  an  end 
within a given period. The recommendation has to establish a maximum deadline of 
six months for effective action to be taken by the Member State concerned to correct 
the  excessive  deficit.  Furthermore,  in  a  recommendation  to  correct  an  excessive 
deficit the Council should request the achievement of annual budgetary targets which, 
on  the  basis  of  the  forecast  underpinning  the  recommendation,  are  consistent  with  a 
minimum  annual  improvement  in  the  structural  balance,  i.e.  the  cyclically-adjusted 
balance excluding one-off and other temporary measures, of at least 0.5% of GDP as a 
benchmark. 

The Commission services’ 2009 Autumn Forecast, which was underlying the Council 
recommendation under Article 126(7) TFEU of 2 December 2009, projected that the 
Dutch economy would contract by 4.5 % in 2009, followed by a modest recovery in 
2010 and 2011, with GDP growth of ¼% and 1½ % respectively. The years 2012 and 
2013  were  beyond  that  forecast's  horizon,  but  under  the  hypothesis  of  a  gradual 
closure  of  the  large  negative  output  gap  by  2015,  higher  growth  than  in  2011  was 
expected for 2012 and 2013. GDP growth in 2009 fell by 3.7%, less than expected in 
the Commission services' 2009 Autumn Forecast, and in 2010 the export-led recovery 
at  1.6%  was  stronger,  but  in  2011  economic  growth  slowed  to  1%  and  in  2012  the 
Dutch  economy  slipped  back  into  recession.  In  2011,  the  Netherlands  already 
recorded negative quarterly growth rates in all except the first quarter and in 2012, the 
Dutch  economy  contracted  by  1%.  The  quarter-on-quarter  growth  was  slightly 
positive in the first half of the year, but plummeted thereafter. Overall, GDP growth 
turned  out  to  be  markedly  lower  than  could  have  been  expected  under  a  pattern  of 
normal  cyclical  recovery  and  the  sizeable  contraction  of  the  economy  has  affected 
employment  negatively;  unemployment  has  risen,  real  wage  growth  turned  negative 
and domestic demand declined.  

The Commission services' 2013 Spring Forecast projects real GDP to continue to drop 
by 0.8% in 2013, although growth is expected to return gradually to positive territory 
from  the  second  half  of  the  year  onwards.  Trade  developments  are  expected  to 
contribute to the recovery, whereas domestic demand is forecast to remain depressed 
well into 2013. Uncertainty regarding the general economic outlook, implementation 
of reform proposals and possible additional consolidation measures put an additional 
drag  on  domestic  demand.  In  2014,  both  exports  and  imports  are  expected  to  gain 
momentum  and  domestic  demand  should  begin  to  pick  up  gradually,  supporting  a 
fragile recovery, with real GDP increasing by 0.9%. 

(9) 

The Netherlands had chosen to delay fiscal adjustment until 2011. This approach was 
endorsed in the 2009 Council recommendation which specifically recommended that 
the  2010  budget  be  implemented  while  consolidation  should  start  only  in  2011.  In 
response,  the  Netherlands  designed  a  multi-annual  package  of  mainly  expenditure-

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based  measures  over  the  period  2011-2015.  Implementation  of  the  measures  up  to 
2013 is by and large on track. After some over-performance of real GDP in 2009 and 
2010 compared to the  2009  Commission  services' 2009 Autumn forecast  underlying 
the  EDP  recommendation,  economic  performance  in  the  Netherlands  deteriorated 
significantly from 2011 onwards. This translated into a similar development in public 
finances,  with  some  initial  over-performance  to  the  budgetary  targets  until  and 
including  2011.  In  2011,  the  general  government  deficit  reached  4.5%  of  GDP  and 
subsequently, improved to -4.1% of GDP in 2012.Turning to the driving forces of the 
deficit,  swings  in  economic  growth  have  mainly  affected  government  revenues.  The 
initial  recovery  from  the  financial  crisis,  with  stronger-than-expected  economic 
activity  in  2010  and  the  first  part  of  2011,  at  first  led  to  a  fairly  strong  revenue 
performance.  However,  subsequently  revenue  fell  short  of  what  was  expected, 
particularly in the second half of 2011 and in 2012, in the wake of faltering growth. 
This adverse pattern is expected to continue, largely driving the weak deficit outlook. 
Overall  trends  mirror  the  cyclical  sensitivity  of  revenue  which  the  Netherlands 
typically exhibits.  

(10)  According to the Commission services' 2013 Spring Forecast, the general government 
deficit  is  expected  to  improve  further  to  3.6%  of  GDP  in  2013,  due  to  sizeable 
consolidation measures mainly on the revenue side, notably the increase in the VAT 
rate  and  increases  in  excises,  while  on  the  expenditure  side  a  wage  freeze  for  civil 
servants  and  the  non-indexation  of  income  tax  brackets  will  contribute  to 
consolidation. Furthermore, in 2013 significant one-off operations will impact on the 
deficit3.  The  sale  of  4G  mobile  telephony  licenses  and  the  nationalisation  of  SNS 
Reaal  (both  impacting  on  2013)  broadly  cancel  out.  On  balance,  however,  one-offs 
have a decreasing impact on the deficit of around 0.2% of GDP, in particular related 
to  dividend  payments  from  the  De  Nederlandsche  Bank  and  the  restitution  by 
Havenbedrijf  Rotterdam  of  state  contributions  to  port  enlargement.  Specified  and 
agreed  measures  that  are  embedded  in  the  multi-annual  fiscal  projections  entail  on-
going savings in 2014. In addition, positive one-offs emanating from dividend streams 
from  the  De  Nederlandsche  Bank  and  a  crisis  levy  on  banks  will  have  a  downward 
effect  on  the  headline  deficit.  Nonetheless,  since  revenue  is  expected  to  remain 
subdued in view of the sluggish recovery, the general government deficit is projected 
to stabilise at 3.6% of GDP in 2014. The Commission services' 2013 Spring Forecast 
does  not  incorporate  the  additional  consolidation  package  for  2014  proposed  by  the 
government  in  March  2013  but  then  withdrawn  temporarily  in  response  to  the 
agreement reached with social partners in April 2013.  

(11)  Non-negligible  implementation  risks  are  attached  to  the  fiscal  outlook  for  2014  and 
beyond.  As  regards  measures  embedded  in  the  coalition  agreement,  these  risks 
originate  mainly  from  the  foreseen  efficiency  gains  planned  to  be  achieved  by 
decentralising  tasks  to  municipalities.  In  the  Netherlands,  coalition  agreements 
traditionally were implemented largely unchanged. Recently, there have been several 
examples of substantive changes, responding e.g. to the reappraisal of original plans 
by  the  coalition  partners  or  the  agreement  with  the  social  partners.  In  any  case,  the 
headline  deficit  forecast  for  2014  suggests  that  substantial  additional  measures  are 
called for in order to bring the headline deficit below 3% of GDP in 2014. 

3 

This  interpretation  on  the  classification  of  these  operations  does  not  prejudge  Eurostat's  formal 
assessment. 

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(12)  According  to  the  Commission  services' updated  2013 Spring Forecast, the structural 
balance is expected to improve by around 0.7 % of GDP per year on average over the 
adjustment period 2010-2013 but is forecast to deteriorate in 2014 by around 0.3 pp. 
On the basis of the SF2013, the average fiscal effort over the period 2011-2013 would 
thus  be  close  to  the  required  ¾%  of  GDP.  When  adjusted  for  the  significant 
downward  revision  in  potential  output  growth  since  the  time  when  the  2009  EDP 
recommendation  was  issued  and  for  the  impact  of  revisions  on  the  composition  of 
economic  growth  on  revenue,  the  average  annual  structural  effort  (1.1%  of  GDP) 
exceeds the recommended average annual fiscal effort (¾% of GDP) over 2011-2013 
required  in  the  2009  Council  EDP  recommendation  by  a  substantial  margin.  The 
Netherlands can therefore be considered to have taken effective action in line with the 
Council  Recommendation.  For  the  period  2011-2013  the  overall  fiscal  effort 
according to a bottom-up approach amounts to 4% of GDP, or around 1.3 % of GDP 
annually,  broadly  equally  divided  between  revenue  and  expenditure  measures.  The 
bottom-up  assessment  of  the  fiscal  consolidation  measures  taken  in  the  years  2010-
2013  thus  confirms  the  conclusion  that  effective  action  has  been  taken  by  the 
Netherlands.  

(13)  Debt  dynamics  in  the  Netherlands  have  been  unfavourable.  In  2008,  significant 
government operations to support Dutch banks had been a major factor pushing up the 
government debt ratio, increasing it to to 58.5% coming from 45.3% of GDP in 2007. 
In  the  period  2008-2012  it  steadily  increased  to  71.2%  in  2012.  On  the  basis  of  the 
Commission  services'  2013  Spring  forecast  the  debt  ratio  is  expected  to  further 
increase to 74.6% of GDP in 2013 and 75.8% of GDP in 2014. This is predominantly 
the  result  of  the  persistent  headline  deficits  in  combination  with  low  nominal  GDP 
growth, whilst EFSF and ESM operations attributed to the government debt only have 
a relatively small upward effect. The uptick in the expected gross debt ratio for 2013 
includes  debt-increasing  operations  equivalent  to  some  1%  of  GDP  related  to  the 
nationalisation of SNS Reaal in early 2013 (on top of the deficit-enhancing measures 
amounting to around 0.6% of GDP).  

(14)  Consistent  with  the  rules  of  the  Stability  and  Growth  Pact,  considering  all  these 
factors , in particular the substantial deterioration in the budgetary position resulting 
from  the  weaker  overall  position  of  the  economy  relative  to  the  one  underlying  the 
original  Council  recommendation  under  Article  126(7)  TFEU,  suggests  that  a  new 
deadline  for  the  correction  of  the  excessive  deficit  in  the  Netherlands  by  2014  is 
appropriate. 

(15)  Against  the  background  of  high  uncertainties  regarding  economic  and  budgetary 
developments, the budgetary target recommended for the final year of the correction 
period should be set at a level clearly below the reference value, in order to guarantee 
an effective and lasting achievement of the correction within the requested deadline. 

(16)  Granting  an  additional  year  for  the  correction  of  the  excessive  deficit  would  be 
commensurate with intermediate headline deficit targets of 3.6% of GDP for 2013 and 
2.8% of GDP for 2014. The underlying improvement in the structural budget balance 
implied by these targets is 0.6% of GDP in 2013, and 0.7% of GDP in 2014. In total, 
to reach the above-mentioned structural targets, the Dutch authorities would need to 
ensure  the  delivery  of  the  foreseen  structural  effort  in  2013  and  adopt  additional 
consolidation measures of at least 1% of GDP in 2014, on top of the measures already 
included  in  the  baseline  scenario.  These  targets  take  into  account  the  need  to 

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compensate  for  the  negative  second-round  effects  of  fiscal  consolidation  on  public 
finances, through its impact on GDP growth.  

(17)  The  European  Commission  Fiscal  Sustainability  Report  2012  shows  that  the 
Netherlands  does  not  face  a  risk  of  fiscal  stress  in  the  short  run.  The  country  is  at 
medium  sustainability  risk  in  the  medium  to  long  run.  Although  the  2013  pension 
reform  is  an  important  positive  step,  additional  measures,  in  particular  related  to 
curbing  long-term  care  expenditure,  are  necessary  to  fully  ensure  the  long-term 
sustainability of public finances. 

(18)  The Netherlands fulfils the conditions for the extension of the deadline for correcting 
the excessive general government deficit as laid out in Article 3(5) of Regulation (EC) 
No 1467/97 on speeding up and clarifying the implementation of the excessive deficit 
procedure, 

HAS ADOPTED THIS RECOMMENDATION: 

(1) 

(2) 

(3) 

The Netherlands should put an end to the present excessive deficit situation by 2014 
at the latest. 

The Netherlands should reach a headline deficit target of 3.6% in 2013 and 2.8% of 
GDP in 2014, which is consistent with an improvement of the structural balance of 
around  0.6%  and  0.7%  of  GDP  respectively,  based  on  the  Commission  services' 
updated 2013 Spring Forecast.  

The Netherlands should implement the multiannual measures already adopted with 
the 2013 budget, while standing ready to compensate them if their yield would prove 
less than currently foreseen, and implement additional measures sufficient to achieve 
a correction of the excessive deficit in 2014. The Council establishes the deadline of 
[1  October]  for  the  Netherlands  to  take  effective  action  and,  in  accordance  with 
Article  3(4a)  of  Council  Regulation  (EC)  No  1467/97,  to  report  in  detail  the 
consolidation strategy that is envisaged to achieve the targets. 

In addition, to ensure the success of the fiscal consolidation strategy, it will be important to 
back  the  fiscal  consolidation  by  comprehensive  structural  reforms,  in  line  with  the  Council 
recommendations addressed to the Netherlands in the context of the European Semester and 
in  particular  those  related  to  the  preventive  arm  of  the  Macroeconomic  Imbalances 
Procedure. 

This recommendation is addressed to the Kingdom of the Netherlands.  

Done at Brussels,  

For the Council 
The President 

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