REPORT FROM THE COMMISSION The Netherlands Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Netherlands, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 530 final  REPORT FROM THE COMMISSION The Netherlands  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

The Netherlands 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

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 the 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. 

Data  notified  by  the  Dutch  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat1 show that the general government surplus in the Netherlands reached 1.7% of GDP 
in  2019,  while  general  government  gross  debt  stood  at  48.6%  of  GDP.  According  to  the 
Dutch  Spring  Budget  Memorandum2,  the  government  plans  a  deficit  of  11.8%  of  GDP  in 
2020,  while  debt  is  planned  at  65.2%  of  GDP.  Moreover,  the  Commission  2020  spring 
forecast  estimates  a  deficit  of  6.3%  of  GDP  in  2020,  while  debt  is  projected  at  62.1%  of 
GDP.  

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
the Netherlands’ compliance with the deficit criterion of the Treaty .The debt criterion can be 
considered to be met as the debt ratio in 2019 is below the Treaty reference value of 60% of 
GDP.  It  takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major 
economic shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

2 Spring Budget Memorandum 2020 (Voorjaarsnota 2020), handed in for review to the second Chamber by W. 

Hoekstra, Minister of Finance, on 24 April 2020. 

1 

 
 
 
 
                                                            
Table 1. General government deficit and debt (% of GDP)  

2016 

2017 

2018 

2019 

2020 
COM 

2021 
COM 

Deficit 
criterion 

General 
government 
balance 
General 
government 
61.9 
gross debt 
Source: Commission 2020 spring forecast 

Debt 
criterion 

0.0 

1.3 

1.4 

1.7 

-6.3 

-3.5 

56.9 

52.4 

48.6 

62.1 

57.6 

2. 

DEFICIT CRITERION  

The  Stability  Programme  submitted  by  the  Dutch  authorities  on  29  April  20203  plans  a 
surplus  of  1.1%  of  GDP  in  2020.  The  budgetary  projection  is  based  on  a  macroeconomic 
scenario  that  envisages  GDP  growth  of  1.4%  in  2020  and  can  no  longer  be  considered 
realistic. However, on 24 April the Dutch Ministry of Finance sent a Budget Memorandum to 
Parliament describing a deficit of 11.8% of GDP in 2020, above and not close to the Treaty 
reference value of 3% of GDP.  

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn.  Taking into account the impact of the COVID-19 pandemic on 
the  Netherlands’  economy,  the  Commission  2020  spring  forecast  projects  a  contraction  of 
real GDP in 2020 by 6.8%. 

The planned excess over the Treaty reference value would not be temporary according to the 
Commission  2020  spring  forecast,  which  projects  the  general  government  deficit  to  remain 
above 3% of GDP in 2021.  

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%  of  GDP  Treaty 
reference  value.  The  planned  excess  is  considered  to  be  exceptional  but  not  temporary  as 
defined  by  the  Treaty  and  the  Stability  and  Growth  Pact.  Hence,  the  analysis  suggests  that 
prima facie the deficit criterion as defined by the Treaty and Regulation (EC) No 1467/97 is 
not fulfilled. 

3. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 

3 https://ec.europa.eu/info/sites/info/files/2020-european-semester-stability-programme-netherlands_en.pdf 

2 

 
 
 
 
 
 
 
                                                            
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards ccompliance with the 
deficit  criterion  in  2020,  since  the  government  debt-to-GDP  ratio  is  planned  to  exceed  the 
60% reference value in 2020 and the double condition is not met - i.e. that the deficit remains 
close to the reference value and that its excess over the reference value is temporary  - those 
relevant  factors  cannot  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit for the Netherlands.  

In  the current  situation, a key additional  factor to  take into  consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary  situation and  results in  a highly uncertain  outlook. The pandemic has  also led to 
the activation of the general escape clause. 

3.1. 

 COVID-19 pandemic  

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and support aggregate demand. The Netherlands has already adopted budgetary measures to 
increase the capacity of health systems and provide relief to those individuals and sectors that 
are  particularly  affected.  Significant  liquidity  support  measures  and  other  guarantees  have 
also been adopted. Subject to more detailed information, the competent statistical authorities 
are  to  examine  whether  these  entail  an    an  immediate  impact  on  the  general  government 
balance or not. Together with the fall in economic activity, those measures will contribute to 
substantially higher government deficit and debt positions. 

3.2  Medium-term economic position  

The  Commission  2020  spring  forecast  is  based  on  several  assumptions  which  are 
characterised  by  an  exceptional  degree  of  uncertainty.  As  of  15  March  2020,  the  Dutch 
government  has  implemented  a  targeted  lockdown  with  containment  measures  to  limit  the 
spread  of  COVID-19.  On  6  May  2020  the  deconfinement  steps  were  explained.  Social 
distancing  measures  continue  to  apply  and  teleworking  is  adviced.  Schools  and  day  care 
centres  were  closed,  but  reopened  partially  on 11  May  2020.  Restaurants,  bars  and cultural 
institutions were closed but can reopen as of 1 June 2020, but under restrictions. Events that 
require a permit as well as indoor sport activities are prohibited until 1 September 2020. The 
duration of the targeted lockdown is one of the main drivers of the macroeconomic outlook 
for 2020. 

After  growth  of  1.8%  in  2019,  the  Commission  2020  spring  forecast  projects  real  GDP  to 
decline  by  6.8%  in  2020,  reflecting  the  disruption  in  economic  activity  caused  by  the 
lockdown measures and an unprecedented fall in demand. Private consumption expenditure is 
expected 
to  contract  because  of  reduced  household  spending.  Moreover,  adverse 
unemployment  expectations  in  combination  with  negative  wealth  effects  are  expected  to 

3 

 
 
 
 
boost  precautionary  savings,  weighing  further  on  household  spending.  Investment  in 
equipment is projected to decline sharply in 2020 given weak demand, high uncertainty, low 
capacity utilisation, as well as restricted access to credit. Mandated business closures and the 
abrupt decline in economic activity are projected to have an adverse effect on employment in 
affected sectors. As a highly open economy, the Netherlands is  particularly sensitive to  the 
collapse in world trade. 

Overall,  the  macroeconomic  outlook  is  marked  by  an  exceptional  degree  of  uncertainty 
related to the duration of the pandemic and its economic impact. This is a mitigating factor in 
the assessment of the Netherlands’ compliance with the deficit criterion in 2020.  

3.3 

 Medium-term budgetary position 

Based on outturn data and the Commission forecast, the Netherlands was compliant with the 
medium-term budgetary objective in 2019. 

The  Dutch  government  has  adopted  a  significant  package  of  emergency  measures  with 
budgetary impact of more than 2½% of GDP in 2020 with the aim to avoid structural damage 
to  the  economy  in  response  to  the  abrupt  economic  fallout  and  the  almost  complete 
evaporation  of  demand  in  specific  sectors.  Those  measures  are  aimed  at  the  areas  most 
affected by the crisis, focusing on employment protection and household purchasing power, 
as well as tax deferral and loan guarantees to support the flow of credit to the private sector 
and  prevent  temporary  liquidity  problems  from  morphing  into  solvency  issues  (guarantees 
provided  by  government  are  subject  to  statistical  assessment  regarding  their  possible 
budgetary  impact).  The  2020  update  of  the  Stability  Programme  and  the  Spring  Budget 
Memorandum describe the measures taken and estimate their size to exceed EUR 20 billion 
(2.7% of GDP).  

The  budget  for  2020  is  furthermore  influenced  by  the  downturn  in  economic  activity.  The 
impact of automatic stabilisation on the budget is difficult to estimate due to the uncertainties 
surrounding the economic shock. According to the Commission 2020 spring forecast as well 
as the Spring Budget Memorandum, automatic stabilisation is projected to add about 5% of 
GDP to the deficit. In line with Eurostat’s guidance for accrual accounting, tax deferrals are 
assumed  to  have  no  immediate  impact  on  the  2020  deficit  in  the  Commission  2020  spring 
forecast.4  

3.4.  Medium-term government debt position  

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 48.6% of GDP in 2019 to 62.1% in 2020. The debt sustainability analysis has been 
updated based on the Commission 2020 spring forecast. That analysis indicates that the debt 
position  remain  sustainable  over  the  medium-term,  which  takes  account  of  important 
mitigating  factors  (including  the  debt  profile).  In  particular,  while  the  debt  position 

4 This assumption is in line with guidance on the statistical treatment of those measures by Eurostat 
(https://ec.europa.eu/eurostat/documents/10186/10693286/GFS_draft_note.pdf). 

4 

 
 
  
                                                            
deteriorates as a result of the COVID-19 crisis, the debt ratio in the baseline is expected to be 
on a sustainable (declining) trajectory over the medium term5 (Graph 1).  

Graph 1: Government debt-to-GDP ratio, The Netherlands, % of GDP

75

70

65

60

55

50

45

40

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Baseline

Adverse scenario

Source: Commission services 

3.5 

Other factors put forward by the Member State  

On  18  May  2020,  the  Dutch  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factors put forward by the authorities.  

 4. 

CONCLUSIONS 

According  to  the  Dutch  Budget  Memorandum,  the  Netherlands’s  headline  general 
government  deficit  in  2020  is  planned  to  increase  above  and  not  close  to  the  3%  of  GDP 
Treaty  reference  value.  The  planned  excess  over  the  reference  value  is  considered  to  be 
exceptional but not temporary.  

5 The baseline is based on the Commission Spring 2020 forecast. Beyond 2021, a gradual adjustment of fiscal 
policy is assumed, consistent with the EU economic and fiscal coordination and surveillance frameworks. Real 
GDP growth is projected according to the so-called EPC/OGWG T+10 methodology. In particular, (real) actual 
GDP  growth  is  driven  by  its  potential  growth  and  affected  by  any  additional  fiscal  adjustment  considered 
(through the fiscal multiplier). Inflation is assumed to converge gradually to 2%. Interest rates assumptions are 
set in line with financial market expectations. Under the adverse scenario, higher interest rates (by 500 bps.) and 
lower GDP growth (by -0.5 pp.), with respect to the baseline, are assumed (throughout the projection horizon). 

5 

 
 
 
 
 
 
 
  
                                                            
In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit  criterion  in  2020,    since  the government  debt-to-GDP  ratio  is  planned  to  exceed  the 
60% reference value in 2020 and the double condition is not met - i.e. that the deficit remains 
close to the reference value and that its excess over the reference value is temporary - those 
relevant  factors  cannot  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit for the Netherlands.  

Overall, the analysis suggests that the deficit criterion in 2020 as defined in the Treaty and in 
Regulation (EC) No 1467/1997 is not fulfilled.  

6