Pressure on Dutch government to speed up economic rescue plan

The Dutch government is working on measures to combat the crisis. These could be painful for households and businesses. Trade unions and employers foresee growing unrest.

The Netherlands is facing a hot spring. The government is currently working feverishly with business leaders and trade unions to put together a national rescue plan for the economy. On Friday prime minister Jan Peter Balkenende (Christian Democrat) said that “unorthodox steps” would have to be taken to pull the economy out of the slump. Finance minister Wouter Bos (Labour) said that all options were being considered, “including the politically unlikely.” With that the political leaders hinted at possible measures that are considered taboo in the Netherlands, such as scrapping mortgage interest relief and increasing the retirement age.

This last measure would result in “major social unrest,” according to Agnes Jongerius of the Netherlands’ largest trade union. Employers, on the other hand, are fiercely opposed to changing the mortgage interest relief scheme. This tax incentive for homeowners which allows them to deduct the interest paid on their mortgage from their taxable income has been an institution in the Netherlands since 1914. “If that disappears, I will personally make sure that the Malieveld is full,” says Mark Rutte, faction leader of right-wing liberal opposition party VVD. The Malieveld is a large field in The Hague near the Dutch parliament and a number of ministries. It is traditionally where large scale demonstrations are staged.

'Crisis in confidence'

Jongerius voiced her concerns to the government this weekend during an annual meeting of influential business people, politicians, trade union leaders and academics. The credit crisis, energy problems and the climate crisis were debated behind the closed doors of the Bilderberg conference on Friday and Saturday. The Confederation of Netherlands Industry and Employers (known as VNO-NCW) also sent out a powerful signal. Don’t meddle with mortgage interest relief, said chairman Bernard Wientjes. “There is already a serious crisis in confidence. If people are also no longer certain of the deduction of their mortgage interest, the economy will experience a major backlash.”

And don’t fiddle about by raising the legal retirement age from 65 to 67 years, as the VVD has proposed, says Jongerius: “Employees are already wondering why Dutch banks have to be bailed out with their tax money while they are in danger of losing their jobs. If I also have to tell people that they cannot retire until later I’m going to be out there painting banners.”

Jongerius recently visited steel company Corus in IJmuiden, which is letting 800 workers go in the Netherlands. She referred to wildcat strikes at oil company Total in the UK last week by British workers who feel threatened by Italian and Portuguese labour. Everywhere in Europe there is an undercurrent of dissatisfaction among workers about the massive support to banks, according to Jongerius. This dissatisfaction could lead to large social unrest. In the Netherlands as well.

The protectionism that is rearing its ugly head in Europe and the US will aggravate the economic problems, says Jongerius. A company like Corus will not be able to sell any more steel in France and the US in future as a result. “Who is going to tell the US that this is unacceptable?” the trade union leader wondered. Like Wientjes she urged the government to present an action plan soon. “Forget about raising the retirement age to 67,” Jongerius said. There are enough other measures that the government can take.

Depression

In the short term the problem consists of a budget that is getting entirely out of hand. The revenues for the treasury are diminishing rapidly, social expenditure is rising and the support to banks is putting pressure on the budget. There is also the need to make the government finances manageable in the long term in connection with the ageing of the population.

If one message could be heard from the conference, it was that urgency is called for, time is up. The government must make haste to put together a broad package of measures to counter the economic decline. The speed with which the economic slump is setting in is causing business owners major worries. The Netherlands will see its economic growth of 3.5 percent in 2007 rapidly turn into a contraction of 2 percent this year, the European Commission predicts.

CEO of chemical company AkzoNobel Hans Wijers fears that the credit crisis could lead to a deep global recession, even perhaps a depression. Former minister Wijers called on the government urgently at the conference to stimulate the economy on a larger scale, so that credit issuing to businesses gets back on track. He also thinks that pension funds should be given more time than the three years currently allowed to supplement their deficits, otherwise businesses and workers will be saddled with high pension premiums.

Long term

The current measures to boost the Dutch economy are not enough, say Wientjes and Jongerius. Both social partners are part of a small group that is working with the government on a national accord containing measures. They argue for investments in sustainable building, sustainable energy, the road network and fixing up old hospitals and schools. These kinds of investments should be aimed at preventing the building sector from coming to a standstill after the summer. “The government must have the courage to let go of the budget agreements temporarily so that more financial latitude is created for extra investments,” said Wientjes.

VVD leader Rutte is also in support of rethinking the budget. “Extra investments in innovation and alternative energy are essential for Dutch economy and these will really help businesses,” he said.

But it must be clear how the extra investments will be earned back in the long term, say both the VVD and the Christian Democratic party, the CDA. Rutte: “A stimulus package does require solid financing, so that the government finances remain tenable in the long term. Raising the legal retirement age is the most obvious measure. The countries around us did that long ago.”