The Netherlands may be downgraded by Moody’s Investors Service in the next three to four years if its deficit level continues to increase.
“We expect the debt level to stabilize and start to fall within the next three to four years,” Sarah Carlson, senior credit officer at Moody’s, said in a phone interview from London today. “If that stabilization or that decline isn’t expected to occur within the next three to four years that could potentially be a trigger for a downgrade.”
The Dutch economy, in its third recession since the financial crisis started in 2008, contracted 0.2 percent in the second quarter and Moody’s expects it to decline 1.3 percent this year, before returning to 0.6 percent growth in 2014. Dutch national planning agency CPB sees the debt level at 74.5 percent of gross domestic product in 2013 and to rise to 76.3 percent in 2014.
In the coming month, Prime Minister Mark Rutte’s cabinet may seal an agreement on 6 billion euros ($8 billion) of cost cuts and tax increases in 2014. This amount is in addition to a four-year, 16 billion-euro package decided on in November when the coalition government took office. CPB sees the budget shortfall expanding to 3.9 percent of GDP if no extra austerity measures are taken.
“The additional measures are likely to fall short of bringing the deficit in line with the 3 percent target,” Moody’s Carlson said.
Finance Minister Jeroen Dijsselbloem, who is scheduled to present the 2014 budget and a detailed plan of austerity measures on Sept. 17, already said he will not cut next year’s budget by more than 6 billion euro. “This shows we are not blindly hunting for the 3 percent deficit limit,” he said in an interview on RTLZ television on Aug. 14.