Netherlands Postpones Budget Cuts, Striking Deal With Unions

The Dutch government postponed 4.3 billion euros ($5.6 billion) in budget cuts for 2014 as it struck a deal with social partners, counting on economic growth to keep the budget deficit below the European ceiling next year.

“This is an historic agreement,” Prime Minister Mark Rutte said at a press conference late yesterday in The Hague. The government will assess later in the year whether the cuts are still needed as economic growth may pick up, Rutte said.

The government, unions and employers organization VNO-NCW agreed to limit severance pay and postponed plans for easier dismissals and lower unemployment benefits until 2016. The 600 million euros a year it costs the government annually are covered, Rutte said.

The cuts announced last month would have come on top of a four-year 16 billion-euro austerity package. The Netherlands, the euro region’s fifth-largest economy, has been in breach of the EU’s 3 percent of gross domestic product limit since 2009. Rutte said the deficit next year would drop below 3 percent.

The Dutch economy will expand 1 percent next year after contracting for a second year in 2013, according to the median of 17 forecasts compiled by Bloomberg.

“I’m calling on the people to stop being so somber,” Rutte said in The Hague today. “The recovery is becoming visible and with this agreement we hope that people start looking more positively at the economy.”

The Netherlands, in its third recession since 2009, had the outlook on its AAA credit rating cut to negative in February by Fitch Ratings, which cited problems in the banking system and difficult economic conditions. The Dutch housing market is slumping as prices slid more than 10 percent last year and have dropped 19 percent since 2008, the national statistics agency said last month.

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