Dutch Should Get 2014 Deficit Down to 2.8%, Rehn Says

The Netherlands, going through its third recession in four years, should get next year’s budget deficit down to 2.8 percent of gross domestic product and be given more time only if the economy worsens and reforms are implemented, European Union Commissioner Olli Rehn said.

“It is my experience that it’s better to have a safety margin by targeting 2.8 percent than only 3 percent,” Rehn, the economic and monetary affairs commissioner, told reporters in The Hague today. About 6 billion euros ($8 billion) in austerity measures will be needed to get the deficit within the EU’s 3 percent limit, he said.

Rehn’s comments come a day after the Dutch central bank said the deficit may widen to as much as 3.9 percent in 2014, while the government may need to cut spending by as much as 8 billion euros to get it below the EU limit. The Netherlands has exceeded that ceiling since 2009.

“Commissioner Rehn has a sensible approach to have a safety margin,” Dutch Finance Minister Jeroen Dijsselbloem said. “It is going to cost quite a lot of trouble already to reach 3 percent -- 3 percent is our target, 2.8 would be wise, but extra hard,”

The coalition government is trying to narrow its budget gap with a four-year, 16 billion-euro austerity package on which agreement was reached in October. Prime Minister Mark Rutte’s Cabinet will decide in August on additional austerity measures needed to meet the 3 percent limit in 2014.

Deadline Extension

On May 29, the commission already extended the deadline for the Netherlands to comply with deficit targets by one year to 2014.

Should the economy deteriorate, “then according to the pact it is possible to consider an extension of the deadline on the condition structural reform has been made and a further growth deterioration is expected,” Rehn said.

“Since last year the Netherlands has made progress on fiscal consolidation, on the medium and long term sustainability of public finances, on reforming the labor and housing market and on the links between innovation, science and business,” he said.

The European Commission sees GDP in the Netherlands, the fifth-largest economy in the euro area, declining 0.8 percent in 2013 on “budget consolidation and negative-wealth effects, chiefly emanating from the housing market,” it said on May 3. It sees the economy expanding 0.9 percent next year.

Before it's here, it's on the Bloomberg Terminal.