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The Dutch will miss targets in 2013 but refuse to institute more austerity

Well, well, well, it seems we have a problem in Euroland. The Dutch have now confirmed what I have been saying all along: they have run into so many fiscal problems that they will need to relax their targets instead of doubling down on austerity. This is going to have far-reaching consequences.

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There is no way that the Dutch can openly flout targets this way without Spain and France (and Italy and Portugal) being allowed to do so as their economies and job markets are much worse than the Dutch. And Rajoy and Hollande have publicly requested their targets be relaxed while Rutte goes ahead and just does it unilaterally (see here in Spanish on Hollande: Francia pide relajar los objetivos de déficit y reclama estímulos a Alemania | Economía | EL PAÍS). Olli Rehn has said Spain’s targets were likely to be relaxed. Now that the Dutch have unilaterally decided to relax their targets, this is almost sure to happen. And note that it was exactly one year ago today that the Spanish made the unilateral decision to raise their deficit target. And that is what prompted a renewed crisis in the eurozone which made OMT inevitable.

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About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

2 Comments

  1. Consequences like other countries taking the IMF Dec 2012 paper seriously, the one that showed that for every 1 of spending cuts 1.8 of GDP disappeared? Bad multiplier during periods of contraction… Will counter-cyclical reason spread like the plague across the continent? Dubious

    • David_Lazarus says:

      The problem is that in countries like the UK they are cutting spending in the areas with the highest multipliers like welfare. Unfortunately I do not see anyone appreciating this until they have devastated the economy.