Following points made by both Frans and Elliott in the comments sections, the Netherlands may well in fact breach the 3% growth and stability pact limit next year. I bet Zalm is blogging away more furiously than ever. But who will be the object of his wrath this time?
The Dutch Central Planning Bureau, a government sponsored think-tank which prepares the economic forecasts underlying the official government budget projections, released a new set of estimates yesterday. They show the budget deficit at 3% of GDP this year and slightly above the 3% Maastricht limit in 2004. The underlying assumptions for GDP growth are -0.75% for 2003 and 1.0% for 2004, broadly in line with our own growth forecasts. The Finance Ministry still expects a deficit of only 2.7% of GDP this year. While the new CPB forecasts caused a stir in the media and markets, we have long warned about the risk of a sharper than expected deterioration in the Dutch budget deficit. A breach of the 3% Maastricht limit would be especially poignant for the Netherlands, which is one of the leading proponents of the Stability and Growth Pact. Note that the EU Commission clarified yesterday that they so far don’t see the Dutch budget deficit breaching the 3% limit, so the excessive deficit procedure will not yet be triggered.
Source: Morgan Stanley Global Economic Forum