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THE decision by Standard & Poor’s to strip the Netherlands of its coveted AAA rating is a vivid illustration of the damage that the euro crisis has wreaked not just on the troubled economies of southern Europe but also within the northern core.
The rating agency downgraded the Netherlands today one notch to AA+. That leaves only Germany, Finland and Luxembourg within the 17-strong euro area with a top rating from the three main agencies.
The Netherlands may be a small place but in fact it is the fifth biggest economy within the euro zone. And it has political clout within the currency club. Along with Finland, the Netherlands has been a crucial ally of Germany in formulating the response of northern creditor nations to the calls for help from the periphery. For example the Dutch finance minister met with his counterparts from Finland and Germany in September 2012 and the three issued a statement in which they insisted on limiting the use of the European Stability Mechanism, the euro zone’s rescue fund, for banking rescues.
Shortly after that meeting in Helsinki Jeroen Dijsselbloem became Dutch finance minister and at the start of 2013 he became head of the Eurogroup of euro-zone finance ministers, which plays a crucial role in formulating policy towards rescues, as in the case of Cyprus earlier this year (which by any reckoning was mishandled). A week ago he was busy chairing a meeting of the Eurogroup in which they discussed national budgets, as part of new procedures of fiscal surveillance that have been established this autumn. And a month ago, he paid a visit to Slovenia, which is struggling to avoid becoming the sixth country to require a bail-out.
Now Mr Dijsselbloem is at the receiving end of some unwelcome independent scrutiny of his own country. In some respects S&P’s judgment may appear harsh. Although the Netherlands is running a budget deficit of 3.6% of GDP this year, public debt at 75% of GDP is below the euro-zone average. The Netherlands runs a big (arguably too big) current-account surplus and its domestically-owned foreign assets exceed external liabilities by a healthy margin, of 47% of GDP in 2012.
What worries S&P is poor growth prospects, which it says are weaker than it had previously expected and worse than that of other similar rich countries (which it defines as countries whose GDP per person is over $27,000). The agency thinks that it will take until 2017 for GDP to exceed its level in 2008. The economy is weighed down by high household debt. House prices, which have fallen by 20% from their peak are expected to fall a bit further next year.
But the Netherlands is not alone in the northern core of the euro zone in suffering from poor growth prospects. France, whose economy is the second biggest, is also struggling. That puts more pressure on Germany to buttress the troubled currency union, but the policies set out by the proposed new coalition government seem more likely to weaken than to strengthen the euro-zone’s biggest economy. The Dutch downgrade is yet another sign of how sick the euro zone remains.
– The Economist