VZCZCXRO8307
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHTC #0981/01 3291632
ZNR UUUUU ZZH
P 241632Z NOV 08
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 2264
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAT/AMCONSUL AMSTERDAM PRIORITY 4051
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 THE HAGUE 000981 
 
SENSITIVE 
SIPDIS 
 
STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION, 
TREASURY FOR IMI/OASIA.VATUKORALA, USDOC FOR 
4212/USFCS/MAC/EURA/OWE/DCALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV PREL NL
SUBJECT: NETHERLANDS: NEW ECONOMIC STIMULUS PACKAGE, MERGER 
OF FORTIS AND ABN AMRO BANKS 
 
REF: A. THE HAGUE 910 
     ¶B. THE HAGUE 901 
     ¶C. THE HAGUE 840 
 
THE HAGUE 00000981  001.2 OF 002 
 
 
¶1. (SBU) Summary:  The Government of the Netherlands (GONL) 
has introduced a 6 billion euro (USD 7.5 billion) economic 
stimulus package (equivalent to one percent of Dutch GNP) to 
help Dutch businesses weather the economic downturn. 
Highlights include corporate tax breaks, shorter working 
hours and corresponding unemployment benefits, and 
accelerated infrastructure projects.  The GONL may be forced 
to revise its projected 2009 budget surplus downward in the 
face of new, weaker economic indicators.  After buying the 
Dutch operations of failed Belgian financial conglomerate 
Fortis in October, the GONL announced plans to merge Fortis 
Bank Nederland and ABN AMRO Bank Nederland under the new 
leadership of former Dutch Finance Minister Gerrit Zalm. 
Public consensus is that Prime Minister Balkenende,s cabinet 
has been proactive and thoughtful thus far in its responses 
to the financial crisis.  End summary. 
 
NEW ECONOMIC STIMULUS PACKAGE 
 
¶2. (SBU) Prime Minister Balkenende announced a 6 billion euro 
(USD 7.5 billion) economic stimulus package November 21 to 
help Dutch businesses weather the effects of the financial 
crisis.  The package corresponds to roughly one percent of 
Dutch GNP, in keeping with expectations for an EU-wide rescue 
plan currently being developed by the European Commission in 
which member states would commit one percent of GNP to 
economic rescue measures.  Although the details of the Dutch 
package may not be finalized until after the EU-wide plan is 
agreed upon, Prime Minister Balkenende confirmed certain key 
elements in a lengthy November 21 letter to Parliament and 
subsequent public statements.  These include: 
 
-- Accelerated write-offs on investments are now available to 
Dutch companies, which the GONL expects to yield 2 billion 
euro (USD 2.5 billion) in corporate tax benefits.  The 
temporarily lower corporate tax rate of 20 percent will also 
be applied in 2009 and 2010, instead of reverting to the 
higher rate of 23 percent in 2009 as the GONL had originally 
planned. 
 
-- In response to pressure from both employers and labor 
unions, the GONL will allow companies to temporarily 
institute a shorter work week as an alternative to firing 
employees.  The GONL will use 200 million euro (USD 252 
million) in unemployment benefit reserves to compensate 
employees for up to 24 weeks for the hours they are no longer 
on the clock. 
 
-- The GONL will establish regional mobility centers to 
provide re-training and assist with job searches for workers 
who have been laid off. 
 
-- The GONL plans to speed up a number of large-scale 
infrastructure projects to stimulate employment, including 
the new Delta Works project to protect the Netherlands 
against rising sea levels over the next few decades. 
 
-- The process of acquiring a building permit will be 
streamlined in an effort to stimulate activity in the 
construction sector. 
 
GLOOMY ECONOMIC INDICATORS ) AND 2009 BUDGET DOUBTS 
 
¶3. (U) Prime Minister Balkenende asserted that the stimulus 
package was necessary in the face of worsening economic 
indicators.  The Dutch National (Central) Bank now predicts 
0.4 percent GDP growth in 2009, compared to 2.3 percent in 
¶2008.  Inflation is also expected to increase from 2.5 
Q2008.  Inflation is also expected to increase from 2.5 
percent in 2008 to 3.0 percent in 2009, and unemployment from 
3.0 to 3.4 percent. 
 
¶4. (SBU) Prior to the full onset of the financial crisis, the 
GONL had predicted in September a 2009 government budget 
surplus of 1.2 percent of GDP (ref B).  Although Finance 
Minister Bos said as late as November 18 that this figure did 
not need to be revised, public skepticism is mounting.  The 
surplus was based in part on an assumption of oil prices at 
USD 125 per barrel, as opposed to the current price of USD 54 
per barrel.  It also was based on predicted 2009 GDP growth 
of 1.25 percent, as opposed to the current estimates of 0.4 
 
THE HAGUE 00000981  002.2 OF 002 
 
 
percent.  Coupled with the almost 30 billion euro (USD 38 
billion) to date in emergency capital funds, economic 
stimulus measures, and other government expenditures to 
address the effects of the financial crisis, as well as 
expected lower tax revenue as a result of the economic 
slowdown, many expect the GONL to revise its 2009 budget 
predictions downward. 
 
FORTIS AND ABN AMRO BANKS TO MERGE 
 
¶5. (SBU) Finance Minister Bos announced November 21 that 
Fortis Bank Nederland and ABN AMRO Bank Nederland would merge 
under the new leadership of former Dutch Finance Minister 
Gerrit Zalm.  As part of the dissolution of the failed 
Belgian financial conglomerate, the GONL purchased all of 
Fortis, Dutch operations October 3 for 16.8 billion euro 
(USD 21 billion); these included Fortis Bank Nederland, the 
Fortis-owned portions of ABN AMRO, and the insurance 
companies Fortis Verzekeringen Nederland and Fortis Corporate 
Insurance (ref C).  After weeks of closed-door negotiations 
with the companies, their unions, and relevant ministries, 
the GONL announced its plan to sell the two insurance 
companies as quickly as possible, while retaining ownership 
of the two banks and overseeing their merger into a new, 
larger Dutch bank under the name ABN AMRO.  Minister Bos 
indicated that the GONL will sell the new bank, but not until 
2011 at the earliest.  His goal is to &leave behind a strong 
bank that can move forward on its own strength and that we 
can sell with a profit to the taxpayer.8  The European 
Commission still must approve the merger, but Ministry of 
Finance sources told us that discussions with the commission 
had been going smoothly, and the GONL expects approval to be 
forthcoming quickly. 
 
¶6. (SBU) The merger is expected to result in 8,000 lost jobs, 
but since this is the same number that labor unions had 
expected if the banks had remained separate, they have 
reacted well to the plan.  (The two banks and two insurance 
companies currently employ a total of 40,000 people.) 
Meanwhile, with his combination of banking and political 
experience, Gerrit Zalm is seen as highly qualified to 
oversee the merger, and his lack of ties to either Fortis or 
ABN AMRO make his an objective choice as well.  While the 
management of Fortis Bank Nederland expressed support for the 
merger, that of ABN AMRO reacted with a marked lack of 
enthusiasm.  ABN AMRO, once the Netherlands, flagship bank 
before Fortis purchased it in 2007, had hoped to remain 
independent, in part due to concerns that a merger would 
create even more job uncertainty for bank employees.  Despite 
these objections, however, the consensus was that a merger 
was the best way to restore confidence and ultimately create 
a large, profitable institution that the GONL could 
eventually sell at a competitive price. 
 
COMMENT 
 
¶7. (SBU) Comment:  Continuing its tradition as a global 
financial player, the Netherlands thus far has acted as a 
model of proactive intervention for the rest of the EU.  Even 
before the December meetings of EU finance ministers and 
heads of state, the GONL has implemented its own economic 
stimulus package amounting to one percent of GNP, and the 
GONL has emphasized that it stands ready to do more if the 
economy continues to slow.  That said, the Dutch Government 
Qeconomy continues to slow.  That said, the Dutch Government 
prides itself on fiscal discipline, and it undertakes this 
fiscal stimulus with some reservation ) it does not want to 
be seen as throwing lifelines to companies that were 
uncompetitive even before the credit crisis.   The Dutch have 
adopted a patient approach to ABN AMRO and Fortis, choosing 
to nurse them back to health as a single entity with greater 
scale rather than dispose pieces of them at fire-sale prices. 
 While debate in parliament and the media continues about the 
specifics of the GONL,s actions, public consensus is that 
Prime Minister Balkenende,s cabinet has been proactive and 
thoughtful in its responses to the financial crisis.  End 
comment. 
CULBERTSON