VZCZCXRO5867
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHTC #0062/01 0271221
ZNR UUUUU ZZH
R 271221Z JAN 09
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 2463
INFO RUEHAT/AMCONSUL AMSTERDAM 4115
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 THE HAGUE 000062 
 
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: SECOND ECONOMIC STIMULUS PACKAGE CRITICIZED AS 
INSUFFICIENT 
 
Ref: (A) 08 THE HAGUE 981, (B) 08 THE HAGUE 1018, (C) THE HAGUE 60, 
(D) 08 STATE 134459 
 
THE HAGUE 00000062  001.2 OF 003 
 
 
¶1. SUMMARY:  Just as the European Commission released its forecast 
that Dutch GDP would shrink by 2 percent in 2009 (more than the EU 
average), the Government of the Netherlands (GONL) announced on 
January 16 a second package of measures to strengthen Dutch credit 
markets and the larger economy.  In line with the Dutch Cabinet's 
pragmatic approach and reticence to increase government spending so 
soon, the package does not include large capital injections, but 
rather government guarantees intended to stimulate lending.  These 
include the expansion of export credits for Dutch companies, loan 
guarantee facilities for banks, and support for property developers. 
 Some in the Dutch Parliament, employer and employee organizations, 
and the EU have criticized the package as insufficient, but the GONL 
is standing by its conviction that a cautious approach is best until 
the full results of its stimulus measures are evident.  Additional 
measures are expected later in the spring.  End summary. 
 
-------------------------------------------- 
A SECOND ROUND OF ECONOMIC STIMULUS MEASURES 
-------------------------------------------- 
 
¶2. Finance Minister Wouter Bos explained that the second economic 
stimulus package - which follows the first 6 billion euro package 
introduced in November 2008 (ref A) - mainly provides guarantees for 
bank loans and export activities.  The banks and companies pay 
premiums to the GONL in return for these guarantees. "Compare us 
[the GONL] with an insurance company," said Bos.  "We receive 
premiums, but we do not immediately have to pay out."  Bos stressed 
that these measures "will not make a hole in the [national] budget" 
- something the GONL seeks to avoid as rising unemployment costs, 
lower tax receipts and falling natural gas prices in 2009 will put 
an end to its budget surplus.  Finance Ministry officials noted that 
the GONL is unwilling to introduce large capital injections because 
it fears this money will simply leak abroad through the Netherlands' 
large export sector.  The Netherlands also expects to benefit from 
other countries' stimulus packages, even though Finance Ministry 
officials deny any "free riding."  All told, the November and 
current stimulus packages total approximately 9 billion euro, or 1.5 
percent of Dutch GDP - in line with the EU's recommendation that 
Member States should introduce packages totaling 1.5 percent of 
their GDP. 
 
¶3.  Following are the highlights of the new economic stimulus 
measures: 
 
-- The GONL will extend its current export credit insurance 
facility.  The GONL will cover risks for companies exporting to 
markets (especially in Eastern Europe) where no commercial export 
credit insurance is available.  Economic Affairs Minister Maria van 
der Hoeven said that "it is important for the Netherlands that we 
can continue to export unabatedly to Russia, Kazakhstan, the Baltic 
states, and other countries."  The value of Dutch exports dropped 7 
percent in November 2008 from the prior year. 
 
-- The existing Growth Facility for small- and medium-size companies 
will be extended to include larger companies with over 250 
employees.  The GONL will guarantee up to 50 percent of loans 
provided by banks and investment firms to fast-growing companies, 
Qprovided by banks and investment firms to fast-growing companies, 
while the financial institutions absorb the risk for the remaining 
50 percent.  Each borrowing company is eligible to take advantage of 
these GONL guarantees for up to 50 million euro in loans.  This 
extended Growth Facility, which begins March 1, will provide 
companies easier access to capital needed for production and 
investment. 
 
-- The GONL is also introducing several measures to stimulate the 
stagnating Dutch housing market.  Private property developers can 
mitigate their financial risk by offering their housing projects to 
building corporations, which can then outsource the projects back to 
private companies.  Because building corporations are partially 
subsidized and strictly regulated by the government, they can carry 
the financial risks of the projects rather than leaving the private 
developers totally exposed.  The GONL also has established a fund of 
100 million euro for projects that make houses more "environmentally 
friendly."  The GONL also expanded its financing for hospitals so 
they can go ahead with previously approved expansion plans. 
 
 
-- The government has extended its program to allow companies to 
shorten some employees' working hours (rather than laying them off), 
with the government paying the corresponding unemployment benefits. 
This program was part of the first stimulus package in November; 
more than 350 companies applied for it before the initial deadline 
 
THE HAGUE 00000062  002.2 OF 003 
 
 
of January 15.  This deadline was extended by six weeks to March 1; 
however, no additional money has yet been allocated to the initial 
budget of 200 million euro.  The GONL also will open more regional 
mobility centers for unemployed looking for jobs and re-training. 
 
-- In consultation with Dutch financial institutions, the Cabinet 
revised and clarified the terms of its 200 billion euro credit 
guarantee scheme launched in October for the issuance of medium-term 
bank debt.  (Note: This is roughly the volume of all outstanding 
inter-bank loans. End note.)  According to Finance Minister Bos, "a 
number of the conditions [set in October] were felt to create 
obstacles; we have now removed them.  In addition, many banks felt 
it would be seen as a sign of weakness if they used the scheme.  Now 
they can all use it, and none will be stigmatized."  According to 
the Finance Ministry, even healthy banks such as Rabobank that do 
not need to take advantage of the GONL's guarantee scheme to lend 
money will do so.  Only three financial institutions have taken 
advantage of the scheme to date. 
 
--------------------------------------------- ------- 
DUTCH CABINET STANDS FIRM DESPITE CRITICISM, LAYOFFS 
--------------------------------------------- ------- 
 
¶4. Some Dutch political parties do not consider the second stimulus 
package sufficient to address the Netherlands' economic slowdown and 
tight credit market.  There is criticism of the GONL's perceived 
lack of action - but also widespread disagreement on what additional 
action should be taken and when.  Some in the left-wing opposition 
parties are calling for more government spending, but many in the 
Labor Party - of which Finance Minister Bos is head - want to wait 
until at least April before launching new measures.  Meanwhile, some 
right-wing parties are calling for tax cuts to stimulate spending 
and investment.  The ruling Christian Democratic Appeal party (CDA) 
is the only party insisting on strict compliance with the coalition 
agreement, which states that if the national budget deficit exceeds 
2 percent, "necessary measures" must be taken.  The European 
Commission (EC) forecasts that the Netherlands will have a 2.7 
percent budget deficit in 2009. 
 
¶5. Most Dutch employer and employee organizations reacted with 
disappointment to the latest stimulus measures, asserting that the 
GONL seriously underestimates the economic problems facing the 
Netherlands.  Leading employee organization CNV added that the 
government is urging consumers and business to spend "while the 
government itself is the great absentee when it comes to investing 
in the economy." 
 
 
¶6. The push by some in Parliament and industry comes amid signs of 
serious economic slowdown in the Netherlands, including layoffs at 
some of Holland's largest employers.  The EC now predicts that Dutch 
GDP will shrink by 2 percent in 2009 - lower than the expected EU 
average of 1.8 percent, and lower than predictions by Holland's 
leading statistical agency, CPB, in December of 0.75 percent 
negative growth (ref B).  The EC also expects unemployment in the 
Netherlands to rise to 4.1 percent in 2009; CPB predicts 4.5 
percent. 
 
¶7. Although Dutch unemployment will remain among the lowest in EU 
(where the average rate is expected to be 8.7 percent in 2009), 
announcements of layoffs this week by several Dutch industry giants 
Qannouncements of layoffs this week by several Dutch industry giants 
have added fuel to concerns about looming recession and an 
insufficient GONL response.  Royal Philips Electronics plans to cut 
6,000 of its roughly 300,000 jobs worldwide, having lost 186 million 
euro in 2008 compared with a net profit of over 4 billion euro in 
¶2007.  Tata Steel's Corus Plc, Europe's second-largest steel company 
formed a decade ago from the merger of British Steel and Dutch firm 
Hoogovens, may axe nearly 1,000 workers out of the 9,500 at its 
plant in Ijmuiden, Holland.  In December, Corus took advantage of 
the GONL's offer to allow shorter working hours for 4,600 of its 
11,300 employees in the Netherlands (rather than firing them), with 
the GONL paying the corresponding unemployment benefits.  Meanwhile, 
ING, the largest Dutch financial services and insurance 
provider, announced January 26 that it will cut 7,000 jobs worldwide 
and replace Chief Executive Officer Michel Tilmant after reporting a 
second consecutive quarterly loss.  ING also will accept additional 
support from the GONL in the form of a guarantee of 80 percent of 
the value of a large tranche of its problematic U.S. mortgage assets 
(ref C). 
 
¶8. Despite criticism from some corners that the GONL is not doing 
enough to offset the economic slowdown, the Dutch Cabinet is 
standing firm behind its cautious approach.  Prime Minister Jan 
Peter Balkenende and Finance Minister Bos do not want to increase 
the risk of a greater budget deficit before the existing stimulus 
 
THE HAGUE 00000062  003.2 OF 003 
 
 
measures have had time to work.  Bos noted that the financial sector 
- as a cornerstone of the Dutch economy - must start to function 
properly again for the real economy to recover.  Thus, providing 
loan and export guarantees instead of capital injections is a better 
solution.  Many segments of the Dutch population, including in 
government and industry, agree with the GONL's approach and are 
willing to wait and see how the current stimulus measures play out. 
Nonetheless, public debate likely will continue throughout the 
economic slowdown in 2009 about whether the GONL is doing enough. 
 
¶9. Meanwhile, the Cabinet is considering an additional stimulus 
package - likely to be announced in April - including measures to 
stimulate employment.  However, this is unlikely to include any tax 
cuts.  According to Bos, Dutch purchasing power has already improved 
sufficiently because, as part of the first stimulus package, the 
GONL allowed employees to reduce their contributions to the national 
unemployment benefit fund and cancelled the planned increase of the 
value added tax (VAT).  Prime Minister Balkenende noted that he is 
waiting for the next official growth forecasts in February before 
considering a third package of support measures during discussions 
in April of the 2009 and 2010 budgets. 
 
------- 
COMMENT 
------- 
 
¶10. Comment:  Although the Cabinet has chosen to avoid large capital 
injections thus far, it has been proactive in responding to the 
financial crisis.  The GONL introduced its first stimulus package in 
early October - well before the EU agreed on measures that should be 
taken by Member States - and it is continuously evaluating the 
effects of those measures.   The Cabinet is unlikely to bend to 
pressure for more drastic fiscal stimulus measures as it continues 
to focus attention on restoring the health of the Dutch financial 
sector - a main driver of the Dutch economy and the place where the 
Netherlands' troubles began.  On the international stage, the GONL 
remains committed to playing an important role in discussions within 
the EU and G20 on the future of world financial markets and needed 
changes in their regulatory structure.  End comment. 
 
 
GALLAGHER