VZCZCXRO9498
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHTC #0153/01 0631616
ZNR UUUUU ZZH
R 041616Z MAR 09
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 2614
INFO RUEHAT/AMCONSUL AMSTERDAM 4167
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 05 THE HAGUE 000153 
 
SIPDIS 
 
STATE FOR EEB/OMA - AWHITTINGTON, EEB/TPP - JSHANNON, EUR/ERA - 
LKIRKCONNELL 
 
TREASURY FOR IMI - VATUKORALA, IMB - BMURDEN, WMONROE, MBEASLEY 
 
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT 
 
STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV PREL NL
SUBJECT: NETHERLANDS - CABLE 1 OF 2: DUTCH POSITIONS IN ADVANCE OF 
G20 SUMMIT 
 
Ref: (A) STATE 17502, (B) THE HAGUE 116, (C) THE HAGUE 62, (D) THE 
HAGUE 60, (E) 08 THE HAGUE 1018, (F) 08 THE HAGUE 981, (G) 08 THE 
HAGUE 910, (H) 08 THE HAGUE 901, (I) 08 THE HAGUE 840, (J) 08 THE 
HAGUE 771 
 
THE HAGUE 00000153  001.2 OF 005 
 
 
¶1. Summary:  This is the first of two cables providing post's 
answers to questions in Ref A about Dutch plans for the G20 summit 
and responses to the financial crisis.  At the G20 summit, the Dutch 
are likely to recommend using a slightly expanded, more 
representative G20 format to strengthen the ability of existing 
global institutions like the IMF, World Bank, and UN to respond to 
the global financial crisis.  At home, the Government of the 
Netherlands (GONL) has implemented a series of measures to shore up 
the financial sector and stimulate an economy now in recession. 
More government action is expected in mid-March (to be reported 
septel).  Please see reftels for detailed post reporting on these 
issues.  End summary. 
 
--------------------- 
SUMMARY OF KEY ISSUES 
--------------------- 
 
¶2. Stimulus:  The GONL introduced two economic stimulus packages in 
November 2008 and January 2009.  The first package was worth 6 
billion euro (equivalent to one percent of Dutch GNP); the second 
consisted mainly of government guarantees to stimulate lending and 
exports.  Highlights of both packages include: 
 
- corporate tax breaks, 
 
 
- shorter working hours and corresponding unemployment benefits, 
 
- accelerated infrastructure projects, 
 
- extending the current export credit insurance facility to include 
destination countries where no commercial export credit insurance is 
available, 
 
- expanding the existing Growth Facility (in which the GONL 
guarantees up to 50% of bank loans to fast growing, small companies) 
to include larger companies, and 
 
- measures to stimulate the housing market (including risk 
mitigation for property developers and a 100 million euro fund for 
projects that make houses more environmentally friendly). 
 
¶3. Stimulus continued:  Despite calls from some in parliament and 
the media for more urgent action, the cabinet of Prime Minister Jan 
Peter Balkenende has maintained a cautious approach to responding to 
the financial crisis.  In keeping with pragmatic Dutch 
sensibilities, the cabinet wants to judge the effect of each round 
of stimulus measures - and avoid increased government spending and a 
looming budget deficit - before proceeding with additional action. 
With the economy in recession and an increasingly gloomy forecast 
for 2009, however, the Prime Minister has announced plans for a 
third round of stimulus measures in mid-March.  The cabinet is 
consulting with business, labor, and parliament; it will meet in a 
closed-door session March 5-7 and is expected to announce new 
measures after March 13.  Some measures currently being considered 
are: 
 
- encouraging wage moderation (Labor Minister Donner has called on 
unions not to seek any pay raises in their collective labor accord 
(CAO) negotiations), 
 
- extending the GONL's current program of shorter working hours and 
corresponding unemployment benefits, 
 
- fast-tracking new road and building construction projects, 
including curtailing environmental appeal procedures, and 
 
- giving companies a one-month holiday from VAT and wage tax 
Q- giving companies a one-month holiday from VAT and wage tax 
payments. 
 
¶4. Financial Sector:  As the cornerstone of the Dutch economy - and 
the sector hardest hit by the crisis - the financial sector has been 
the primary target of GONL recovery efforts.  Finance Minister 
Wouter Bos argues that the financial sector must start to function 
properly again for the real economy to recover.  The GONL has 
 
THE HAGUE 00000153  002.2 OF 005 
 
 
employed a range of measures to date, including: 
 
- Emergency bank fund:  The GONL created a 20 billion euro emergency 
fund in September 2008 to provide liquidity to financial 
institutions.  Dutch banking and insurance giant ING accepted a 10 
billion euro injection from this fund; insurance and pension fund 
leader AEGON accepted 3 billion euro; and SNS Real accepted 750 
million euro. 
 
- Fortis nationalized:  In October 2008, the GONL bought all Dutch 
operations of Belgian banking conglomerate Fortis for 16.8 billion 
euro, including its Dutch insurance activities and the Dutch 
operations of ABN AMRO.  (Fortis had purchased parts of ABN AMRO in 
October 2007.)  The GONL now plans to merge the operations of Fortis 
Bank Nederland and ABN AMRO Bank Nederland over the next two years. 
 
- Bank deposit guarantee:  The GONL raised the guarantee on 
individual and small business bank deposits from 38,000 to 100,000 
euro in October 2008.  It also agreed to pay for portions of Dutch 
savings lost in the collapse of Icelandic Internet bank Icesave. 
 
- Inter-bank lending facility:  The GONL launched a new 200,000 
million euro facility in October 2008 to guarantee inter-bank loans 
and stimulate inter-bank lending. 
 
- ING bailout:  The GONL agreed in January 2008 to guarantee 80 
percent of ING's 27.7 billion euro portfolio of U.S. "Alt-A" 
mortgage-backed securities (in addition to the 10 billion euro 
capital injection that ING accepted in September 2008). 
 
¶5. Real Economy:  The Dutch view their financial sector as the most 
vulnerable and have therefore focused the bulk of their attention 
there (see paragraph 4).  The open Dutch economy also is heavily 
dependent on international trade; Dutch exports are expected to 
decline almost 12 percent in 2009 as a result of the global 
slowdown.  The GONL has extended the current export credit insurance 
facility to include destination countries where no commercial export 
credit insurance is available, and it is looking at additional 
measures to boost exports. 
 
¶6. Real Economy continued:  Regarding WTO commitments, the Dutch 
remain vocal supporters of concluding the Doha round as soon as 
possible; they have repeatedly expressed to their U.S. and other 
interlocutors their hope that the global financial crisis will spur 
the U.S., China, India, and others to make the concessions necessary 
to conclude the round.  In keeping with their historical posture as 
avid free-traders, the Dutch remain strong opponents of 
protectionism.  They have called on fellow EU Member States to avoid 
protectionist measures, and they were highly critical of the 
proposed "Buy American" provisions in the U.S. Recovery and 
Reinvestment Act.  Prime Minister Balkenende will reiterate these 
messages on Doha and protectionism at the European Council meeting 
on March 19-20 and the G20 Summit on April 2. 
 
¶7. Social/Labor Impact:  The current unemployment rate of 3.9 
percent is expected to climb to 5.5 percent in 2009 and 8.75 percent 
in 2010, according to the Netherlands Bureau for Economic Policy and 
Analysis.  Although a significant increase for the Netherlands, 
these rates remain considerably lower than the EU average (expected 
to be 8.7 percent in 2009).  In the Dutch social welfare state, 
Qto be 8.7 percent in 2009).  In the Dutch social welfare state, 
unemployment and loss of pension benefits are critical social 
issues.  The GONL is spending more to provide unemployment benefits 
to a larger percentage of the population and ensure major pension 
providers remain solvent.  To date, the GONL's primary tactic 
against unemployment has been its program to allow companies to 
offer employees shorter working hours, while providing corresponding 
unemployment benefits.  Prime Minister Balkenende has indicated that 
the GONL will announce additional measures to combat unemployment - 
particularly among Dutch youth - and ensure sustainable pension 
schemes in its third stimulus package in mid-March.  Among the 
measures the GONL is considering are: 
 
- ramping up vocational centers around the country to help with job 
searches and re-training (something the GONL has already been 
doing), and 
 
- providing transfer bonuses for workers moving to a new sector, 
especially health care and education where more labor is needed. 
 
¶8. Dimension of the Crisis:  As in most Western countries, the Dutch 
 
THE HAGUE 00000153  003.2 OF 005 
 
 
public is resigned to a dismal year for the economy in 2009, with 
only slight recovery possible in some sectors in 2010.  The Dutch 
also recognize that their economy was well positioned at the start 
of the crisis (including low inflation and unemployment, and a 
government budget surplus of 1.3 percent of GDP in 2008); thus they 
are better positioned than most to weather the storm.  The impact of 
the crisis on Dutch banks remains substantial, though, in large part 
because of their significant international - particularly U.S. - 
exposure.  Dutch banking giant ING has been a prime case in point; 
its risky bets on U.S. mortgage-backed securities have forced it to 
accept GONL support on multiple occasions since September 2008. 
 
¶9. Dimension of the Crisis continued:  The Dutch emphasize the need 
to protect less developed countries (LDCs) and emerging markets from 
economic fallout.  At the G20 summit, the Dutch will stress the 
importance of loosening credit markets in richer LDCs such as 
Pakistan.  The Dutch argue that these wealthier LDCs have seen 
credit supplies dry up but are not candidates for the same levels of 
assistance of which poorer LDCs can take advantage.  If richer LDCs 
like Pakistan are cut off from international money flows, they could 
slide backward toward increased radicalization.  In the Dutch view, 
regional international banks and credit institutions may be best 
positioned to assist this stratum of LDCs.  Despite GONL support for 
emerging economies, Prime Minister Balkenende stopped short of 
supporting the proposed multi-billion euro bailout of Central and 
Eastern European economies at the March 1 EU preparatory meeting for 
the G20 summit.  Instead, he agreed with German Chancellor Merkel 
and other EU leaders that additional aid should be given to 
struggling nations only on a case-by-case basis, and that the 
criteria for euro membership should not be softened to allow weaker 
economies to join. 
 
¶10. Role of the G20:  Dutch MFA officials outlined what they view as 
three options for international coordination in addressing the 
financial crisis.  One, the UN, along with the IMF and World Bank, 
could play the dominant role, continuing business as usual.  Two, 
the international community could create an entirely new body to 
develop and supervise a new international financial structure. 
Three, the G20 could act as a high-level catalyst to help coordinate 
work to reform the UN, IMF, and World Bank into more effective 
institutions.  The Dutch support this third option.  The Dutch MFA 
believes the UN in particular, despite its problems, remains the 
most legitimate international organization in which to operate. 
However, if the G20 is to play a constructive role, it must be 
"slightly expanded" to be more representative of the global economy. 
 For example, the Dutch support the inclusion of the African 
Development Bank to help represent African nations.  (South Africa, 
according to the Dutch, is too developed economically to act as a 
viable representative for the rest of the continent.) 
 
¶11. Comment:  In promoting a role for an "expanded" G20, the Dutch 
expect to have a seat at the G20 table, building on the precedent 
they have set by attending both the November 2008 and April 2009 
Qthey have set by attending both the November 2008 and April 2009 
summits.  Although not a G20 member, the Netherlands argued 
successfully in November that the Dutch play a major role in the 
international financial system; they have a disproportionate amount 
at stake in the reform of that system; and their expertise should be 
utilized.  Now, with a second invitation to the April summit, the 
Dutch hope to have assured their seat at the table for future G20 
events related to the global financial crisis.  They are therefore 
supportive of the G20 continuing to play a key role in developing a 
new financial architecture - especially if the Netherlands is a 
direct participant.  That said, if the Dutch lost their seat at 
future G20 events and could only provide input through the EU, they 
would likely still support the G20 process.  End comment. 
 
----------------------------------- 
¶I. OBJECTIVES FOR THE LONDON SUMMIT 
------------------------------------ 
 
¶12. Response A:  Following are the issues of greatest importance to 
the Dutch at the April summit. (See paragraphs 9-11 for more 
detail.) 
 
- the promotion of free trade and open markets, 
 
- a commitment to avoid protectionism, 
 
 
- the need for international cooperation - perhaps using an expanded 
 
THE HAGUE 00000153  004.2 OF 005 
 
 
G20 group - to create a new financial architecture, 
 
- a rapid conclusion of the Doha round, and 
 
- attention to LDCs and emerging economies. 
 
¶13. Response B:  In a February 27 op-ed, Prime Minister Balkenende 
outlined his four objectives for the G20 summit as follows: 
 
- Social Market Economy:  The Prime Minister will encourage G20 
members to choose "an economy with morality, a social market 
economy."  This includes tighter supervision and more powerful 
international institutions, in particular to supervise hedge funds 
and complex financial products more closely, address tax havens, and 
"put an end to a bonus culture that leads to unacceptable risks." 
He supports Chancellor Merkel's recommendation for summit attendees 
to endorse an international "Charter of Sustainable Economic Action" 
to define the principals of economic conduct of companies and 
governments. 
 
- Resist Protectionism:  The Prime Minister noted the intense 
pressure on governments to use scarce tax revenues to support their 
domestic economies, but he cautioned that a "chain reaction of 
protective measures" would undermine long-term growth prospects. 
According to Ministry of Finance officials, Balkenende's main 
message at the G20 summit will be a "plea for open markets" and a 
warning against what the Dutch see as rising protectionism in EU 
Member States, the United States, and many other nations.  He also 
will argue that the financial crisis should give new impetus to 
successfully conclude the Doha round. 
 
- Solidarity With Poor Countries and Future Generations:  Balkenende 
will seek support for LDCs and emerging economies, particularly 
wealthier LDCs whose economies are in precarious conditions but who 
may not normally qualify for emergency assistance.  He will stress 
the "moral obligation" of G20 members to help achieve the Millennium 
Development Goals.  He also will stress the links between 
innovation, climate change, economic recovery, and future 
generations.  The Prime Minister is an ardent supporter of using 
innovation and technology to drive economic development; the GONL 
maintains and entire Innovation Agenda devoted to this cause.  At 
the G20, he will argue that "creating jobs and greening the economy 
can go hand in hand."  Countries should invest now in sustainable 
innovation and alternative energy sources that will promote greener 
societies of the future, while creating jobs and boosting economic 
activity in the short-term. 
 
- Sustainable Government Finances:  Balkenende will acknowledge the 
pressure on government budgets, in particular to maintain public 
services and pensions.  Nonetheless, he will call for prudent fiscal 
policy, including an adherence by EU Member States to the fiscal 
discipline required by the European Growth and Stability Pact. 
 
¶14. Response C:  See paragraph 13. 
 
¶15. Response D:  See paragraphs 10-11. 
 
------------------------------------------ 
II. IMPACTS OF THE GLOBAL FINANCIAL CRISIS 
------------------------------------------ 
 
¶16. Response E:  The Dutch financial sector, which was heavily 
exposed to U.S. mortgage-backed securities and other toxic assets, 
has been hard hit by the crisis.  The GONL has been forced to 
respond to a wide range of ensuing financial problems at the banks 
Qrespond to a wide range of ensuing financial problems at the banks 
and pension funds, including dealing with bad assets, injecting more 
liquidity and fresh capital, guaranteeing deposits, and improving 
the housing market.  See paragraphs 3-4 for more detail on GONL 
action in each of these areas. 
 
¶17. Response F:  To date, two major financial institutions in the 
Netherlands have required GONL intervention:  Belgian-owned Fortis 
and Dutch-owned ING.  In both cases, the predominance of U.S. 
mortgage-backed securities and other toxic assets on their books was 
the primary cause of the demise. 
 
- Fortis/ABN AMRO:  In October 2008, the GONL bought all Dutch 
operations of Belgian banking conglomerate Fortis for 16.8 billion 
euro, including its Dutch insurance activities and the Dutch 
operations of ABN AMRO.  (Fortis had purchased parts of ABN AMRO in 
 
THE HAGUE 00000153  005.2 OF 005 
 
 
October 2007.)  The GONL now plans to merge the operations of Fortis 
Bank Nederland and ABN AMRO Bank Nederland over the next two years. 
 
 
- ING:  In September 2008, ING accepted a 10 billion euro capital 
injection from the GONL to provide needed liquidity.  When this did 
not prove sufficient to restore investor confidence, the GONL agreed 
in January 2008 to guarantee 80 percent of ING's 27.7 billion euro 
portfolio of U.S. medium-quality mortgage-backed securities.  In 
return for GONL assistance, ING agreed to earmark part of the 
capital supplied by the GONL to inject more credit into the Dutch 
market.  Specifically, ING will supply 25 billion euro in credit to 
consumers and commercial and industrial companies in the 
Netherlands. 
 
¶18. Response G:  See paragraph 4. 
 
¶19.  See septel for the continuation of this report. 
 
 
GALLAGHER