Coen Teulings, the head of the Netherlands' official economic forecasting agency, has spent the last few years as a lonely voice in the Dutch policy landscape, warning of the dangers of austerity in a country that has been one of its most enthusiastic champions.
Mr Teulings’ seven-year term at the Central Planning Bureau comes to an end in April – just as the Netherlands’ cross-partisan consensus on the need for deficit-cutting is beginning to crack.
Under the pressure of ever-worsening economic news, with gross domestic product expected to fall a further 0.5 per cent in 2013, the Dutch public and media are beginning to ask whether their government's aggressive austerity policies have been counterproductive. A government proposal for an additional €4.3bn in cuts in 2014 to keep the budget deficit within EU limits faces growing resistance both from opposition parties and from the labour movement, a weakened but still powerful player in Dutch politics.
Mr Teulings’ CPB let loose with a report in March accusing Dutch politicians of ignoring a consensus among macroeconomists that cutting deficits does much more economic damage than usual during so-called “balance-sheet recessions”, like the current one. Such contractions are driven by consumers and firms trying to pay down heavy debt loads, leaving government as the only actor in the economy still able to spend.
The Dutch government’s inability to acknowledge the damage done by austerity despite mounting evidence is a case of “cognitive dissonance”, Mr Teulings told the Financial Times. He said persisting with the proposed new deficit cuts, on top of planned austerity measures amounting to 8 per cent of GDP over seven years, would hurt consumer confidence.
“There’s different evidence that all fits [the argument] that the costs of austerity are currently higher, because there’s rising unemployment, there’s a financial crisis and we are close to the zero lower bound [on interest rates],” Mr Teulings said. He referred to recent papers by the IMF’s Olivier Blanchard and to work by Larry Summers, Paul de Grauwe and others that has rekindled the debate over the wisdom of austerity across the EU.
Mr Teulings is not the only economist in the Netherlands sceptical of austerity, but he has been the only one with any policy influence. Prominent austerity sceptics at universities and big banks say they have been shut out, not just from government policy-making bodies but from the counsels of political parties on both right and left.
“It’s not only the current government, basically all the sensible political parties have embraced austerity,” said Bas Jacobs, a professor at Erasmus University and austerity-sceptic. That includes the centre-right Liberals and the centre-left Labour party, who form the coalition government, as well as most mainstream opposition parties.
The Dutch central bank has also been a big backer of austerity.
Most significantly, the powerful senior staff of the finance ministry is entirely committed to austerity. Two senior finance ministry officials with neo-Keynesian views left the ministry during the tenure of the previous finance minister, the hard-line Jan Kees de Jager.
In the Dutch system, where senior civil servants wield great power, that places limits on the freedom of action of Jeroen Dijsselbloem, the finance minister.
“Dijsselbloem is in a very difficult position,” Mr Teulings said.
Mr Dijsselbloem has backed austerity, but some analysts say he has little choice. His Labour party has spent decades re-establishing its reputation for fiscal prudence after being blamed for high budget deficits and low growth in the late 1970s. He also serves as president of the Eurogroup, and can hardly be seen to criticise Brussels’ deficit limits.
Signs of a public turn against austerity are mounting. A March survey of business entrepreneurs by Dutch pollsters TNS NIPO found extreme pessimism over the economy, with deficit cuts cited as the number one cause.
Meanwhile, opposition parties have balked at the proposal for new taxes and cuts in 2014, leaving the government unable to push its budget through the Senate, where it lacks a majority. Talks between the national business federation and labour groups intended to build consensus for a budget have foundered over the unions’ opposition to further austerity, and the Labour party is said to increasingly lean towards postponing the cuts.
If the 2014 cuts are scrapped, Mr Teulings’ views will finally have prevailed for once, if only after he has left the scene.