Country Project: The Netherlands

EBC1030 International Economic Relations

Maastricht University, School of Business and Economics
2022-2023

Jorg Manders (i6295683), Kian Kashefi (i6311896) &

Riccardo Rignanese (i6332163)
 This report discusses the Netherlands and different aspects of its economy, like its
industry sectors and economic size. Secondly, it looks at some data and its economic
performance during the financial crisis that started in 2008 and the Eurozone crises that
followed in 2010 compared to the Euro Area by using different indicators. Lastly, it
concludes on the ideas mentioned in the paper and gives a brief outlook on the challenges
lying ahead for the Netherlands.

The Netherlands is one of the founding members of the EU along with Belgium,
France, Germany, Italy, and Luxembourg. It adopted the Euro in 1999 replacing the guilder
banknotes. Their population of around 17.6 million people accounts for 3.3% of the
population of the EU while their GDP value of 1.01 billion makes up 5% of the EU value. Its
GDP is mainly constructed from two main industry sectors: The manufacturing sector in the
Netherlands is highly developed and encompasses various industries such as chemicals,
machinery, electronics, and automotive. The country has a strong focus on high-tech
manufacturing and is home to several multinational companies.

The Netherlands has been at the forefront of renewable energy initiatives and is a
leader in wind energy production. The country has invested heavily in offshore wind farms
and sustainable technologies. It also has a significant presence in the oil and gas industry
(e.g., Shell). During the global financial crisis that started in 2008 and the subsequent
European debt crisis, the Netherlands faced significant challenges but managed relatively well
compared to many other European countries. The Dutch economy experienced a contraction,
rising unemployment, and declining housing prices. However, the country's prudent fiscal
policies and strong financial sector helped mitigate the impact.

The Dutch faced a severe economic downturn as a result of the global financial crisis.
Real GDP contracted by around 3.7% in 2009, reflecting a sharp decline in domestic demand
and reduced exports. Following the financial crisis, the Dutch economy gradually recovered,
with positive GDP growth rates. However, the recovery was modest, and the country
experienced a period of stagnation, with annual growth rates below 2%. The global financial
crisis also had a significant impact on the Dutch labor market. Unemployment rates started to
increase in 2009, rising from around 3.8% in 2008 to approximately 4.6% in 2009. This rise
reflected the economic downturn and reduced job opportunities. The interest rate decreased
quite a bit in this period which we can understand through use of the IS-LM model. To
stabilize output after a shock in demand it was necessary to decrease the interest rate.
Government structural balance also decreased during the crises. The Netherlands has never
had a very low government structural balance, and during the start of the financial crisis the
structural balance in the Netherlands decreased massively, mainly due to a decrease in tax
revenues and economic output as well as an increase in government spending. (Hers, J. 2014)

Following the global financial crisis, the Dutch

unemployment rate continued to rise, reaching
its peak at around 7.4% in 2014. This increase
was partly due to the prolonged economic
recovery and the impact of the Eurozone debt
crisis on the Dutch economy. Along with other
eurozone countries, they faced challenges during the sovereign debt crisis. This resulted in
weaker economic growth and increased government austerity measures. The decrease in
structural balance continued from one crisis to the other: it was negative also during the 2012
crisis, only becoming positive again in the years after. The Netherlands managed to
outperform the Euro Area during this period due to its strong fiscal discipline and strict rules.
Prudent crisis management by the Dutch government allowed for support of the economy
without incurring excessive deficit spending. Just like in the financial crisis, the long-term
interest rate in the Netherlands was decreasing which was again partly caused by the flight to
safety of investors but also because of actions taken by the ECB. A decrease in policy interest
rates but also several large-scale asset repurchasing programs helped decrease the long-term
interest rate in all of the Eurozone including the Netherlands.

The Netherlands' debt has risen by 20%

between 2007 and 2010, reaching almost 70%,
and it has grown to 83% before 2014, because
of decreasing tax earnings and increasing
government expenditures. Nonetheless, the
Netherlands managed to keep its debt-to-GDP
ratio under the level of other Eurozone countries. This was done through a combination of
factors like the traditionally sound fiscal management, since the Dutch government has
historically pursued responsible fiscal policies, and aims to keep its budget deficit below the
3% level set by the EU. Another factor is the diverse economy of the country. Based on a
highly skilled workforce, a well-developed infrastructure system, and a favourable business
environment, which sustained economic growth, generating higher tax revenues and reducing
the need to borrow. Furthermore, during the financial crisis, the Euro appreciated against
other major currencies, which together with the stability of the country and its financial sector
has attracted huge foreign investments, with many companies setting their headquarters in the
country.

The financial crisis and the European debt crisis were relatively similar. The financial
indicators show some related patterns from 2008 till 2014, indicating that the two crises had
approximately the same effects on the economy. The Netherlands managed to handle both
crises fairly well, remaining stable during the period between 2008 and 2014. The low level
of debt-to-GDP is a key factor of the perceived stability of the Netherlands because it allows
for them to cover its unexpected expenses. The Netherlands having a top credit score has also
helped significantly during the crises. The biggest differences are identifiable in the monetary
policy implemented by the ECB from 2012 onwards, which involved low-interest rates, both
in the long and short term, quantitative easing, and a non-conventional monetary policy of
asset repurchases to lower premiums. These policies had their consequences on the Dutch
economy. Nonetheless, all the previously cited factors were fundamentally helpful in
mitigating the effects of the financial crises and because of these reasons, the crises were less
harmful in the Netherlands, and the Dutch economy managed to recover faster than in most of
the other European countries.

It seems that the Netherlands has recovered impressively well after the two crises and
will continue to grow as an economy. Furthermore, their recovery from the Corona virus
pandemic in 2021 and 2022 indicates there will be steady growth incoming. However, this
means that inflation will continue to rise too. Interest rates are likely to increase with house
prices falling. Unemployment will most probably not increase in a drastic way and will
remain historically low. The Dutch government projects an unemployment of 4.1% and 4.5%
for 2023 and 2024, respectively.

With the ongoing resource price crisis the Netherlands will try to make the switch to
sustainable energy sources sooner than expected. In the next few years the Netherlands could
continue to struggle with high inflation because of this crisis. The Netherlands will continue
to be one of the most stable economies in Europe with no recessions for the foreseeable
future, yet.
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Hers, J., & Suyker, W. (2014, July). Structural Budget Balance. CPB Netherlands Bureau for

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