The Economist: The Dutch and fiscal stimulus - Fingers in the dyke

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The Dutch and fiscal stimulus - Fingers in the dyke

The Netherlands typifies a European fear that any big fiscal stimulus might just benefit others. President Obama, no less, has decried as a “phoney debate” the idea that Europe and America disagree on the need for a fiscal stimulus to fix the economic crisis. The American president was reacting to headlines predicting a transatlantic row at the G20 summit in London on April 2nd. But senior European politicians and officials support him. When it comes to the case for stimulus spending, they say, transatlantic differences are small.

The Netherlands has an exceptionally open economy, exporting 70% of output, so it is a leading voice against protectionism of the sort that tempts some American congressmen. The Dutch are also famously thrifty. Raise Dutch wages or cut income taxes, and the new spending power will not just suck in imports, but “leak” into savings.Could Dutch politicians pull off these austerity measures? Other EU governments would hardly dare to mention them for fear of riots. The question points to one area where domestic pain can lead to national gain: some countries will emerge more competitive than others. If that hope prompts the Dutch to spend for Europe, that will be good for everybody.