Hamish McRae in Amsterdam: Sun shines on Dutch but the economic shadows lengthen

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The Independent Online

June is blazing, the sun is shining and the Dutch are unhappy. In another vote against the EU elite, the Netherlands yesterday added its voice to France against the way Europe wants to reorganise itself. The vote is an exercise in politics rather than economics but, to an even greater extent than the French, the Dutch have powerful economic reasons behind their concern.

June is blazing, the sun is shining and the Dutch are unhappy. In another vote against the EU elite, the Netherlands yesterday added its voice to France against the way Europe wants to reorganise itself. The vote is an exercise in politics rather than economics but, to an even greater extent than the French, the Dutch have powerful economic reasons behind their concern.

A part of that concern is that the Netherlands has become the largest net contributor per head to the EU budget, but it is not just that. Ten years ago the country seemed the model for an economically successful Europe. It had managed to combine a high standard of living with high welfare benefits, low unemployment and decent growth. If only the rest of Europe performed as well as the Netherlands, economists thought.

That is no longer the case, for the Netherlands is now under-performing the rest of the eurozone. It still has relatively low unemployment, but there are special reasons for that, and in any case the total of jobless is rising fast. It dipped into recession in 2002 and is probably again in recession now. Living standards are falling: retail sales have been negative for the best part of three years and the confidence of both the business community and particularly consumers remains depressed. The charts sketch this dismal performance.

But to point to a poor performance is not to explain it. Physical proximity to Germany is part of the problem, for if Europe's biggest export market is depressed it is hard to grow much yourself. But other EU countries have managed to counter such a handicap. Denmark and Sweden have achieved better growth; so too has Spain. Something deeper is happening, something that perhaps carries a wider message for Europe as a whole.

Talk with Dutch business people and you get a variety of explanations. But the one that struck me most was embedded in the question: "Have we gone soft?" It is a question that you would not hear asked in London. The problems of the UK economy are many but I don't think people worry about people going soft. If anything people are worried about the reverse: that our economy, our society, is too hard. It demands a lot of people, at least in the private sector, and in a somewhat random and often unfair way, rewards people who perform to the standards the market demands.

You can see the "softness" in the figures. The workforce activity rate ­ people of working age who are in jobs ­ is about the same as the UK and is high by European standards. But much of the employment is part-time, and total working hours are correspondingly low. The Netherlands has the highest proportion of part-timers in Europe. In some ways that is admirable. It gives great flexibility to the economy and is one of the reasons why unemployment is low ­ the other is that the Dutch have very high disability rates. Generous deals for people who for whatever reason are unable to work has had the unsurprising effectof increasing the numbers ofthat category.

So private consumption is low. It is just 49 per cent of GDP, against 66 per cent in the UK and 71 per cent in the US. The Dutch have made the choice that many British people say they would like to make ­ but in general don't ­ of choosing leisure over work. But the penalty they pay is consuming less.

This isn't rocket science. In broad terms Western European countries have access to the same technology, have similar levels of education and skills, and share the same markets. But they make different choices. Some, such as France, choose to have legislation that gives a high level of protection for people already in jobs, but that carries the cost of low job creation and high unemployment. Others, such as Ireland and the UK, offer less job protection but are better at creating employment. The problem comes when the people are uncomfortable with the choices they are nudged towards.

That leads back to the situation in the Netherlands. What seemed to be a balance that was acceptable to the Dutch people ­ arguably the most successful balance between work and leisure in the EU ­ no longer seems to satisfy the voters. Of course this vote is not specifically about work/life balance as such. To judge by the debate, immigration ­ including immigration from the new EU member states ­ and the payments to the EU bureaucracy come further up the list. But as in France there is a general sense of unease about the competitiveness of Europe and the inadequate responseof the politicians to this threat.

This has been exacerbated by the perception of the euro. I had not realised how unpopular the euro was in the Netherlands until this visit. The Dutch believe, with some justification, that they joined the eurozone with the guilder at too low a rate. It was put to me that the people had been cheated out of their money, not something that plays well among the thrifty Dutch. Then there was a surge in inflation (you can see that on the chart) and the euro got the blame for that. Inflation has now fallen back, with the stagnant economy, but the euro catches some of the blame for the economic stagnation. Had they still had the guilder they would be able to cut interest rates, as would the Germans if they still had the mark.

The guilder pretty much shadowed the mark, so arguably the Dutch have not really lost much independence. But the old relationship with the guilder and the mark seemed to have worked better than the new arrangement of both countries sharingthe euro.

For the enthusiasts for the European dream ­ and many people cite the need for Europe to be a counterweight to the US ­ this is all rather dispiriting. There will be a lot of disappointed Dutch today. There is a crude way of explaining why one of the most Europhile of nations has turned against the concept, which is that the Netherlands used to do very well in economic terms out of the EU and now it is doing rather badly. But it is not just that. I think a lot of the disenchantment stems from a deeper concern that Europe is not doing very well against the global competition not just from the traditional rival, the US, but against the new challengers of China and India. This concern that the EU elite has its guns facing the wrong direction is exacerbated by the belief that the chief European economic innovation, the introduction of the euro, has made matters worse, not better.

It is a toxic mixture: a feeling that you are getting poorer and that your leaders are responding inadequately to a global challenge. Everyone here points out to you that the rationale for voting "no" to the constitution is not the constitution itself but a host of other and largely disconnected reasons. But it seems to an outsider at least that Dutch opposition is both more sophisticated and more relevant to Europe's future than the opposition in France or the UK.

It is more sophisticated inthat the objection is not that the EU is not French enough, or, as in the case of the UK, people don't like being told what to do by other people. This is a country that has been at the very heart of the European project. This is not crude nationalism.

It is more relevant in that the Netherlands has been one of Continental Europe's big economic success stories. Ifthe Dutch are finding it tough then so too increasingly will the rest of the Continent. The Dutch are telling Europe's leaders that they have to lift the EU's economic game.

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