A Quarter of Euro-Zone GDP under Austerity Pressure

According to the Irish Times we can now add another euro-zone country to the list of troubled economies:

The multibillion-euro package of austerity cuts that brought down the Dutch minority government, which was delivered to Brussels just ahead of deadline on Monday, has been described by the country’s economic planning agency as “too vague to assess”. In an embarrassment for the caretaker coalition ahead of a September 12th general election, both the central planning bureau and economists at the ministry of finance have admitted they cannot say with certainty that the deal can meet the EU budget deficit requirement of 3 per cent of GDP.

In plain English: time to add the Netherlands to the list of debt problems in the euro zone. And that means a welfare state that is defaulting on its promises to the taxpayers who have no choice but to buy those promises from government:

The [Dutch central economic planning] bureau is uneasy about the lack of supporting data on a proposed cut of €1.6 billion in spending on healthcare, which is already shaping up to become one of the more contentious issues at the polls. It also says it needs details of a “general” but unspecified across-the-board cut of €875 million.

And of course there is a dose of tax increases in the package:

Clearly anticipating the argument that the €13 billion in cuts could hinder economic growth, it says it has not seen any government analysis of how proposed tax increases – including a rise in VAT from 19 to 21 per cent, aimed at generating €3.2 billion – will affect consumer spending or jobs. [There are also] plans to bring forward an increase in the pension age to 66, a public-sector pay freeze for teachers, police and civil servants, and an end to tax relief on home-to-work travel.

Added together, the Netherlands and the other troubled euro-zone countries together represent 23 percent, almost one quarter, of the euro-zone GDP. This is no minor crisis. It is shaping up to rattle the very foundations of the common currency.