US embassy cable - 04THEHAGUE879

UNCLAS THE HAGUE 000879 
 
SIPDIS 
 
PARIS ALSO FOR USOECD 
 
TREASURY FOR OASIA/ATUKORALA 
 
COMMERCE FOR 4212/USFCS/MAC/EUR/OWE/DEFALCO 
 
E.O. 12958 N/A 
TAGS: EFIN, PGOV, NL 
SUBJECT: NETHERLANDS: RISING BUDGET DEFICIT RESULTS IN NEW 
PUSH FOR SPENDING CUTS 
 
REF: A) THE HAGUE 122  B) 03 THE HAGUE 2750 
 
1.  The Dutch government is reacting with outward calm to 
the news that the EU Commission will launch an "excessive 
deficit" procedure against the Netherlands for running a 
budget deficit in 2003 of 3.2 percent - 0.2 percent greater 
than allowed by EU Growth and Stability Pact (GSP) rules. 
Finance Minister Zalm told the press this weekend that he 
had expected the Commission to begin this procedure and 
declared that he would have been "disappointed" if the 
Commission had not acted as "all countries, including the 
Netherlands, must obey the rules." 
 
2.  The press reports that in reaction to the deficit 
figures, Zalm has tabled within the Cabinet a 3 billion euro 
package of supplemental budget cuts and tax increases. 
Opposition parties are objecting to additional government 
economizing and there is even some discontent within the 
coalition.  A spokesman for the (largest coalition partner) 
Christian Democratic party remarked to the press that the 
budget was already severely stretched.  D66, the smallest of 
the coalition parties, joined the government on a platform 
of increased spending for education and innovation and will 
try and resist any cuts in those areas. 
 
3.  Comment: Although party leaders bristle at the prospect 
of finding and negotiating additional spending cuts, they 
have no alternative but to do so.  Absent further cuts, some 
estimate the deficit next year would rise to over 4 percent. 
Finding additional budget cuts will force the government to 
look inward as ministers fight to preserve their budgets. 
Although embarrassing to such an outspoken critic of other 
eurozone's deficit excesses as Zalm, the EU Commission's 
initiation of an excessive deficit procedure will strengthen 
his political clout in the Cabinet to fight for the cuts he 
advocates. The need to economize may promote implementation 
of needed reforms in social programs and benefit schemes but 
many of the proposed reductions reportedly tabled by Zalm to 
date would represent only short-term budget fixes (e.g., 
delaying additional educational spending, increasing health 
premiums) 
Sobel