Dutch EU Exit Report Overlooks Domestic Obstacles

A study that shows the Dutch would be better off outside the EU ignores political realities.

Geert Wilders, the leader of the Netherlands’ nationalist Freedom Party which is leading in the polls for May’s European Parliament elections, unveiled a study on Thursday that he claimed supports his argument that the country would be better off outside the European Union.

However, the potential savings identified in the report (PDF), by the British consultancy Capital Economics, are conditioned less on the Netherlands leaving the European Union and more on making the sort of domestic policy changes Wilders advocates.

It argues that the Dutch government could save €7.5 billion per year by 2035 through revised migration policies. No longer bound by European rules, the country could refuse to admit immigrants who are unlikely to make an “economic contribution.” Certainly Wilders’ Freedom Party would do so if it had absolute power but this proposal lacks support from other parties. A Netherlands outside the European Union is unlikely to pursue a radically different immigration policy than it does today today.

The report further suggests the yearly cost of doing business in the Netherlands could be reduced by at least €20 billion by “renationalizing” regulations, meaning the country should institute “a more targeted and less onerous regulatory framework.” Yet, after Ireland, it already has the least onerous regulatory framework in Europe, according to the Organization for Economic Cooperation and Development. There simply isn’t the political majority, nor likely to be one in the near future, for more deregulation.

The greatest wave of deregulation likely to affect the Netherlands in the near future is a free-trade deal between the European Union and the United States — which the country would miss out on if it left the bloc. It could conceivably sign better trade deals with non-European partners on its own but that is assuming such partners, like the United States, would be interested in enacting separate treaties after wrapping up years of negotiations with the European Union.

It also assumes that emerging markets, like Brazil and India, would be interested in liberalizing their international trade at all — which they have so far shown limited interest it. If they won’t negotiate trade deals with the European Union as a whole, why would they be keen to enact treaties with just the Netherlands?

Moreover, if the Netherlands is to remain a member of European Economic Area like Iceland and Norway — and given its reliance on exports to neighboring European countries, it will want to — the country would have no choice but to recreate many European regulations at the national level, canceling out a good chunk of the potential savings.

The Capital Economics study downplays the risk of a loss of exports, even if a third of Dutch national income is derived from foreign trade and 15 percent of Dutchmen work for foreign companies, arguing that other European countries would have no interest in severing trade relations with the Netherlands even if it left the European Union. Which is true but that overlooks the likelihood of the Netherlands’ exports becoming more expensive when the country exists the euro.

Capital Economics claims there is “little evidence to suggest that, beyond initial and temporary market volatility, the new guilder will either appreciate or depreciate substantially.” But that “initial and temporary” volatility should see a steep increase in the reintroduced guilder’s value against the euro, making Dutch exports more costly for countries still in the single currency and thus far less competitive.

The report rules out this possibility by opining that for the Netherlands, the euro is not actually undervalued. The simple fact that the country has been running trade deficits for decades, sometimes even the largest in Europe relative to its economic output, disproves that thesis.

What is unequivocally true is that if it left the European Union, the Netherlands would no longer have to contribute to its budget nor the bailing out of remaining member states. Capital Economics puts the country’s cumulative savings it would achieve as a result at €240 billion by 2035.

It are these transfers, to countries like Greece and Portugal, that upset the average Dutch voter who has seen his own disposable income decrease.

Despite a recovery in exports, the Dutch economy last year was still 3.5 percent smaller than before the crisis. Household consumption has dropped in every quarter since early 2011. An underlying cause is the Netherlands’ high household debt, equivalent to 110 percent of economic output. Housing prices have fallen 20 percent since 2008, as a result of which 16 percent of homeowners owe more on their mortgages than their houses are worth.

Yet it are public-sector wage freezes and higher taxes that have hurt the most. Wilders successfully campaigns against both and links the austerity measures at home to bailouts abroad. With Euroskepticism rising, he could very well win a plurality of Dutch seats in the European Parliament. But he is still unlikely to win a national election. Most Dutch voters are frustrated with the European Union but they continue to believe that it does their country more good than harm to be a member.