Fitch: EUR6bn Package Neutral for Dutch Debt Dynamics Assessment


LONDON, October 17 (Fitch) The recent news that Dutchpoliticians had reached agreement on a EUR6bn fiscal consolidation package for 2014 doesnot alter Fitch Ratings' assessment of the Netherlands' sovereign debt profile.This is because we had assumed the package would be adopted since itsannouncement in the summer. The deal is positive for the sovereign in reducing theuncertainty around fiscal plans for 2014-2015, but will have limited impact on debtdynamics in the coming years because of the substantial consolidation already beingundertaken. When we affirmed the Netherlands 'AAA' rating with a NegativeOutlook in August, we considered a scenario in which the EUR6bn package was delayedand spread over time, resulting in slower fiscal consolidation that produced anaverage primary deficit of 0.9% over 2012-2021, and a primary budget balance in2019. The headline deficit under this scenario is higher in 2014 at3.7% of GDP (versus our base-case forecast of 3.3%, assuming a fiscalmultiplier of 0.5x), as is real GDP growth. But debt dynamics do not divergesignificantly from our base-case projections. Public debt peaks in 2018 under both thebase case and alternative scenarios, and at an only marginally higher level(82% of GDP, versus 80% in our base case). One reason for this is that successive Dutch governments havealready introduced a series of fiscal consolidation measures totalling EUR46bn, or7.7% of GDP, over 2011-2017. Half of these measures take effect in 2014-2017.The current government's aim in adopting the EUR6bn package has been tocorrect the excessive deficit by bringing it below 3% of GDP. The securing of the EUR6bn package suggests that the politicaland social consensus underpinning consolidation efforts remains a ratingsstrength. However, protracted negotiations were needed, and at one pointit looked possible that the talks would fail. If political uncertaintycontinues to affect business and consumer confidence in fiscal and economic policy,it could act as a further drag on the economy. The Negative Outlook on the Netherlands' 'AAA' rating reflectsour forecast of deterioration in public debt dynamics, and persistent economicweakness. Contacts:Michele NapolitanoDirectorSovereigns+44 20 3530 1536Fitch Ratings Limited30 North ColonnadeLondon E14 5GN Mark BrownSenior DirectorFitch Wire+44 203 530 1588Media Relations: Peter Fitzpatrick, London, Tel: +44 20 35301103, Email: above article originally appeared as a post on the FitchWire credit market commentary page. The original article can be accessed All opinions expressed are those of Fitch Ratings.Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS ANDDISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THISLINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLEON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'SCODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATEFIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLEFROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHERPERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN ANEU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUERON THE FITCH WEBSITE.


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