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Dutch government may miss 2014 deficit target

Toby Sterling, AP Business Writer

AMSTERDAM (AP) -- Dutch finance minister Jeroen Dijsselbloem said Wednesday the country's government plans to cut spending again in 2014 but acknowledged that the Netherlands may breach European deficit targets again anyway.

EU rules require countries to limit budget deficits to 3 percent of annual gross domestic product.

The European Commission granted the Netherlands permission to miss the target this year after the government carried out a major program of spending cuts and tax hikes. But it was expected to reduce its deficit to 2.8 percent in 2014.

However, recent economic forecasts show the country's recession continuing and the deficit is now expected to widen to 3.9 percent in 2014 without further action.

Dijsselbloem said Wednesday the Cabinet will pursue further cuts, but set an absolute maximum of 6 billion euros ($9 billion) — even if that means missing the 3 percent target.

"We assume that if the numbers get worse, and they're doing so as we speak, that the European Commission will give us more time," Dijsselbloem told reporters.

The decision is a notable departure from past policy. Until now, the Dutch government has shown an unwavering devotion to the austerity policies championed by German Chancellor Angela Merkel, despite criticism from many economists and the International Monetary Fund.

Opposition Dutch political parties, the government's own Bureau for Economic Policy Analysis, labor unions and the country's association of employers have also recently called on the Cabinet not to try to meet the 3 percent target too quickly.

Ironically, while the Dutch government has insisted on spending cuts for countries in Southern Europe, such policies at home have so far failed to help it get its own budget within specified limits since 2008, and may have had a counterproductive effect.

In February, the Cabinet said it might not need any spending cuts in 2014, as it expected the economy would begin to recover on its own. It said a deal on wage freezes brokered with labor unions and employers would spark a new optimism among consumers.

Instead, the country's economic prospects have rapidly deteriorated under a combination of the austerity measures, rising unemployment, falls in real estate prices, and economic weakness at many of its European trading partners who are also pursuing austerity.

Last week, Dijsselbloem told reporters in The Hague he wasn't considering retreating from the strategy of raising taxes and cutting spending in order to meet the budget deficit limit. "The approach is working," he said. He added the country would meet the 3 percent target in 2014.

Asked Wednesday whether the apparent change in course was painful, he answered "it's painful for us all that it's going so poorly with the Dutch economy."

It is not yet clear where the 6 billion euros in spending cuts will fall, or whether the governing coalition will be able to find enough support to pass them — it does not command a majority in the upper house of parliament.