2012-03-06

Euro faces more political risk, this time from the Netherlands

Of all the anti-euro political forces, this is the strongest and most important to date because the Netherlands is often mentioned as a possible member of a "euro North" bloc. These countries, including Germany, would maintain the common currency even if Greece, Portugal, Spain and others dropped out. In other words, this is a strong member of the euro looking to exit. France's National Front is a compelling anti-euro voice, but France's political establishment is too invested in the euro and the anti-euro forces do not have enough influence to shape national policy, although the socialist candidate may well doom the euro if his determination to renegotiate treaty changes leads to chaos. With the Netherlands, the anti-euro party is the only thing holding the government together:

Dutch Freedom Party Wants Euro Exit Referendum, Telegraaf Says
Leaving the euro will cost money, especially the first year, after which loss will be recovered in 2014, the newspaper cited Wilders as saying. Wilders added that this at least warrants a referendum, De Telegraaf reported.

The Freedom Party hired Lombard Street Research to investigate the cost of maintaining the Euro zone and alternative scenarios if countries elect to leave, according to a statement by London-based FTI Consulting. The report will be presented in The Hague on March 5.
Once again, the eurocrats have derided democracy as populism.

Populists exploit euro zone crisis to gain influence
However, right-wing groups are playing on public resentment at the cost of bailing out weak euro zone countries such as Greece to gain popularity.

In the Netherlands, eurosceptic politician Geert Wilders is staging a campaign which could push the minority government to the brink of collapse after barely a year in power.

Last week, Wilders proposed that the Netherlands should hold a referendum on whether to ditch the euro and embrace the Dutch guilder again, pending a study of the long-term economic costs.

You can view the full report online: The Netherlands & The Euro: The Full ReportHere are some interesting findings:

page 16:
An important conclusion to be drawn from this chapter, contrary to the claims of (for instance) former Bundesbank President Axel Weber, is that the current European financial crisis is largely the result of adoption of the euro.

page 41:
This Chapter has been concerned with the damage the single currency has done to the productive economy and prospects of even the financially strong Eurozone economies. It turns out that their financial strength is largely a function of weak economic growth, and a major deterioration from pre-euro growth of GDP and consumer welfare. The intended compensation, a build-up of saving for the future,has to a great extent been wasted. But in future, if the euro is to persist with its current membership, it will not be a matter of investing such surpluses, but effectively giving them away, as the deficit countries will remain in deficit and have already exceeded their debt capacity. The euro has damaged severely the growth rate of financial healthy economies like The Netherlands and Germany, which have sacrificed in vain the welfare of their citizens

page 52:
The long-term conclusion that is most important from this analysis is that The Netherlands has nothing to fear from leaving the euro unilaterally. On balance, growth is likely to be higher, and certainly not lower, as a result of leaving. The likelihood of achieving, rather than just talking about, budget balance is greater. Inflation should be lower. And, most important, the economy should re-orientate toward its primary purpose: the welfare of citizens.

The fine performance of Switzerland over the past ten years reinforces the message of the early 1970s, when the collapse of the dollar and the build-up of Dutch North Sea gas led to major real and nominal exchange rate appreciation, and coincided with post-WWII records in Dutch and German growth. Switzerland has far outperformed The Netherlands and Germany in growth of GDP and jobs, while its citizens have had the benefit of a rising currency, strong real consumer spending growth and lower inflation. Yet its finances – measured by budget and current account balances – have been stronger. There is no reason why The Netherlands outside the euro should do worse. Leaving the euro with Germany would be the safety-play, therefore, but leaving unilaterally – or, if both leave, engaging in a true currency float – would probably lead to the best results overall for the nation.

H/T: Mish Shedlock.

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