The Netherlands, the sixth largest economy in the euro zone, has had its share of woes thanks to the financial crisis, although it’s by no means been as poorly off as some of its euro zone neighbors.
Still, it’s had its problems. The global crisis affected the Dutch economy in a number of ways, one of which was its large dependence on the export of goods and services—which made up 80% of its GDP, nearly twice the average in Europe, at the time. The slowing global economy meant that its exports took a hit, driving up unemployment—which is still high, though not as bad as in, say, Spain.
But if exports suffered, Dutch banks suffered far more. With a financial industry that even now is four times the size of its economy, the Netherlands took a big hit to its banks because of its huge foreign exposure—including to the U.S. and its toxic mortgages—at more than 300% of the country’s GDP.
Three of the four largest Dutch banks had to be bailed out, and mortgage loans continue to haunt the Netherlands after the collapse of its own real estate bubble. In addition, the financial crisis wasn’t the only thing to drive down the banks, which are now dealing with a new batch of problems.
Last October, Rabobank, the country’s second largest, was fined $989 million by global regulators for the manipulation of interest rates. And last month two senior foreign exchange traders left Rabobank after being suspended. International regulators are investigating the possibility that traders may have colluded on foreign exchange benchmark manipulation.
However, that’s not to say that the Netherlands has had it all bad since the crisis. It’s had to up its spending on social benefits such as unemployment and pensions, thanks to its strong support system, but it still runs a trade surplus—something many countries would love to do. Thanks to that support system, too, its people are not in as dire straits as in many other countries where public benefits have collapsed. In addition, the Netherlands has a strong manufacturing and service economy.
And in last month’s stress tests, Dutch banks did well despite their earlier bailouts. ING, which had to be bailed out thanks to overexposure to U.S. mortgages during the financial crisis, has so far recovered that it is considering resumption of dividend payments next year. And ABN AMRO did so well that an IPO is being considered for 2015 to return the bank to the hands of private investors.
But with the focus of the world on taxes and the corporations that pay them (or not), lately the Netherlands has been making headlines for another reason: as a tax haven. The European Union is not happy with tax haven states, and has only just wrung a concession from Ireland to phase out its “Double Irish” tax shelter for foreign corporations.
The Netherlands has its own way of wooing corporations to Dutch territory, with such attractions as the “Dutch sandwich,” used in conjunction with the Double Irish, and the “Dutch haven,” which attracts businesses from neighboring Germany.
All that could be on its way out, however, with the news from the Office of Economic Cooperation and Development (OECD) that 40 countries will be presenting a unified crackdown on tax evasion (as it is regarded in other countries) beginning in 2015. Ireland, some say, was merely getting the jump on the other tax haven countries by letting go of the Double Irish now, before the rush to compliance begins.
The Netherlands has also had other troubles this year. When Flight MH17 crashed in Ukraine, the Dutch took a long, hard look at their political and economic ties with Russia. One hundred and ninety-three Dutch citizens died when Flight MH17 was shot down, and that has drastically changed the relationship that has amounted to nearly 30 billion euros ($37.6 billion) annually.
The Netherlands, according to Eurostat and Statistics Netherlands, was Russia’s top destination for exports of oil and gas in 2013, thanks in part to Dutch distributors who sold some of the fuel on to other countries. The country, which has been heavily reliant on Russian oil, had already felt the effects of sanctions imposed after the Crimea crisis, just as many of its EU neighbors have. Royal Dutch Shell, for instance, with close ties to Russia’s Gazprom Neft, has exited a joint shale gas venture with the latter and is finding that sanctions are affecting its other projects in Russia.
But in the aftermath of the crash of Flight MH17, the Netherlands has begun to completely rethink its relationship with Russia.
In addition, according to Statistics Netherlands, sanctions that Russia imposed on the import of EU agricultural products—a step it took in response to the sanctions imposed on Russia because of Crimea—will cut Dutch exports by at least $400 million, based on 2013 figures.
The EU has lowered its economic growth forecast for the Netherlands this year to 0.9% from its earlier 1.2%, saying, “After some promising signs in the second half of 2013, the economic recovery of the Netherlands has wavered in 2014 and the outlook remains fragile.”
Things do, however, look brighter for the Dutch in 2015, with the EU expecting growth to increase to 1.4% next year; in 2016 the projection is for 1.7%, as household incomes increase and the country’s housing market recovers.