News analysis: Direct effects from Greek crisis on Dutch economy "limited"

Ahead of a crucial weekend for Greece as all 28 European Union (EU) leaders gather in Brussels on Sunday to decide whether Greece gets another bailout or leaves the Eurozone, Dutch experts and officials described the consequences of a potential Grexit for the economy of the Netherlands as "limited".

But they warned that at this stage "it is really impossible to predict what the total cost would be for the Netherlands".

"The direct effects of a Grexit for the Dutch economy will be limited. Financial institutions have little outstanding debt in Greece," said Barbara Baarsma, professor and managing director at SEO Economic Research at the University of Amsterdam in an interview with Xinhua.

But sources close to the Dutch finance minister and head of the Eurogourp Jeroen Dijsselbloem warned that "it is really impossible to predict what the cost would be for the Netherlands, because that depends on what happens with Greece." They insisted, though, that "at the moment a Grexit is not in discussion".

As they explained in a discussion with Xinhua earlier on Friday the total cost will depend on whether there is going to be a total default, which they ruled out as "very unlikely" or a partly default or whether other decisions would be taken. Later in the day the European Commission was expected to react to the new Greek proposals, possibly including an assessment on what would be a sustainable level of debt for Greece.

"A Grexit would mean the Dutch government would probably lose a lot of money, because Greece will not be able to pay back their debts," said the managing director of the reputable SEO. "This will, however, not have a significant impact on the Dutch economy."

According to Baarsma the effects will be political. "It may have consequences for the confidence in Dutch politics, because ministers have long maintained that the Greeks would repay every euro the Netherlands has lent them."

FIFTH LARGEST LENDER

According to the Dutch government the Netherlands's share (as standing on 25 June 2015) in the first package of emergency loans to Greece amounted to 3.2 billion euros, while an additional 14.6 billion euros was lent through the second bail out package.

The amount is larger when taking into account the additional costs provided through guarantees to the International Monetary Fund (IMF) and the European Central Bank (ECB). According to banking sources this would mean an additional 7.2 billion euros cost for the Netherlands. According to the Dutch government this amount cannot be determined exactly.

The IMF and ECB additional costs, "both imply indirect financial risks for the Dutch government, as the Netherlands may have to provide extra capital to these institutions if Greece defaults on its debts," stated experts from the Dutch Central Bureau of Statistics (CBS) in a press release earlier this year. At the time CBS estimated that the Netherlands was the fifth largest European lender, with 11.9 billion euros, representing 6.1 percent of the total loan amount.

For other European countries the situation is even worse as the contribution of each European country to the emergency packages for Greece was determined on the basis of GDP. As a result, one quarter of the amount was lent by Germany, followed by France, Italy and Spain.The Germans have outstanding loans to Greece estimated at 90 to 100 billion euros, while the French at 60 to 70 billion euros.

DIRECT EFFCTS LIMITED

Dutch exports to Greece stand just half percent of the country's total exports, which amounted to 671.8 billion U.S. dollars in 2014, making it unlikely for a widespread effect on Dutch businesses in case Greece leaves the euro.

Even though Dutch business people shared the view that a possible Grexit "is not a desirable option" they stressed that a potential threat to the economy of the Netherlands is way less risky than five years ago, when the southern European country was also at the verge of bankruptcy.

Today, unlike the case in 2011, the European banks, including the Dutch ones, are not holding a large share of Greek sovereign debt, while Dutch pension funds and insurance companies have long sold their Greek bonds. As a result, the chance that Dutch banks suffer a blow over a Greek bankruptcy is smaller.

The Dutch prime minister Mark Rutte seemed to play down any consequences for the Dutch economy last week after a meeting he held with Dutch ministers Henk Kamp (Economic Affairs) and Jeroen Dijsselbloem, as well as with the president of De Nederlandse Bank (the Dutch National Bank) Klaas Knot.

"The direct impact on the Dutch economy of a Greek exit from the Eurozone at this time is limited," said the Dutch premier. The Dutch government aims at keeping Greece in the Eurozone, but insists on the need for tough measures taken by the bailed out country.

LONG TERM CONSEQUENCES UNKNOWN

But despite the conciliatory language, business people appeared worried about the consequences of a Greek exit as "no one knows exactly what the price will be and how the European Union will be affected as a single currency and trading block," a representative of a Dutch multinational told Xinhua on condition of anonymity. He warned that such an outcome would cripple the Eurozone and delay recovery for a decade.

"The indirect, long-term effects can be certainly great if the political stability in the euro zone is further undermined and the crisis spreads to countries like Italy," warned Baarsma. "Unlike Greece, Italy is an important trading partner of the Netherlands. More generally, a spread of the crisis will negatively affect the business climate. This is bad news for a small, open economy like the Netherlands."

"Dutch business would welcome the utmost effort from all parties to reach an agreement that is credible for the future of Greece and for the Eurozone in total," a spokesperson of the Confederation of Netherlands' Industry and Employers (VNO-NCW) told Xinhua. VNO-NCW is the largest employers' organization in the Netherlands.

EFFECTS OF A NEW BAIL-OUT PACKAGE

The cost to the European and the Dutch economy in case a new bailout package is decided in Brussels would depend on the conditions attached to the new loan, Dutch economists argued.

"If the extra loan means that Greece will reform the economy, including the pension system, the tax system and so on, it is more probable that Dutch people and politicians will support the loan," said Baarsma. "Without reforms there will be no support, because only with the required reforms the Greek economy will start growing again which will enable the Greek government to pay the debts back."

According to the Dutch highly respected economist "the preferred option would be to acquit part of the current debt instead of giving new loans. Remission of debt is only sensible if Greece will reform the economy." Endit