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2008: from economic boom to financial crisis
From an economic point of view, the year 2008 had two faces. Whereas the first quarter was still one of economic growth, the second quarter saw the first contraction of the economy, and since the fourth quarter the Netherlands has been in an economic recession. Nevertheless, the average growth for the entire year was a positive 2.8%. This is evidenced by the Central Government’s Annual Financial Report, clarified by Minister of Finance Bos on 15 May.
The EMU balance was 1.0% of GDP in 2008, which is 0.5% higher than forecast in the Budget Memorandum 2008. This can be explained by a number of financial windfalls and setbacks. For one thing, the national debt was financed on more advantageous terms than had been assumed.
The consequences of the credit crisis increasingly manifested themselves around the world. At the end of the year the financial markets ground almost to a standstill, share prices fell sharply and interest surcharges on corporate bonds rose to a historic record high. Commercial credit was no longer readily available, and this had negative effects on foreign trade. Risk premiums also rose substantially, particularly in the last quarter.
Because the international economies are so strongly intertwined, all parts of the world were affected hard and fast. The consequences became clearly manifest in the Netherlands, with its open international economy. The effect of the crisis on the real economy could be seen in 2008 in the fall in consumer and producer confidence, the weakened financial position of households and businesses and the breakdown of lending operations. The number of vacancies was 20% lower at the end of 2008.
Dutch financial institutions also took some hard knocks. A number of them were unable to withstand these blows. In the fourth quarter the Dutch government therefore intervened in the financial markets by furnishing loans and guarantees to financial institutions and entering into participations. National debt increased considerably due to the interventions in the financial sector. EMU debt rose by 42.0% of GDP to 58.2% of GDP in 2008.
The Annual Financial Report of the Central Government also discusses the regularity of government expenditures. If the interventions in the financial sector are disregarded, then the percentage of irregularities for the entire national government is less than 1%. Irregularities could be found in the budgets of the Ministries of Finance, Education, Culture & Science, Defence (only in an agency), Health, Welfare & Sports and the Wadden Fund. The interventions in the financial sector led in a formal sense to irregularities within the budget of the Ministry of Finance. When the State decided to participate in Fortis, the States General were informed after the transactions had taken place. This was not in accordance with the Government Accounts Act. In view of the exceptional circumstances, the Lower House supported this action by the cabinet.