Reuters: US Dollar Report: RPT-Fitch: EUR6bn package neutral for Dutch debt dynamics assessment

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RPT-Fitch: EUR6bn package neutral for Dutch debt dynamics assessment Oct 17th 2013, 10:50 Share this Email Print Reprints Thu Oct 17, 2013 6:50am EDT (Repeat for additional subscribers) Oct 17 (Reuters) - (The following statement was released by the rating agency) The recent news that Dutch politicians had reached agreement on a EUR6bn fiscal consolidation package for 2014 does not alter Fitch Ratings' assessment of the Netherlands' sovereign debt profile. This is because we had assumed the package would be adopted since its announcement in the summer. The deal is positive for the sovereign in reducing the uncertainty around fiscal plans for 2014-2015, but will have limited impact on debt dynamics in the coming years because of the substantial consolidation already being undertaken. When we affirmed the Netherlands 'AAA' rating with a Negative Outlook in August, we considered a scenario in which the EUR6bn package was delayed and spread over time, resulting in slower fiscal consolidation that produced an average primary deficit of 0.9% over 2012-2021, and a primary budget balance in 2019. The headline deficit under this scenario is higher in 2014 at 3.7% of GDP (versus our base-case forecast of 3.3%, assuming a fiscal multiplier of 0.5x), as is real GDP growth. But debt dynamics do not diverge significantly from our base-case projections. Public debt peaks in 2018 under both the base case and alternative scenarios, and at an only marginally higher level (82% of GDP, versus 80% in our base case). One reason for this is that successive Dutch governments have already introduced a series of fiscal consolidation measures totalling EUR46bn, or 7.7% of GDP, over 2011-2017. Half of these measures take effect in 2014-2017. The current government's aim in adopting the EUR6bn package has been to correct the excessive deficit by bringing it below 3% of GDP. The securing of the EUR6bn package suggests that the political and social consensus underpinning consolidation efforts remains a ratings strength. However, protracted negotiations were needed, and at one point it looked possible that the talks would fail. If political uncertainty continues to affect business and consumer confidence in fiscal and economic policy, it could act as a further drag on the economy. The Negative Outlook on the Netherlands' 'AAA' rating reflects our forecast of deterioration in public debt dynamics, and persistent economic weakness. Link this Share this Digg this Email Reprints

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