By Dow Jones Business News, October 07, 2013, 07:50:00 AM EDT
By Maarten van Tartwijk and Anton Reijinga
AMSTERDAM--A political impasse in the Netherlands over an austerity package in next year's budget poses a big threat
to the economy, just as the country appears to be emerging from recession, the head of the Dutch central bank said
"The biggest risk now [to the economy] is the political situation," Klaas Knot told reporters. "It would be
unacceptable if it jeopardizes the recovery," he said.
The government is scrambling to pass its 2014 budget. The coalition of the center-right Liberal Party and leftist
Labor Party lacks a majority in the Senate and needs support from the opposition to pass the package, which includes 6
billion euros ($8.13 billion) in extra tax increases and spending cuts.
So far, the opposition has shown little appetite to back it and negotiations are expected to drag on for days, or even
Mr. Knot, who made his remarks at the presentation of the central bank's report on financial stability, said recent
macroeconomic indicators suggest the euro-zone's fifth-largest economy has returned to growth in the third quarter.
"There are many green shoots. I believe we are out of the recession," he said. Exports are expected to improve and the
troubled Dutch housing market also appears to be bottoming out, he said.
The Netherlands is one of the few remaining countries in the euro zone to keep its triple-A credit rating and is
considered one of the bloc's core members. But a weak economic performance has led to higher borrowing costs this year,
the central bank said.
"The economic recovery is lagging, the primary government deficit is relatively high and public debt has strongly
increased," it said in its report. "Under these circumstances, investors demand a higher risk premium for holding Dutch
Dutch 10-year yields were 0.4 percentage point above German bunds in September, up from 0.2 percentage point in
January, the central bank said. To prevent the gap from widening further, the government should move ahead with
financial and economic overhauls to stimulate the recovery, it said.
The central bank said Dutch banks have made substantial progress in bolstering their balance sheets and that they are
now among the best-capitalized banks in Europe.
Write to Maarten van Tartwijk at email@example.com
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