We have shown repeatedly in our cyclical analyses that both the Netherlands and Finland are experiencing enormous difficulties. In both countries, the governments firmly belong to the camp of the hardliners within the euro group. Both countries support Germany’s neoliberal course almost unconditionally. According to prevailing doctrine, one would expect that the countries that follow these neoliberal recipes to the letter would economically be the most successful ones. It turns out that this is far from the truth. If neoliberalism and austerity do not work in two of the northern core countries, why should anyone expect that the same policies could be successfully applied to the crisis countries?
In the following analysis, we compare the Netherlands and Finland with Belgium and Germany. Figure 1 depicts the evolution of industrial output. It is clear that both the Netherlands and Finland are experiencing major problems. In 2015, industrial output in the Netherlands plunged back into a deep recession. Moreover, the country had already been on a descending path since 2011.
Finland also witnesses a steady decline of its industrial activity and fails to turn around. In both countries, construction is doing slightly better than manufacturing. Total construction output rose sharply in Finland in 2015 and showed an upward movement in the Netherlands during the previous year (see Figure 2). However, for the moment, even construction is not growing in the Netherlands or in Finland.
The evolution of the real gross domestic product (GDP) reflects the difficult situation of both countries, although certain patterns exist that are difficult to interpret (see Figure 3). One wonders, for example, how the decrease in heavy industrial output has been compensated in the Netherlands and even has been over-compensated. However, even on the basis of the official figures of the national accounts, the situation is clearly anything but rosy. Finland also finds itself in a recession and its current GDP level is much lower than what had been achieved in 2008.
According to the figures of 2015, Dutch GDP is slightly above its 2008 level. When compared to either Germany or Belgium, both of which are well above their respective values of 2008, the Netherlands fell behind considerably. The misery in both countries becomes even clearer when one considers investment (see Figure 4). Since 2008, both countries witnessed a massive slump in investment. This downward evolution continues unabated in Finland, while the Netherlands experienced a significant decline in 2011, but reversed and show an upward trend since 2013.
The fall in the investment rate of the two countries is extremely clear. While Belgium maintained its high level and Germany continues to hangs on at a lower level, the investment rate in both Finland and the Netherlands collapsed after 2008 (see Figure 5).
When considering real consumption, the main component of demand, despite the existence of many similarities in the past, the Netherlands and Finland recently followed very different trajectories (see Figure 6). If one looks back a little further, as we do here with these figures, it should be noted that the Netherlands have a long history of mercantilism. The Netherlands implemented wage moderation policies in order to improve their international competitiveness and solve their economic problems even before the commencement of German mercantilism (Friederike Spiecker and I showed this already in 2002 here). This is the reason why private consumption has been weak in the Netherlands since 1999, as it is also in Germany.
Finland, in contrast, implemented strong wage increases in the first decade of the new century (we will show this in detail in Part 2). Finland massively took advantage of the opening up of Eastern Europe. It was very successful (Nokia says hello!), because it strongly depreciated its currency in the early 1990s. However, its surplus position eroded after the start of the European Monetary Union. Since then, real wages hardly rose any longer and private consumption plummeted.
The Finnish export evolution expresses the change that took place very clearly (see Figure 7). Until 2008, Finland held even with Germany. Since 2008, it has been falling far behind. The Netherlands, on the other hand, achieved great export successes in the early 1990s, but were unable to keep up until 2008. However, unlike Finland, Dutch export recovered after the global financial crisis.
The evolution of imports shows that Finland, unlike in Germany until 2008, heavily imported goods, while the Netherlands exhibit only a moderate level of imports (see Figure 8).
Taking the export and the import evolution together in the current account shows how much the Netherlands have been dependent in the past and are still dependent on a surplus in their current account (see Figure 9). Finland, Belgium and the Netherlands all entered the monetary union with very high account surpluses. Since 2008, the Netherlands have been successful in increasing their trade surplus, with the result that today, the Dutch show a grotesque surplus of over ten percent of GDP.
If all member states would abide to the MIP rules (macroeconomic imbalance procedure) the Netherlands would be forced to change its economic policies by the European Commission.
Instead the Commission writes without further ado in its spring 2016 forecast that has just been published that the Dutch trade surplus will remain high. Finland, which also still had large surpluses in the early 2000s, now shows an even balance. Even Belgium is significantly down from its high surpluses. Only Germany and the Netherlands appear to have no limits to their mercantilism.
Read in the second part how and why mercantilism originated and why it makes a recovery of the European economy practically impossible.