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Thursday, February 6

6th Feb - NExit: Leaving the EU

The executive summary from 

NExit: Assessing the economic impact of the Netherlands leaving the European Union (pdf-link)

Report prepared by Capital Economics

Inside the European Union, the Netherlands is destined for rates of economic growth not only lower than those that are commonplace on every other continent of the world, but also lower than achieved domestically in recent decades. But outside the European Union, Dutch authorities could

  • reduce the costs of doing business in the Netherlands by a minimum of €20 billion annually by 2035 through ‘renationalising’ regulations in areas currently in the jurisdiction of Brussels institutions
  • improve public finances by opting out of European Union spending programmes, which should add a cumulative €240 billion to gross domestic product by 2035,
  • reduce public expenditure by a minimum of €7.5 billion annually (by 2035) through revising immigration policy to focus more tightly on admitting only those who make an economic contribution
  • grow exports to non-European markets faster by negotiating and trading with high growth emerging economies without being tied to a common trade policy
  • manage cycles in the macroeconomy more effectively by having the freedom to set monetary and fiscal policy to fit Dutch national conditions, and not the euro-zone as a whole. Netherlands-focused policies may help address the current economic crisis, and should see the economy accumulate €309 billion extra national income by 2035.

There are economic costs to leaving the European Union, particularly in relation to replacing the single currency with a national one. But these costs are modest and manageable. Moreover, fears that introducing a new guilder may prompt a structural revaluation of the Dutch currency against the euro (and other currencies) are, we believe, unfounded. We find little evidence to suggest that, beyond initial and temporary market volatility, the new guilder will either appreciate or depreciate substantially. As such, NExit is no threat to banking stability, or to the Netherlands’ sovereign debt or pensions positions.

Overall, the various strands of analysis point to NExit being a long-term benefit to the Dutch economy and, more than likely, a short-term help in easing the Netherlands out of its current economic ills.

For a NExit which is assumed to be announced on 1 January 2015, a Swiss-like relationship between the Netherlands and the European Union should see Dutch gross domestic product somewhere between 10 and 13 per cent higher by 2035 than it would have been had the Netherlands continued as a member of the Brussels-led bloc.(See below ) Over that 21 year period, the benefits of NExit to Dutch national income would have accumulated to between €1,100 billion and €1,500 billion in today’s prices. (See 3 below .) This is equivalent to between €7,100 and €9,800 per household each year. But even if the Netherlands is unable to negotiate a status akin to Switzerland’s, the economy would be better off out of the union than in. Although there are margins of error associated with any research of this nature, we have stress tested our other key assumptions, and find our broad conclusions robust.

There are, of course, risks to leaving the union – and these need to be recognised and addressed by anyone considering NExit. But there are also significant risks to staying in a bloc with a fundamentally flawed currency and the threat that transfers to debt-laden peripheral states will spiral out of control. In this instance, our analysis shows that the Netherlands would be better off taking control of its own destiny, rather than sticking with the ‘devil it knows’.