THE NETHERLANDS has spent the past year sinking ever deeper into economic gloom. GDP shrank by almost 1% in 2012, and forecasters expect another 0.5% contraction this year. Looking over the border, the Dutch see a German economy that managed small growth last year, and wonder where they went wrong. A visit from the professional scolds at the IMF could hardly be expected to lift the mood.
Yet on March 19th, an IMF research mission delivered a surprising message to the Dutch parliament: lighten up. The Netherlands has the trust of financial markets and is starting to tackle its long-term problems, said the IMF. Now the main tasks are to push through more structural reforms and not be panicked into further short-term austerity.Why is the wealthy Netherlands, with its AAA credit rating and a competitive economy, doing so badly? And why is it in much worse shape than neighbouring Germany (see chart)?The Dutch weakness is consumer spending, which has been falling for a year and a half. Household consumption last year was lower than in 2006. Consumer confidence fell to the lowest level ever measured in February. The chief source of anxiety has been house prices. Over the past…
