The Dutch Freedom party (PVV) has presented this week a report, prepared by the UK consulting firm Lombard Street Research, which argues that the euro has cost the Dutch economy billions. Here are some of the claims :
Growth of Dutch GDP has slumped from its pre-euro rate, as well as falling well short of growth in comparable non-euro countries, Sweden and Switzerland…
Had GDP growth in addition matched the Swedish & Swiss experience the extra consumer spending would be a further €15bn, €900 per person per annum…
Sweden and Switzerland were high savings surplus countries like Germany and The Netherlands, but they retained their own currencies and policy freedom – and the benefits were large…
While Dutch growth more than halved following the euro’s birth and Germany’s already slow growth became more sluggish, Swedish growth was unaffected in 2001-2011 compared with 1991-2001, and Swiss growth accelerated. Only wishful thinking could absolve the euro from blame. [emphasis mine]
As anyone can verify with publicly-available data, the statements above are highly misleading and the opposite of true. For the analysis that follows I pull the necessary data on GDP from Eurostat. GDP is estimated at market prices in millions of euros (at prices of the previous year) and I take the percentage yearly change [here is the actual file I use].
According to these numbers, between 1991 and 2001 the Dutch economy grew on average by 6% and by an average of 3.5% for the years 2002-2010 (after the introduction of the euro). The respective figures for Switzerland are 4% and 3.2%, and for Sweden 3.8% and 1.5%. The report compares the Netherlands to Sweden and Switzerland but ‘forgets’ to mention Denmark which is also outside the Eurozone and has an economy comparable to the Dutch one. The Danish economy grew on average by 5% in the period 1991-2001 and by an average of 3% afterwards. Let’s recap: The average Dutch GDP growth after the introduction of the euro has been greater than the GDP growth in Switzerland, Sweden, and Denmark during the same period. In other words, using this measure of economic health, we can say that since the introduction of the euro in 2002 the Dutch economy has outperformed the three comparable European countries which didn’t adopt the common currency. Now read again the claims from the report cited above and compare.
The argument of the report might be interpreted to imply that only the change in GDP growth before and after 2002 is worse in the Netherlands rather than the absolute level of GDP growth. Although this would be a very different claim, let’s see if it holds. The change in the GDP growth for the Netherlands between 1991-2001 and 2002-2010 is -2.5%, in the case of Sweden it is -2.3%, for Denmark it is -2%, and for Switzerland is -0.8%. So growth slowed in all four countries, the relative reduction in the speed of growth is very similar in the Netherlands, Sweden, and Denmark, while Switzerland has kept roughly the same level. The decrease seems greatest in the Netherlands (by 0.2%) but this is not really surprising given the very high 6% average growth in the period 1991-2001. Actually, what’s so special about 1991 as a starting date of the comparison? Nothing, of course. If we extend the reference period a little and start in 1987 instead of 1991, the Dutch decrease in GDP growth is no longer the biggest: the decline in the growth rate for the Netherlands is now 2.3%, while for Sweden it is 3.1%. Again, to recap, the non-euro Swedish economy experienced a bigger slow-down of its GDP growth than the Dutch economy after the introduction of the common currency. Which seems to be exactly the opposite of what the report claims.
Finally, let’s see a graph the puts all this together:
Obviously, only Switzerland’s growth has managed to escape unscratched from the crisis (so far) but the experience of both Denmark and Sweden shows that countries outside the Eurozone have not been immune to the effects of the crisis. [Note how the figure on page 5 of the report conveniently omits all non-euro countries, implicitly suggesting that the decline in GDP concerns only the Euro-area.]
The slowdown of GDP growth in the Netherlands is not unique, it is very similar in size to the slowdown in non-euro economies, and, most importantly, the Dutch average GDP growth is still the highest among the four countries compared here. What is the effect of the introduction of the euro on any of these is very hard to tell. But the statement that ‘Only wishful thinking could absolve the euro from blame’ is grossly misleading, and the statement that ‘Swedish growth was unaffected in 2001-2011 compared with 1991-2001’ is plain wrong.
I find it hard to believe that the simple points made in this post have escaped the research institute which has produced the report so warmly embraced by the PVV. On page 1, Lombard Street Research declares that this ‘report is intended to encourage better understanding of economic policy and financial markets.’ Selective use of data, incorrect inferences, and bombastic claims based on molehills of evidence hardly serve this goal. Politically-motivated pamphlets dressed as scientific reports hardly serve the debate about the future of economic policy in Europe as well.