A lesson in economics

Date: 03/04/1997

THE Dutch are the economic flavour of the month. Their 'miracle' is praised everywhere European politicians meet - and in it lies a lesson the Commission would do well to heed in the coming months.

As he arranges the chairs and sets the table for this weekend's gathering with fellow finance ministers in Noordwijk, the Netherlands' Gerrit Zalm could be forgiven a self-satisfied smile.

In fact, what he has played over the past three years is a simple psychological trick based on the principle that a pessimist is never disappointed. When Zalm announced that public spending would be cut by 9 billion ecu over four years, he also assumed the economy would only grow by 2&percent; per annum over the same period.

Of course, it grew more quickly and - surprise, surprise - unexpected windfall taxes rolled in. “It is easier for politicians to cope with windfall profits - even if they themselves created them - than the other way around,” says Zalm. “We had very bad experiences with optimistic growth forecasts which then turned out to be lower because, of course, the money had already been spent.”

The Commission could learn from this. The growth side has never been a problem since its forecasters usually err on the side of caution. But when it comes to budgetary consolidation, they tend towards gullibility.

Over the past two years, their twice-yearly economic predictions have been seen by the forecasting trade as more of a rain dance than a genuine assessment of economic performance and outlook.

Economics Commissioner Yves-Thibault de Silguy is regarded as a partisan for the euro cause and not as an objective eyewitness. He would probably take that as a compliment, but it does not help his cause if his forecasts are neither believable nor believed.

Mind you, Zalm - an ex-forecaster himself - is less than scientific about his former profession, declaring: “I do not think that any sensible forecaster ever believes his own forecast.”