The Netherlands: Economic decline and waning influence

The Netherlands has long been an innovative, competitive and prosperous mid-sized European democracy. It is currently the fifth-largest economy in the European Union and the 18th-largest in the world. The Dutch consider themselves “big among the small,” holding disproportionate influence within organizations like the EU and NATO.

Yet political deadlock now grips the nation; its once globalist outlook has turned inward and unless fresh leadership emerges, the country faces stagnation and further decline.

The challenge for the Netherlands

“The Dutch government has not produced anything of real substance in the past 20 years,” a 30-year veteran of the Dutch civil administration wrote in 2021. The Netherlands faces seemingly unsolvable domestic problems, many of which are related to scarcity and poor governance. There are ongoing debates about the use and abuse of public funds, including whether compensation is justified for residents in the northern province of Groningen whose homes were damaged by gas extraction, or the child benefits scandal in the early 2020s in which large groups of citizens – often with non-Dutch surnames – were wrongly criticized for falsely claiming support and were thus penalized.

The issue of scarcity is more structural in nature. There is an acute shortage of skilled labor, putting pressure on economic sectors. The country’s unemployment rate was just 4 percent in September, well below the euro area average of 6.3 percent. Companies are in dire need of more workers. Politicians are unable to fulfill their promises. For instance, it is proving impossible to quickly build enough housing while energy infrastructure lags behind the demands of the energy transition, as development is slowed by legislation and bureaucracy.

With more than 18 million inhabitants in an area roughly one-tenth the size of neighboring Germany, the Netherlands is one of the most densely populated countries in the world. This means that an increasing number of industrial activities must take place in a limited space, a situation that has, for years, led to the politically near-unsolvable problem of excessive nitrogen emissions. As a result, construction permits cannot be granted, while farmers are under increasing pressure for land. When including the transit of agricultural products, the Netherlands is the world’s second-largest agricultural exporter. Nevertheless, the scarcity of available farmland, combined with environmental pressure, threatens this enviable position.

The rise of populist parties since the start of this decade stands in the way of a decisive approach to these challenges. Their politicians oversimplify complex issues and instead focus on topics like immigration, Islam, crime and support for special interest groups such as farmers. This dominates the political debate and drowns out fundamental economic issues, leading to stagnation. The consequences are becoming evident in the statistics.

The Dutch decline in numbers

The Netherlands is falling in the rankings of the world’s most innovative economies. Most concerning is the loss of competitiveness. In the World Competitiveness Ranking, the Netherlands dropped from fourth place in 2021 to 10th in 2025. During that same period, its economic performance fell from second to 19th place.

In terms of renewable energy, the Netherlands scores only moderately despite its prosperity. The country is currently 21st on Eurostat’s European sustainable energy index, behind some former communist countries in Central Europe. While this marks a two-place climb in the list of 27 EU member states, the Netherlands was still in second-to-last place in 2017. In 2023, only 17 percent of total energy production came from renewable sources.

This decline is partly due to the aforementioned structural issues, but also due to growing public – and therefore political – resistance to multinationals. Homegrown giants such as Unilever, RELX, Shell and Prosus have already left the Netherlands, and several other large companies are considering the same. For example, dredging company Boskalis is uncertain about the regulatory environment in which it must operate, and is reportedly considering relocating due to growing legislative burdens. Chip-machine manufacturer ASML may follow its suppliers in leaving the country, as its expansion in the Netherlands is limited by physical constraints and the need to attract highly skilled foreign workers – a process the Dutch government is increasingly trying to restrict.

Former ASML chief executive Peter Wennink called the Dutch “fat, dumb and happy” and criticized parliamentarians for their lack of interest in innovation and growth potential.

On one hand, this observation is incorrect, because according to the EU and partly due to ASML, the Netherlands remains an innovation leader, ranking third within the European bloc and fourth when neighboring countries are included. However, it is true that its performance is below the average of innovation leaders in the EU (129 percent versus 132 percent of the EU average in 2025).

On the other hand, there is a lack of ambition, which stems from the Netherlands remaining – for now at least – one of the richest countries in the world with among the happiest populations. According to the World Happiness Report, the Netherlands ranks fifth, behind the Scandinavian countries. In the Legatum Prosperity Index, the Netherlands ranked sixth in 2023. Dutch gross domestic product (GDP) per capita is higher than the EU average, where the Netherlands ranks fourth.

Political instability

The greatest challenge facing the Netherlands is political instability. Since 2002, the Netherlands has had 10 governments. This period of uncertainty was notably highlighted by the assassination of Pim Fortuyn, a right-wing populist, in May of that year. He shook up the political landscape with polarizing statements about the established political order, Islam and migration. This made him one of the pioneers of European right-wing populism. Since Fortuyn’s assassination, these parties have steadily gained ground but until recently had been kept out of the nation’s government.

The greatest challenge facing the Netherlands is political instability.

 

This cordon sanitaire was broken in 2024 after the fourth Rutte cabinet fell over immigration. The somewhat centrist People’s Party for Freedom and Democracy sought to reflect voters’ will by forming a coalition with Geert Wilders’ right-wing populist Freedom Party, which had emerged as the largest in parliament, securing over 23 percent of the vote. The new cabinet was sworn in by King Willem-Alexander in July 2024 and was led by the unelected, non-partisan, former senior civil servant and technocrat Dick Schoof. Mr. Wilders remained as the leader of the Freedom Party in the House of Representatives. The cabinet was unstable and fell in early 2025. Since then, there has been a deadlock with centrists again refusing to form a coalition with the Freedom Party.

The cause of the split was Mr. Wilders’ 10-point plan on new asylum measures, with which he intended to undermine the agreement supporting the Schoof cabinet. His plan stipulated that all Dutch borders had to be closed to new asylum seekers within a few weeks. Furthermore, all Syrians currently residing in the Netherlands were to be deported to their country of origin. Because Mr. Wilders believed he was not receiving the appropriate support, he withdrew his ministers from the cabinet, leading to its collapse.

A familiar question now faces the country’s politicians: whether the centrist parties will be able to cobble together a stable coalition government.

 

Uniquely in Dutch parliamentary history, the ministers of the constitutionally based national security council were subsequently withdrawn because their foreign minister received insufficient support for measures against Israel.

Snap elections were held on October 29, and the center-left Democrats 66 party beat the Freedom Party. A familiar question now faces the country’s politicians: whether the centrist parties will be able to cobble together a stable coalition government.

The Netherlands’ waning influence

An important consideration is the extent to which the political chaos in the Netherlands is influencing its international standing. The answer, for now, is ambiguous. First, its position was already partially eroded after the end of the Cold War. Since the 17th century, the Netherlands has pursued a balance-of-power policy to position itself as a minor player against the continental powers France and Germany. This led to close ties with the United Kingdom and the United States.

With the end of the Cold War and the subsequent rise of China, America’s strategic priority for Europe, and thus for the Netherlands, declined. Consequently, the Netherlands lost influence within NATO and other important international organizations. The demise of the Soviet Union, however, did not lead to a fundamental reorientation. That shift only began when U.S. President Donald Trump cast doubt on the significance of transatlantic relations, the principles they share and the strength of the collective defense clause in the NATO treaty. Then he launched a trade war with the EU. And with American protection no longer a given while Russia continues in the fourth year of its war on Ukraine, a change of course became necessary.

In previous years, the Netherlands had increasingly oriented itself toward European defense cooperation but believed this should never come at the expense of its relationship with America. But since President Trump took office for the second time, the Netherlands sees no alternative to strengthened European cooperation. The country has emerged as one of the most important providers of military and other forms of aid to Ukraine. It is willing to provide security guarantees for Ukraine after a ceasefire and supports EU initiatives such as the ReArm Europe rearmament project.

There has also been broad support for increasing the defense budget to 3.5 percent of GDP, plus 1.5 percent for related expenditures such as infrastructure reinforcement. The Freedom Party also supported this policy. Mr. Wilders himself is associated with pro-Russian sympathies, but turning away from the broad consensus proved political suicide. The Schoof cabinet did, however, cut back on development cooperation, partly to free up funds for the reception of asylum seekers and refugees.

At the same time, Brexit had diminished Dutch influence within the EU because of its close ties with the UK. This, along with major geopolitical shifts, also contributed to a change in thinking, leading the Netherlands to focus on forming ad hoc coalitions to adjust EU policy. For example, a coalition of “frugal countries” was formed with several northern nations to force southern member states to adopt prudent financial policies. This led nowhere. The assumption that this group could offer a counterbalance to the larger countries did not pan out, subsequently leading to closer Dutch ties with France to influence policy. Ties with Germany have always been strong.

Even though right-wing radical parties advocated for a “Nexit,” support for the EU is high, as it is for NATO and other international organizations. This aligns with another important Dutch tradition: support for multilateral institutions and international law. The promotion of the international rule of law is even enshrined in the constitution.

Aside from geopolitical reasons and Brexit, political fragmentation, the high turnover of politicians and budget cuts also help explain the decline of Dutch influence in European and global affairs. The Netherlands has gone from being a country punching above its weight to an underperformer.

The nation’s strong contributions on international issues stemmed from professional expertise, openness to multilateral coalitions and consensus, and its strong representation in the EU. Yet two developments now undermine these factors: the departure of Prime Minister Mark Rutte, who, despite taking on the role of NATO’s secretary general, does not represent the Netherlands there, and the declining competence of the Dutch government. The latter point was highlighted in a report by a key cabinet advisory council.