Actually, you could form the Netherlands if you have a predominantly dutch or flemish culture. It's pretty useful if you're playing one of the dutch minors, because the event grants a core on Antwerp and Vlaanderen. And having cores on your neighbours provinces is A Good Thing (tm).
I see no reason why the Netherlands would use the flag of the princes of Holland when either Vlaanderen or Frisia would form the Netherlands though. Neither have a particular love for the house of orange.
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