Dutch government offers to resign

Mon, Apr 23, 2012, 01:00

Dutch prime minister Mark Rutte tendered his government's resignation today in a crisis over budget cuts, creating a political vacuum in a country which strongly backed an EU fiscal treaty and lectured Greece on getting its finances in order.

Mr Rutte said he had offered his minority coalition's resignation to Queen Beatrix after a split with the populist Freedom Party of Geert Wilders, which had backed his government for the past 18 months, opening the way for elections possibly as early as June.

The catalyst for the crisis was Mr Wilders, who refused to agree to budget cuts of up to €16 billion needed to bring a bloated budget deficit under control. Now the euro-sceptic, anti-immigration politician has threatened to fight his campaign on a European battleground.

Political turmoil in what is traditionally one of the euro zone’s most stable and prosperous members jolted financial markets, already worried that the Socialist frontrunner in French elections has promised to renegotiate the agreement to ensure fiscal stability if he wins the presidency next month.

Markets have punished Spain by pushing up its borrowing costs sharply after Madrid relaxed its targets for cutting the budget deficit.

Analysts said the Netherlands can avoid this fate, but only if parties in and outside the centre-right coalition can somehow agree on budget cuts. Anything less may threaten the Dutch government's AAA credit rating.

Mr Rutte said the Queen was considering the resignation offer and had asked the cabinet to keep working for the country's good. However, government ministers openly speculated that new elections would be needed to break the impasse.

Finance minister Jan Kees de Jager, who has taken a tough line with euro zone "budget sinners" such as Greece, tried to reassure markets that the country was not about to ditch its commitment to good housekeeping. "The Netherlands will retain its solid fiscal policy and will also show the market it will lower its deficit and also have a path of sustainable government finances," he said.

Mr De Jager, who in the past has said Greece should be denied international aid unless it got its fiscal house in order, dismissed suggestions that political paralysis would force the Netherlands into the ranks of Europe's sickest economies.

"The Netherlands will retain its solid fiscal policy and will also show the market it will lower its deficit and also have a path of sustainable government finances," he said. "There is no correlation whatsoever between the Netherlands and the countries of southern Europe. (Our) sovereign debt is in the region of 65 per cent (of total economic output), which is way below the euro zone average.”

Greece, by comparison, aims to cut its debts to 120 per cent of gross domestic product by 2020 from a towering 160 per cent.

The Dutch row began at the weekend when the anti-EU Freedom Party refused to agree with Mr Rutte's centre-right coalition on how to cut up to €16 billion from the budget and get the Dutch deficit down to the EU target next year.

European Commission president Jose Manuel Barroso made clear the Dutch had to meet their targets. "We fully expect that the Dutch authorities will find a solution that ensures the financial stability of the country and the wellbeing of its citizens," he said on a visit to Copenhagen. "I am confident that a solution can be found."

The failure of Mr Rutte, whose coalition has been in power since October 2010, to win agreement on cutting the deficit next year to the EU's ceiling of 3 per cent of GDP drew withering comment in Brussels.

"First you have a big mouth towards budget offenders and then you yourself can't deliver, and instead have to have new elections only one-and-a-half years after the new government took office," said one Brussels-based diplomat.

The Netherlands has been close to Germany in calling for austerity across the euro zone, and in supporting the EU fiscal pact which must win ratification by the end of the year in the 25 EU countries whose governments signed up to the treaty.

The Dutch crisis flared at a time of wobbling support for the EU fiscal pact.

The Socialist frontrunner to win the French presidential election runoff next month, Francois Hollande, has promised to renegotiate the agreement. This has alarmed financial markets, which fear he could throw the EU's commitment to fiscal discipline into question, although his aides say he will not try to pick the treaty apart.

Reuters