Dutch government on verge of collapse after talks fail

Mon, Apr 23, 2012, 01:00

THE NETHERLANDS is on the verge of a general election this morning after the collapse of austerity talks aimed at bringing its budget deficit within EU limits by 2013 – giving rise to new concerns that it could also now lose its coveted triple-A international credit rating.

The talks between the minority coalition partners, the Liberals and the Christian Democrats, along with the right-wing Freedom Party (PVV), finally collapsed on Saturday after seven precarious weeks, when PVV leader Geert Wilders said he could no longer support the government’s proposed cuts.

The cabinet is due to meet in emergency session this morning, and there was intense speculation last night that Prime Minister Mark Rutte would offer his government’s resignation to Queen Beatrix immediately after that meeting, paving the way for an election in September.

The effective collapse of the government – just as the parties seemed close to agreeing a €9 billion package of budget savings – makes it highly unlikely that the Netherlands, a core euro zone member, will be in a position by the EU deadline of April 30th to show how it plans to cut its budget deficit to within 3 per cent of GDP.

The package being finalised is believed to have proposed increasing the state pension age to 66 in 2015 rather than 2020, a cut of €750 million in development aid, a new €9 charge for every medical prescription, the abolition of tax relief on interest-only mortgages, cuts in subsidies to public broadcasters, an increase in VAT, and an across-the-board freeze in public sector salaries and benefits.

As he abandoned the negotiations, Mr Wilders – who previously appeared to pull out a fortnight ago but was persuaded to return – said he could not allow Dutch citizens to be forced to “pay out of their own pockets for senseless demands from Brussels”.

He added: “We don’t want to follow Brussels’ orders. We are not willing to make our citizens, especially those who are retired, bleed in order to satisfy the diktats of Brussels.” The loss of Mr Wilders’s support leaves the minority coalition government with just over one-third of the seats in parliament. That meant, said Mr Rutte yesterday, that while the government could continue in a caretaker capacity until September elections, it would be unable to take any action to revitalise the economy without parliamentary approval.

Mr Rutte accused Mr Wilders of a loss of political nerve, saying: “At the last moment he was shocked when he realised the impact the measures he was agreeing would have.” Deputy prime minister and leader of the Christian Democrats, Maxime Verhagen, agreed, saying that failure of nerve had “left 16 million Dutch people in the lurch”.

However, a survey by political pollsters Maurice de Hond after the talks collapsed on Saturday, shows a clear majority of the Dutch electorate believes the budget cuts demanded by the EU are in fact excessive.

Fifty seven per cent of respondents said the Dutch government should take responsibility for its own decisions and cut less than it was being asked.

Paradoxically, however, the poll shows Mr Rutte’s Liberal party would strengthen its position, increasing its 31 seats in the 150-seat parliament to 33 if an election were held today – whereas the PVV would lose five seats, dropping from 24 to just 19.

As finance minister Jan Kees de Jager flew home early from an IMF summit because of the crisis, leading economist and Jean Monet professor of European fiscal and monetary integration at Tilburg University Sylvester Eijffinger was pessimistic.

“The markets will be very nervous about this. The interest on government loans will rise, and if that rise looks permanent, then the rating agencies will downgrade. We will be following France and Austria,” he said.

“This could cost the Netherlands its triple-A status.”