Doubts About Dutch Credibility After Cabinet Resigns

The government’s collapse jeopardizes the Netherlands’ austerity agenda.

Huis ten Bosch in The Hague, residence of Queen Beatrix of the Netherlands, May 29, 2004
Huis ten Bosch in The Hague, residence of Queen Beatrix of the Netherlands, May 29, 2004 (Ruben de Rijcke)

The Netherlands’ liberal prime minister, Mark Rutte, tendered his cabinet’s resignation to Queen Beatrix on Monday afternoon in The Hague. His right-wing coalition collapsed over the weekend when Freedom Party leader Geert Wilders pulled out of crucial budget talks.

The resignation of Rutte’s minority government of Christian Democrat and liberal parties leaves a political vacuum in one of the eurozone’s core member states, mere weeks ahead of a deadline for countries in the single currency area to submit their fiscal plans to the European Commission for approval.

Wilders’ populist Freedom Party, which did not supply cabinet members but did vote for government policy in parliament until Saturday, refused to endorse some €14 billion worth of austerity measures which would have reduced the country’s deficit to under 3 percent of gross domestic product, as is required by European treaty.

Centrist and left-wing opposition parties may back further cuts before there are parliamentary elections either in June or September but a majority, including the Freedom Party, is reluctant to enact the sort of austerity measures that would be needed to reduce the shortfall under Europe’s budget rules.

Among the government’s proposals to achieve €14 billion in cuts in 2013 was a freeze in public- and private-sector salaries, a one-year raise in the retirement age, replacing student subsidies with loans, the liberalization of the rental market and a €500 million reduction in development aid.

The value-added tax rate would have been raised from 19 to 21 percent but income and real estate transfer taxes were planned to be lowered in 2015.

Some measures, including a faster raise in the pension age and real estate market reform, are also favored by centrist parties outside the ruling coalition but it is unclear if they would be willing to vote for it as part of a comprehensive budget plan before elections can take place.

The government formally introduces its spending plans in September but without a permanent majority, the ruling conservatives and liberals will be hard pressed to convince their European peers that they can meet the 3 percent deficit target.

Finance minister Jan Kees de Jager, who has taken a tough line with profligate eurozone member states as Greece, insisted on Monday that his country can come up with a credible plan. “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.

A spokesman for the European Commission said that he was confident that the Netherlands would meets its treaty obligations. “Not just because it would be good for Brussels but because it would be good for the Dutch economy and the Dutch citizens.”

With the collapse of the Netherlands’ right-wing coalition, efforts spearheaded by Germany’s conservative chancellor Angela Merkel and her Dutch allies to enforce budget discipline across the eurozone are threatened. There could now be a majority in the Dutch parliament against strict enforcement of the 3 percent deficit cap. Socialist and Labor parties were already opposed to it, fearing that steep and short-term reductions in government spending will further inhibit growth.

The Dutch economy is in recession and expected to shrink by almost 1 percent this year.

The Netherlands has yet to ratify the latest European fiscal treaty which was signed by government leaders, except the prime ministers of the Czech Republic and Great Britain, in March.

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