Dutch Government, Opposition in Budget Talks

Government buildings in The Hague, the Netherlands, August 31, 2011

Government buildings in The Hague, the Netherlands, August 31, 2011 (Flickr/zoetnet)

The Netherlands’ caretaker government is seeking a budget deal with opposition parties ahead of an April 30 deadline to submit its spending plans to the European Commission for review.

The Dutch ruling coalition of christian democrats and liberals was in budget negotiations with the populist Freedom Party in recent weeks until party leader Geert Wilders unexpectedly pulled out of the talks on Saturday.

The decision prompted liberal prime minister Mark Rutte to tender his resignation to Queen Beatrix of the Netherlands on Monday. Parliamentary elections will likely take place in September, months after a budget is due.

The three right-wing parties had reportedly agreed to €14 billion worth of austerity measures before Wilders walked out, citing his unwillingness to abide by a European “diktat” to bring the government’s shortfall under 3 percent of gross domestic product next year.

A combination of spending cuts and tax increases would have followed an €18 billion austerity package that was enacted this year. Among the measures under consideration 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.

It is unlikely that the three centrist and left-wing opposition parties that are in negotiation with the government will agree to all of its plans. The conservative-liberal alliance has little choice but to seek a majority with them nonetheless, given that Wilders as well as the Labor and Socialist Party opposition are opposed to the 3 percent budget cap.

Finance minister Jan Kees de Jager, who has taken a tough line with profligate eurozone member states as Greece, insisted earlier in the week that his country could 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.

On Wednesday, De Jager shuttled between coalition and opposition parties in parliament in The Hague in the hopes of reaching a deal.

Unlike Wilders, the three parties that are currently in talks with the government have favored a faster raise in the retirement age, greater labor market flexibility and comprehensive housing market reform. In return, they are likely to demand a repeal of cuts in development aid and welfare spending, reform of a home mortgage interest deduction policy that is popular on the right as well as a bank tax.

If the Netherlands does not comply with European fiscal rules next year, the European Commission will submit a counterproposal before the Court of Justice can fine the country up to .1 percent of GDP, some €1 billion.

Other, more heavily indebted eurozone states in the continent’s periphery, including Spain, may feel free to break the newly enforceable debt and deficits limits if the Netherlands fails to rein in spending — especially if French Socialist Party candidate François Hollande wins the presidential election in May and renegotiates the fiscal compact to make the rules more flexible.