Potential Dutch Downgrade Heightens Euroskepticism

Dutch’s perception that they are bailing out euro states at their expense is reinforced.

The possibility of a debt downgrade is likely to heighten Euroskepticism in the Netherlands less than two months before parliamentary elections are scheduled to take place there.

The Moody’s credit rating agency on Monday lowered its outlook for three of Europe’s few remaining AAA countries: Germany, Luxembourg and the Netherlands.

Finland, the only other member of Europe’s single currency union with a AAA rating, escaped the negative outlook because it managed to separately secure collateral from recipients of bailout aid and is altogether more isolated from the eurozone financially. Whereas the Netherlands provide 5.7 percent of the funds for the permanent European Stability Mechanism, which is set up to deliver financial aid to high debt nations, Finland provides a mere 1.8 percent.

The two other principal ratings firms, Fitch and Standard and Poor’s, maintained their AAA rating for the Netherlands but Moody’s changed outlook will likely have political ramifications in the nation of sixteen million where public apprehension about the seemingly endless bailouts for fellow eurozone states is increasing.

Moody’s also cited high Dutch household debt as reason to question its creditworthiness but the overarching concern about the Netherlands’ mounting exposure to debt crises in the periphery of the currency area primarily shaped the decision to change it rating outlook to negative.

This feeds into the narrative of Euroskeptic fringe parties in the Netherlands which have long been critical of bailouts for other countries in the eurozone if not the single currency itself.

The most anti-European is Geert Wilders’ Freedom Party which advocates withdrawal from the European Union and is currently polling at around eighteen seats. The far-left Socialist Party wants to stay in the euro but has consistently voted against the bailout funds. It rivals the ruling liberal party in some polls for more than thirty seats and could, for the first time in its history, become the largest party which gives it the prerogative of trying to form a government first.

Although the Freedom Party and the Socialists are considered to be at opposite ends of the political spectrum due to Wilders’ staunch anti-immigration policies, they have a protectionist economic policy in common. Neither, moreover, is eager to reduce the government’s fiscal shortfall in 2013 to under 3 percent of gross domestic product to comply with European deficit rules — which could be another reason for a credit downgrade given Moody’s and other rating agencies’ praise for the Netherlands’ tradition of fiscal prudence.

Most preelection polls still have the liberals in the lead. It seems unlikely that they will again attempt to form a right-wing government with the Christian Democrats and the Freedom Party. The three party coalition collapsed in April when Wilders refused to do a budget deal that included deeper spending cuts and tax hikes. Rather a centrist coalition, composed of the five parties that put together a budget at the last minute that month, could come to power although it may not have the required majority after the September 12 election anymore.

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