For the first time in almost a hundred years, the Dutch right-wing liberal party may emerge as the country’s largest parliamentary faction from Wednesday’s election. But as results poured in on election night, the liberals were unexpectedly engaged in a fierce struggle for power with Labor.

The outcome was anticipated by preelection polls which had the liberals leading by four to seven seats compared to their adversary, the Labor Party. In the final days before the election, however, the socialists were able to narrow the gap. Exit polls released on Wednesday had the liberals and Labor competing for the top position.

The Christian Democrats, in government since 2002, lost almost half of their seats in parliament. Outgoing prime minister Jan Peter Balkenende was quick to announce his resignation as party leader in the face of poor results. He will stay on as caretaker premier until a new government is formed.

The liberal party has been in government many times in recent decades, always as a minority partner in conjunction with either Labor or the Christian Democrats. They acquired a reputation for fiscal austerity, during the 1980s when they worked under Prime Minister Ruud Lubbers and passed major reforms, and in part because liberal finance ministers have often been successful. Gerrit Zalm, for instance, has been the country’s longest serving finance minister, in office between 1994 and 2002 and again from 2003 to 2007 under Balkenende.

The global economic downturn and the near bankruptcy of Greece have driven Dutch voters to the political right. The liberals promise to reduce the deficit and prevent the national debt from rising further by reducing government bureaucracy, foreign aid and welfare spending.

With the country’s pervasive welfare state under threat, the liberal party’s foremost contender, Labor, has shifted further to the left under the leadership of former Amsterdam mayor Job Cohen. Cohen and his party portrayed the liberals’ agenda as “cold” and “disastrous” for low-income families but apparently to little avail.

After a spike in popularity last month when Cohan announced his candidacy, Labor lost seats in parliament, bringing it down to 31. Cohen proved unable to rehabilitate Labor as fiscally responsible and politically reliable after his party pulled out of the ruling coalition last February.

Nonetheless, as the liberals seemed to head for victory in the weeks running up to the election, many voters on the left opted to support Labor over fringe parties.

Another politician who has managed to amass popular support is Geert Wilders, renowned for his populist rhetoric and staunch positions on immigration and Islam. A former liberal party parliamentarian, Wilders first ran on his own ticket in 2006 and has since campaigned to curb the supposed Islamification of the Netherlands. He favors banning the Quran and has proposed legislation that would have taxed Muslim women wearing headscarfs. Wilders’ party performed well in March’s municipal elections and more than doubled its seats in parliament today.

Liberal party leader and possibly the next prime minister of the Netherlands Mark Rutte previously announced that a new coalition should be formed within less than a month after the election, allowing his government to submit its own budget before September.

With the political landscape so fragmented, it seems unlikely that a new majority can be found within mere weeks however. The liberals won’t like to work with Labor but may have no other choice: a coalition with the Christian Democrats and Geert Wilders’ Freedom Party would be just one or two seats short of a majority. A broad “Purple” coalition, formed by Labor, liberals and two parties from the political center is favored by different politicians. A government of national unity, supported by the three largest parties, has also been proposed.

A minority government, though unusual in the Netherlands, may well be possible. Wilders has already announced that he might be persuaded to sustain a right-wing administration. Smaller Christian parties on the right could help achieve a majority. Political analysts are skeptical about the liberals’ and the Christian Democrats’ willingness to be seen as cooperating with Wilders however. They would risk alienating moderate voters and end up strengthening their political foe — Labor.