Dutch Face Elections As Rutte Seeks Majority for Measures
Dutch Prime Minister Mark Rutte offered to quit, a move that would trigger early elections, as he sought to win parliamentary support for additional budget cuts needed to steer the Netherlands clear of the debt crisis.
Stocks, bonds and the euro dropped today as Rutte’s Cabinet convened in the Hague to try to overcome a budget impasse after talks with opposition leader Geert Wilders’s Freedom Party broke up at the weekend without a deal on cuts of at least 9.5 billion euros ($12.5 billion). Rutte then met with Queen Beatrix to tender the Cabinet’s resignation.
The Queen will consider the offer and requested the Cabinet handle current affairs in the meantime, the government information service said in an e-mailed statement.
“We’ll have to find majorities to prepare the 2013 budget but also in the short term, to submit a stability program to Brussels,” Finance Minister Jan Kees de Jager told reporters in the Hague. “The Netherlands, in every circumstance, will maintain disciplined budgetary policy.”
The Dutch government’s fall would complicate policy making in the 17-member euro region at a time when Spain’s predicament and the French election are causing renewed concerns about Europe’s crisis-fighting stance. Rutte’s Cabinet may carry on in a caretaker capacity until elections can be held as soon as September, three years early.
Rating ‘at Risk’
Until then, the government faces being “unable to get important reforms approved by parliament,” said Marco Wagner, a Frankfurt-based economist at Commerzbank AG. “This suggests that the 3 percent target will be missed in 2013 and the country’s AAA rating is at risk.”
Europe’s benchmark Stoxx 600 dropped 2.6 percent to 251.13 as of 4:30 p.m. in Amsterdam, while the euro declined 0.8 percent to $1.3111.
Dutch 10-year bond yields surged seven basis points to 2.39 percent, sending the premium investors demand to hold the debt over German bunds to a three-year high. The Netherlands led an increase in the cost of insuring European sovereign debt against default to the highest in more than a month.
Uncertainty in the Netherlands, a traditional crisis ally of Germany, adds to the turmoil springing from the debt crisis as it reverberates throughout Europe. In France, presidential election candidates are pushing the European Central Bank to be more pro-growth, a stance at odds with Chancellor Angela Merkel, while in the Czech Republic Prime Minister Petr Necas is seeking to avoid snap elections and push through deficit cuts after the breakup of his coalition.
With budget deliberations dragging on since March 5, the fate of Rutte’s minority government was thrown into doubt on April 21 when Wilders and his Freedom Party unexpectedly withdrew its support over how to narrow the shortfall. That prompted Rutte to cite new elections as “an obvious scenario” to try to resolve the deadlock.
In the Netherlands, the euro-area’s fifth biggest economy, the 2013 budget shortfall is currently forecast at 4.6 percent of gross domestic product. To pare it to 3 percent as specified by the European Commission, Rutte needs to find at least 9.5 billion euros of extra cuts to submit to Brussels by April 30.
“The package is way too rigorous and it’s bad for the economy,” Emile Roemer, head of the Socialist Party, which would double its seats to 30 according to latest polls, said in broadcast remarks. “We need to have elections and clarity as soon as possible.”
The opposition Labor Party is willing to cooperate with the government on preparing a complete 2013 budget only if elections are held in September, party leader Diederik Samsom told NOS television April 21. Economic growth is more important than meeting the 3 percent deficit target, Samsom said.
‘Can Be Done’
Opposition leaders like Samsom and Alexander Pechtold, the head of the D66 Democrats, both called for an early ballot.
“I think it can be done before the summer so we can make a new start for the Netherlands,” Samsom told NOS today.
The risk premium demanded by investors on Dutch government debt has been rising since the budget talks started March 5. The yield spread over benchmark German bunds widened 11 basis points to 72 basis points today, after earlier reaching 75 basis points, the most since March 2009, according to data compiled by Bloomberg.
“The risk has heightened the Netherlands may be downgraded,” Nick Kounis, head of macro research at ABN Amro Group NV in Amsterdam, said by phone yesterday. “I don’t see a majority in parliament to bring the deficit to 3 percent, so hopefully the politicians will get their act together as the country has a long history of fiscal prudence.”
The nation last held a general election in June 2010 and the next one wasn’t due to be held until 2015.
Crisis Center Stage
Europe’s debt crisis and solutions to it are likely to take center stage in the election, Meindert Fennema, a professor of political science at the University of Amsterdam, who wrote a biography of Wilders, said in a televised interview yesterday.
The Liberal Party, led by Rutte, would win 33 of the 150 parliamentary seats if general elections were held now, up from the 31 seats it currently holds, according to a poll of about 4,500 people by researcher Maurice de Hond and No Ties BV that was published yesterday.
The Freedom Party’s seats would drop to 19 from 24, while the second governing party, the Christian Democrats, would fall to 11 from 21. The Socialist Party would double its seats to 30 while the Labor Party would drop to 24 from 30, according to the poll, which was conducted late April 21 and yesterday. No margin of error was published.
The Dutch economy entered its second recession in three years during the second half of 2011 and unemployment increased from 5 percent to almost 6 percent in 12 months.
Standard & Poor’s on Jan. 13 changed the outlook for the Netherlands to negative as it sees at least a one-in-three chance that the rating will be lowered in 2012 or 2013 if the economy further deteriorates.
The costs for the Netherlands of losing its top credit rating would be high, European Central Bank Governing Council Member Klaas Knot, who also heads the Dutch central bank, said April 13. “It could lead to 100 basis points extra interest rate on our government debt and to 4 billion euros of extra interest costs annually,” he said.
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