Dutch parties avert crisis with 2013 budget deal

THE HAGUE Thu Apr 26, 2012 4:08pm EDT

Netherlands' Prime Minister Mark Rutte (R) and Minister of Economic Affairs Maxime Verhagen attend a debate about the government's resignation caused by a crisis over budget cuts in The Hague April 24, 2012. REUTERS/Paul Vreeker/United Photos

Netherlands' Prime Minister Mark Rutte (R) and Minister of Economic Affairs Maxime Verhagen attend a debate about the government's resignation caused by a crisis over budget cuts in The Hague April 24, 2012.

Credit: Reuters/Paul Vreeker/United Photos

Related Topics

THE HAGUE (Reuters) - Dutch political parties reached a deal on a 2013 budget on Thursday, averting crisis and enabling a country that has championed euro fiscal discipline to meet a European Union deadline set for Monday.

The Netherlands, which has been widely seen as an advocate of fiscal discipline among euro zone members, rattled investors and financial markets when it appeared to be on the brink of failing to meet those targets itself.

Its government had resigned on Monday in a standoff over budget-cutting plans, creating a political vacuum in one of the euro zone's few remaining AAA-rated countries in the run-up to elections in September.

Dutch politicians, some of whom have lectured Greece on getting its finances in order, say Thursday's deal will cut the deficit to the EU target ceiling of 3 percent.

The deal reduces the risk that the Netherlands will lose its top-notch sovereign credit rating, but the country still faces months of policy uncertainty ahead of the September poll.

Earlier on Thursday, its central bank president, Klaas Knot, warned that the country faced enormous challenges. He reiterated that the country must address structural reforms and said Europe's sovereign debt crisis was not over yet.

The failure of a core euro zone member to come up with a deal would have heightened the uncertainty, feeding angst in financial markets about the sustainability of Spanish and other euro zone debt.

"Austerity creates pain but we are doing this for the Netherlands and we're doing it for our children," Christian Democrat Lower House leader Sybrand van Haersma Buma told parliament as the new deal was debated.

The Dutch budget plan for 2013 now has the backing of the majority of members of the Dutch parliament after the opposition GreenLeft party said it would support the plan.

A caretaker coalition government of the Christian Democrats Party and the Liberals had already backed the plan, as did two smaller opposition parties. Together with the GreenLeft, they will have enough members to get the plan through parliament.

Under the deal, the deficit will be brought down to 3 percent next year through a combination of social service cuts and higher taxes, the finance ministry said in a statement on Thursday night.

"At the EU level, the absolute priority is restoring the stability of the euro zone," the finance ministry said.

"At national level, the task is to remain competitive in a continuously changing world, to lower private and public debt levels, and to prepare for increases to government spending on healthcare and pensions as the population ages."

The government's macroeconomic forecaster CPB will need to go through the proposals to ensure the forecasts are correct.

The budget plan includes a two-year pay freeze for civil servants, which will save 2.3 billion euros by the end of 2013, and a 2 percentage point increase in value added tax, which will bring in extra income of 4 billion euros.

It also contains concessions to the environmental and Christian parties backing the deal, such as extra taxes on fossil fuels and higher "sin taxes" on alcohol and tobacco products, as well as on soft drinks, generating an additional 600 million euros.

Tax deductions for employee travel between office and home will be reduced, saving 1.2 billion euros, while cuts in healthcare will save a further 1 billion euros.

"LESS IN THE WALLET"

Prime Minister Mark Rutte's government fell apart at the weekend when its main ally, Geert Wilders' Freedom Party, refused to agree to a deal that would have cut more than 14 billion euros ($18 billion) off the annual budget.

Some small opposition parties favor reducing the deficit to 3 percent but the largest opposition parties, including Labor and Wilders' Freedom Party, had said 3.6 or 4 percent was good enough and cutting more would hurt growth and jobs.

Wilders has promised to turn the election into a referendum on the euro and the EU. He said the new budget would mean: "less in the wallet and more unemployment. The only people who are waving flags are the unelected eurocrats in Brussels and their little friends in Greece."

Financial markets have been unsettled by the Netherlands' inability to agree the sort of deficit-cutting it has demanded from other governments.

The Netherlands, which has a relatively low level of state debt of 65.2 percent of GDP, has been in recession since July, and the budget deficit is expected to be 4.6 percent of GDP next year without spending cuts.

As elsewhere in Europe, there is public discomfort with sharp austerity.

A poll by Maurice de Hond showed 58 percent of those surveyed agreed the Dutch deficit should be cut to 3.5 percent at the most, while 44 percent thought it should be cut to 3 percent or lower. ($1 = 0.7559 euros)

(Additional reporting by Thomas Escritt; Editing by Sara Webb and Hugh Lawson)

FILED UNDER: