* Crisis jolts markets already worried about France
* Elections may be held as soon as June
By Gilbert Kreijger and Thomas Escritt
THE HAGUE, April 23 Dutch Prime Minister Mark
Rutte tendered his government's resignation on Monday in a
crisis over budget cuts, creating a political vacuum in a
country which strongly backed an EU fiscal treaty and lectured
Greece on getting its finances in order.
Rutte said he had offered his minority coalition's
resignation to Queen Beatrix after a split with the populist
Freedom Party, which had backed his government for the past 18
months, opening the way for elections possibly as early as June.
Turmoil in what is traditionally one of the euro zone's most
stable and prosperous members jolted financial markets, already
worried that the Socialist frontrunner in French elections has
pledged to renegotiate the agreement to ensure fiscal stability
if he wins the presidency next month.
Markets have punished Spain by pushing up its borrowing
costs sharply after Madrid relaxed its targets for cutting the
Analysts said the Netherlands can avoid this fate, but only
if parties in and outside the centre-right coalition can somehow
agree on budget cuts. Anything less may threaten the Dutch
government's AAA credit rating.
Rutte said the Queen was considering the resignation offer
and had asked the cabinet to keep working for the country's
good. However, government ministers openly speculated that new
elections would be needed to break the impasse.
Finance Minister Jan Kees de Jager, who has taken a tough
line with euro zone "budget sinners" such as Greece, tried to
reassure markets that the country was not about to ditch its
commitment to good housekeeping.
"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.
De Jager, who in the past has said Greece should be denied
international aid unless it got its fiscal house in order,
dismissed suggestions that political paralysis would force the
Netherlands into the ranks of Europe's sickest economies.
"There is no correlation whatsoever between the Netherlands
and the countries of southern Europe. (Our) sovereign debt is in
the region of 65 percent (of total economic output), which is
way below the euro zone average," De Jager told Reuters.
Greece, by comparison, aims to cut its debts to 120 percent
of gross domestic product by 2020 from a towering 160 percent.
Nonetheless, investors sold Dutch and peripheral euro zone
bonds, driving yields on debt issued by struggling Spain above 6
percent. The premium investors demand to hold Dutch bonds
rather than German benchmarks surged to its
highest in three years.
Within a week, the Netherlands is supposed to tell Brussels
how it will cut its budget deficit next year to meet EU rules,
and it then faces months of uncertainty before elections, with
the possibility that they produce a eurosceptic government.
The row erupted at the weekend when the anti-EU Freedom
Party led by populist Geert Wilders refused to agree with
Rutte's centre-right coalition on how to cut 14 to 16 billion
euros from the budget.
The crisis in the Netherlands - perhaps Germany's closest
European ally on budget discipline - risks undermining a drive
led by Chancellor Angela Merkel to get new fiscal rules ratified
by the end of this year, although only 12 of the 17 euro zone
members have to ratify it to bring the pact into force.
"The collapse of Dutch budget negotiations ... poses a
significant threat to effective ratification of the fiscal
compact, a central plank in Angela Merkel's strategy for
addressing the euro zone crisis," Alastair Newton at Nomura
"It would at best significantly damage the compact's
credibility and at worst encourage other members to follow
A junior minister suggested new Dutch elections were nearly
certain. "I assume it is inevitable," deputy foreign minister
Ben Knapen told Dutch news programme RTL Z.
Elections had not been expected until after the summer
holidays - long after an April 30 deadline when the Netherlands
and most other EU countries must tell Brussels how they will cut
their budget deficits.
However, moves were afoot to call an early vote and avoid a
potentially long and damaging period of uncertainty.
A spokesman for Rutte's Liberals Party said June 27 was one
of the possible dates for elections. "It is in our country's
interest to let the voters decide as quickly as possible and
have a new government," the spokesman said.
Newton said negotiations to form a new coalition could take
even longer than the four months or so needed to create Rutte's
centre-right government which took office in October 2010. They
could result in a "eurosceptic new government", he said.
European Commission President Jose Manuel Barroso made clear
the Dutch had to meet their targets. "We fully expect that the
Dutch authorities will find a solution that ensures the
financial stability of the country and the wellbeing of its
citizens," he told Reuters on a visit to Copenhagen.
Rutte may try to cobble together an agreement with
opposition parties as a caretaker prime minister to meet
Brussels' budget deadline at the end of this month.
Hans Stegeman, economist at Rabobank, said the government
should be able to send a budget plan to the European Commission
by April 30. "They'd rather have a plan than have nothing at
all," he said.
It was less likely that De Jager could win support from
opposition parties to cut the deficit to 3 percent of GDP next
year, as required by the Commission, Stegeman said.
"It will be very difficult. Many opposition parties don't
think it's that important, including Labour, which says reforms
are most important," he said.
The Dutch crisis flared at a time of wobbling support for
the EU fiscal pact.
The Socialist frontrunner to win the French presidential
election runoff next month, Francois Hollande, has promised to
renegotiate aspects of the agreement.
France has already lost its triple-A credit rating and the
Netherlands may follow suit if it fails to make the budget cuts,
a blow that would drive up its borrowing costs.