By Gilbert Kreijger and Sara Webb
AMSTERDAM, April 25 The Netherlands has called
an election for September 12, leaving the country open to months
of political and economic turbulence after the government
collapsed in a row over budget cuts that are needed to meet
strict EU limits.
The euro zone's fifth-largest economy has been one of its
most stable but the government became the latest victim of
resistance to EU-imposed austerity on Monday when it lost the
support of its main ally, bringing political chaos.
Financial markets have been unsettled by the inability of
one of Europe's few triple A-rated countries to agree the
deficit-cutting it wants from others, because it signals the
euro zone will struggle to deal with its problems as a whole.
Dutch bonds fell sharply on Monday but have since rallied as
investors say the economy is fundamentally sound even though it
has been in recession since July 2011.
The outgoing government has less than a week to win
opposition support for a savings package before presenting it to
the European Commission. Prime Minister Mark Rutte will send his
latest plan to parliament for a debate on Thursday.
"If the parties manage to agree on a sufficient number of
measures, bond markets will receive this positively," Walter
Leering, fixed income analyst at Dutch private bank Theodoor
Gilissen said in a note.
"If not, and the country is in a vacuum until elections, the
pressure on interest rates and the AAA rating will probably
The Queen approved parliament's dissolution, paving the way
for the election. However, all parties will keep their seats in
parliament until after the election is held.
An opinion poll published on Sunday showed no single party
would have a majority if elections were held now but Rutte's
Liberal Party had strengthened its lead, followed closely by two
The largest opposition parties have refused to back Rutte's
14 to 16 billion euro package of cuts, with many saying meeting
the EU's target of 3 percent of gross domestic product would
lead to economic misery.
Europe's politicians are facing a wave of protest over
austerity that some economists say is necessary to solve a debt
crisis that has led to Greece, Ireland and Portugal seeking
outside financial aid.
Others, including the International Monetary Fund, have
cautioned Europe against cutting spending too far and too fast
at the expense of restarting economic growth.
The Dutch political crisis comes as French voters seem
poised to chose economic growth over austerity by voting for
Socialist presidential candidate Francois Hollande over
conservative President Nicolas Sarkozy on May 6.
"I wouldn't be rushing into buying here, whether you're
looking at France of the Netherlands, I very much doubt we're
finished," said Padhraic Garvey, head of investment grade
strategy at ING.
The Netherlands is one of the euro zone's most fiscally
conservative members and the government has been critical of the
region's "budget sinners", the countries struggling to bring
down their deficits.
All ten parties in parliament are broadly supportive of
budget cuts but n ot all t o the extent needed to reach the EU
"When one of the stronger, or arguably the strongest,
proponent of fiscal rules in the European Union, struggles to
adhere to those rules itself that means that those rules could
themselves become weaker," Sarah Carlson, senior analyst at the
Moody's ratings agency told Reuters.
Rutte, who will stay in place until the elections, is hoping
to push his plans through the 150-seat parliament on Thursday
with the help of small opposition groups.
His Liberal Party has 31 seats and his coalition partner has
21 seats. Finance Minister Jan Kees de Jager has started talks
about a revised budget plan with the opposition parties
including a bloc of three smaller groups which have indicated
they may be willing to do a deal that would provide a majority.
The smaller opposition parties which appear to be supportive
of getting the budget deficit down to 3 pct of GDP are the
Democrats 66, with 10 seats, the GreenLeft, with 10 seats, and
Christian Union, with 5 seats.
The Reformed Party (SGP), with 2 seats, has also shown its
willingness, which would bring the total in favour to 79 out of
"I am full of energy because something needs to happen in
this country. We want to take responsibility for this and we are
doing this together with Democrats 66 and Green Left," Christian
Union leader Arie Slob told reporters.
The plan Rutte is sending to parliament is expected to be
similar to the one he negotiated with Geert Wilders' euro
sceptic Freedom Party.
That deal would have cut the budget by 14.4 billion euros in
2013, bringing the deficit for that year to 2.8 percent of GDP.
It included an increase in value added tax that would have
raised 4.8 billion euros.
Another proposed measure, to charge a fee of 9 euros for
prescription drugs, would raise 1 billion euros.
An opinion poll published on Sunday showed that such
measures would be very unpopular.
Wilders had supported the government for 18 months before
abruptly withdrawing his backing over the weekend after seven
weeks of talks. Without the savings, the deficit is forecast to
reach 4.6 percent of GDP next year.
He said he had enough of being dictated to by Brussels but
Dutch media say the government's collapse may mean that many of
his policies, such as a ban on face veils, primarily aimed at
Muslim women, may not be turned into law.
Dutch bonds have held up reasonably well despite the
The spread on Dutch 10-year government bonds compared with
the German equivalent, Europe's benchmark, leapt to its widest
in three years on Monday.
But it has since fallen back, while the Dutch 10-year bond
yield fell to around 2.335 percent on Wednesday from
around 2.348 percent late on Tuesday.
Investors said they were focused on the strong economy,
relative to other members of the euro zone. Unemployment and
debt levels are low and the country is running a trade surplus.
"There are obviously some challenges at the moment but it is
important to keep them in perspective and not forget the very
significant sources of strength that exist in this country,"
said Carlson from Moody's.
Fitch ratings agency said on Wednesday it was assuming the
Dutch would meet the EU target in 2013.
"However, domestic policy uncertainty has increased, while
financial and economic risks from the euro zone crisis remain
significant. If it becomes clear that our base-case is unlikely
to materialise, pressure on the rating will increase," it said
in a statement.