February 1, 2013 / 9:51 AM / in 5 years

Political risks to watch in the Netherlands

AMSTERDAM, Feb 1 (Reuters) - Dutch Prime Minister Mark Rutte, one of the few European Union leaders to survive an election during the euro zone crisis, formed a pro-EU, pro-austerity coalition with Labour, which came a close second in the vote in September.

As a close ally of Germany and one of the few AAA-rated euro zone countries, the Netherlands is expected to remain committed to a policy of fiscal discipline, although its coveted credit rating is at risk because of the weak economy.

COALITION AGREEMENT

After the election, Rutte and Labour leader Diederik Samsom agreed to budget cuts of 16 billion euros ($22 billion) over the next four years, and structural reforms including a reduction in tax breaks on home loans.

Since then, Rutte’s Liberals and Labour have fallen sharply in popularity in the face of austerity measures, a worsening economy and rising unemployment.

What to watch:

- Whether both the lower and upper houses of parliament pass the budget cuts

- Public discontent over the impact of austerity measures, a weak economy, fall in house prices and cuts in pension payouts

EURO ZONE CRISIS

With the appointment of Finance Minister Jeroen Dijsselbloem as head of the Eurogroup in January, the Netherlands may play a more influential role in the euro zone debt crisis.

The new government is expected to remain committed to tight fiscal policies to tackle the euro zone’s debt crisis. Like other euro zone countries, it must approve an EU fiscal treaty which will enshrine balanced budget rules in national law.

What to watch:

- Political and public support for euro zone bailouts

- A credit downgrade as both S&P and Moody’s have given the country’s rating a negative outlook

BUDGET DEFICIT

Dijsselbloem has said the country is committed to meeting the EU’s 3 percent budget deficit rule, even though both the central bank and the government’s economic forecaster (CPB) warned it would exceed the target this year.

The 2013 budget, agreed by an ad hoc coalition in April after Rutte’s government fell, had aimed to bring the deficit down to 2.6 percent of GDP with 12 billion euros in tax rises and spending cuts. The extra 16 billion euros in cuts are expected to bring the deficit down to 1.4 percent of GDP by 2017.

What to watch:

- Implementation of agreed budget cuts

- Support for other reforms and spending cuts

- Strikes or protests over budget cuts

- Possible cost to state of rescuing banking and insurance group SNS Reaal

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