AMSTERDAM (Reuters) - The Dutch Liberal and Labour parties appeared to have tied in parliamentary elections, possibly leading to protracted coalition talks and delaying tough decisions on government spending cuts.
Following are the potential implications of the result, which will not be finalized for days:
POLICY VACUUM, DELAY ON FISCAL STEPS
* The tie, if it stands, is sure to delay implementation of budget cuts the country needs to bring its deficit into check. The deficit, which must be 3 percent or less by the end of 2013 under EU guidelines, will end this year at 6.6 percent of GDP.
* The government’s economic think-tank said last month the Liberals’ austerity plan would go farthest in the next five years to reduce the deficit, while Labour’s plan would make some of the fewest cuts.
* Common ground may be hard to find, given the Liberals’ emphasis on cuts to a range of social and international programs and Labour’s tendency toward higher taxes and cuts in different areas of public life.
* Although the euro zone’s fifth-largest economy has one of the highest debt ratings in the currency bloc, investor jitters and a flight to more secure debt have increased the spread between Dutch bonds and their German benchmarks to 40 basis points, up from 15 to 20 a week ago and 7 points in March.
* The cost of insuring the debt has also edged higher, with five-year credit default swaps (CDS) at 56 points versus the mid-30s before the Greek crisis, meaning it costs 56,000 euros to protect 10 million euros worth of Dutch government bonds.
* The vacuum will also delay the selection of a new finance minister, a crucial post given the country’s place in the euro zone and the ongoing need for European financial leadership amid the still-bubbling sovereign debt crisis.
* Mark Rutte of the Liberals or Job Cohen of Labour are both in contention to become the next prime minister. If either party manages to win one more seat in the final election tally, due on June 15, it would win a mandate to create a coalition.
* Tough coalition talks are almost guaranteed. Rutte had vowed to create a cabinet by July 1, but that was under the assumption that the Liberals would come out on top. A new government budget is due in September and any cuts will have to be adopted soon afterwards to control spending.
* The vote resulted in the most fragmented political landscape in the Netherlands since voting for the 150-seat parliament began in 1959 (previously, parliament had 100 seats). Any likely coalition would have to involve at least four parties across the political spectrum, underscoring the difficulty of forming a stable coalition government.
* The Dutch government had a right-left government from 1994-2002 -- described as a “purple” government -- so a tie-up between parties on opposite ends of the political spectrum would not be unprecedented.
* The outgoing government fell because of a rift between Labour and the Christian Democrats over the deployment of Dutch troops in Afghanistan. With European integration, fiscal spending, immigration and social services all hotly debated issues, there is real risk of any contentious issue tearing apart the next government.
SMALLER PARTIES COULD BE KINGMAKERS
* Smaller parties could become kingmakers. Geert Wilders’ Freedom Party, with 22 seats, is in a prime position to choose a government but Labour and the Liberals have expressed concerns over the party’s financial plans.
* The Green Left went to 11 seats from 7, and the centrist D66 party tripled its seat count to 10. Both have expressed a willingness to join a coalition and Labour’s Cohen has already made overtures.
* The Christian Democrats, previously the largest bloc in parliament and now fourth, could ironically find themselves in an influential position. While many of their policies overlap with the Liberals, the Christian Democrats have also been in a coalition government with Labour.
IMMIGRATION STILL A CONCERN
* The political heir to anti-immigrant politician Pim Fortuyn, who was murdered in 2002, Wilders has challenged the country’s traditional tolerance of immigration and has called for a ban on immigrants from Muslim countries. He has also called for lower taxes.
* Despite a long internationalist tradition rooted in centuries of sea trade, the Dutch have turned inwards in recent years as the economy has stagnated.
* With 1 million Muslims in a country of 16.6 million, political and social tensions have risen. Filmmaker Theo van Gogh was murdered in 2004 for making a film critical of Islam.
* Wilders is likely to use his party’s strengthened position to push his message rather than govern. While the Liberals share some policies with the Freedom Party, he may choose to stay out of government and influence policy from the sidelines.
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