June 9, 2010 / 3:14 PM / 9 years ago

Austerity main issue in Dutch vote

AMSTERDAM (Reuters) - The Dutch voted in a parliamentary election on Wednesday likely to deliver victory to the austerity-minded Liberal Party but force it into coalition talks, delaying steps to tackle the deficit.

In a departure from recent elections in the Netherlands that were dominated by immigration and foreign policy issues, fiscal austerity has become the central campaign theme as sovereign debt woes plaguing Greece and other euro zone countries threaten the stability of the currency bloc.

The Liberals, run by a 43-year-old former human resources manager at consumer goods giant Unilever, have advocated steep budget cuts, a pared down government and a reduction in benefits for immigrants. Their calls to retain tax deductions on mortgages has also resonated with voters.

“I hope that they can bring the country’s finances back in order,” said retired Marieke Klinkert, 61, who voted for the Liberals. “The Dutch financial situation is very bad.”

Casting aside decades of stern fiscal policies, the government took over the country’s biggest bank ABN AMRO in 2008 after its buyer Fortis collapsed, spending more than 26 billion euros ($35 billion) to prop it up.

It spent more later to boost the economy, offer tax relief and support other financial groups, heightening investor concern over its finances.

Exit polls are expected within an hour of the end of voting at 1900 GMT.

Mark Rutte’s Liberals are seen winning 34 seats in the 150-seat parliament, while Job Cohen’s Labour party will likely come in second with 30 seats.

“It will be a choice between tackling problems now or postponing measures,” Rutte said on Wednesday. Cohen responded by saying the economy would be in good hands with Labour.

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In order to attain a governing majority of 76, the winner will have to forge a coalition with at least two other parties. Negotiations could drag on, pushing back the implementation of policies aimed at slashing a deficit expected to reach 6.6 percent of GDP this year.

Although the euro zone’s fifth largest economy enjoys one of the highest debt ratings in the currency bloc, borrowing costs have edged higher over its ability to pay back loans.

A three-year bond auction on Tuesday showed a spread of 40 basis points over its German benchmark, up from 15 to 20 basis points a week ago and just 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.

Marcel Boogers, political science professor at Tilburg University, said a right-left coalition is a likely but possibly time-consuming outcome: “That might be a viable coalition.”

The party of anti-immigration populist Geert Wilders is projected to double its seats from 9 to 18, while centrist D66 is expected to pick up 11 seats and Green Left party 11 seats.

“A bridge between left and right would be best for the country in such a difficult time,” said Jolande Sap, the Green Left’s financial policy expert.

Rutte set a deadline of July 1 to form a cabinet.

“If the British can do it, we should be able to do it,” Rutte said, referring to the conservative-liberal British government forged last month after an election failed to give one party an overall majority.

A national vote in Belgium on Sunday, split along the French and Dutch speaking regions, is expected to lead to prolonged coalition talks at a time when the neighboring country needs to bring spiraling debt under control.

The vote seems sure to end the eight-year tenure of Prime Minister Jan Peter Balkenende, whose Christian Democrats had ruled with the Labour Party until February, when the government collapsed over a disagreement on extending the deployment of Dutch troops in Afghanistan.

Additional reporting by Reed Stevenson; Editing by Janet Lawrence

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