AMSTERDAM (Reuters) - The Netherlands, a core euro zone member, was drawn into Europe’s debt crisis at the weekend when the government failed to agree on budget cuts, making elections almost unavoidable and casting doubt on its support for future euro zone measures.
Prime Minister Mark Rutte, whose centre-right coalition has been in power since October 2010, said on Saturday that crucial talks on budget cuts had collapsed and that new elections were inevitable.
In the short term, the government must seek support for budget cuts from the opposition parties.
But uncertainty over the makeup of a new government, and waning voter support for bailouts and austerity measures, raised questions over Dutch backing for a fiscal responsibility pact seen as crucial to helping Europe cope with its debt crisis.
An opinion poll published on Sunday showed the Netherlands remains highly fragmented politically, suggesting that it could prove difficult to form a new coalition quickly.
The Maurice de Hond poll, conducted after the budget talks collapsed, showed that no single party would have a majority if elections were held now, though Rutte’s Liberal Party has strengthened its lead, followed closely by two leftist parties.
The poll also showed that a majority of those surveyed favour smaller budget cuts than those stipulated by the European Union, a further sign that the notoriously frugal Dutch are suffering from “bailout fatigue” and resent the high cost of rescuing profligate peripheral euro zone countries.
“Voters from different parties share the same view - disgust or disappointment over the political action and the political parties,” De Hond said in a statement, adding that two thirds of those polled agreed with the statement “I‘m tired of all the party politics”.
Rutte and Finance Minister Jan Kees de Jager - who flew back from IMF talks in Washington when the crisis broke - are among the euro zone’s harshest critics of “budget sinners” like Greece and Portugal, and the Netherlands is seen as close to Germany in calling for tough austerity measures.
That is about to change.
“The Netherlands can no longer be a role model to others. There may be a reaction in other countries: ‘If they don’t do it, why should we?’ This risk exists, which is unpleasant,” said Jaap Koelewijn, an economist and professor of corporate finance.
Annual budget cuts of 14 to 16 billion euros are needed for the Netherlands to meet European Commission targets. Without them, its public deficit is forecast to hit 4.6 percent of GDP in 2013, well above the 3 percent agreed with the Commission.
If the Netherlands does not cut spending and breaks EU budget rules, it is likely to lose its coveted triple-A credit rating, leading to higher borrowing costs.
The level of state debt rose to 65.2 percent of GDP at the end of 2011 from 62.9 percent in 2010, Statistics Netherlands said last month.
Ratings agency Fitch recently warned the Netherlands it must get its finances in order or risk a ratings downgrade, while in a report last month, Citibank went as far as to say it no longer deserved to be considered a core member of the euro zone because of its fiscal woes.
The uncertainty over budget cuts and reforms, and the time it takes to organise elections, will probably lead to higher interest rates and higher yields on Dutch government bonds.
“The cost of finance for the Netherlands will go up slightly compared to Germany, but our debt is mostly long-term. The Netherlands doesn’t have high refinancing needs in the next few years,” said economist Sweder van Wijnbergen.
The catalyst for the crisis was Geert Wilders, whose anti-euro, anti-Islam Freedom Party had pledged to support the minority government in parliament and give it the majority to pass legislation.
But after seven weeks of talks, Wilders suddenly backed out just when a deal appeared close.
Wilders’ supporters are against budget cuts, particularly cuts in welfare, health and unemployment benefits, and there was talk, which he denied, that the Freedom Party was split over the proposed cuts.
“We don’t want to make our pensioners bleed for the sake of diktats from Brussels,” Wilders told reporters on Saturday.
“This was a package that would damage our economy over coming years and increase unemployment. And all that to meet a demand made by Brussels, accepted by the Liberals, of reaching a 3 per cent deficit in 2013.”
De Hond’s poll showed that a clear majority of Dutch people think the budget cuts demanded by the European Union were excessive. Asked whether the Netherlands should cut less than the European Union wants, 57 percent of respondents agreed.
Supporters of the populist Freedom Party and of the leftist Socialist Party were particularly set against cuts.
The poll showed that the Dutch were most strongly opposed to spending cuts that would have a direct impact on standards of living, 56 percent of respondents opposing the introduction of a new, modest prescription charge, and 47 percent opposing an increase in value added tax.
The cabinet is set to meet on Monday to discuss what it should do next to agree a budget and whether to resign. The Queen could accept its resignation, paving the way for elections, or ask the prime minister to form a new coalition.
If elections are called, Sunday’s polls showed Rutte’s Liberals would win 33 seats in the 150-seat parliament, up from 31 now, followed by the eurosceptic Socialist Party with 30 seats and the pro-Europe Labour Party with 24 seats.
Rutte’s coalition partner, the Christian Democrats, and the Freedom Party, until Saturday his main ally, have both slipped in the polls and would win 11 and 19 seats respectively.
Additional reporting by Gilbert Kreijger and Anthony Deutsch; Editing by Tim Pearce