Dutch austerity budget talks fail

PRESSURE MOUNTS: The Netherlands may head for early polls, writes Paul Geitner

THE Dutch government -- one of the last in Europe with an untarnished credit rating on the line -- indicated on Sunday that it would press ahead with efforts to pass an austerity budget, even as it appeared to be the latest European leadership forced into early elections by the continent's debt crisis.

As voters in France also delivered their initial verdict on who should lead them for the next five years, and whether they would favour more austerity or stimulating growth, the Czech government was rattled last weekend by popular protests against budget cuts and increased hardship.

The Czech police estimated that 90,000 people rallied in Wenceslas Square in Prague, the site of the mass rallies that helped topple the communist government in 1989, in one of the biggest popular protests of the past 20 years.

Dissatisfaction was concentrated on the shaky government of Prime Minister Petr Necas, which has been prone to corruption even as it has made unpopular budget cuts and raised some taxes. Necas is scrambling to find new coalition partners to stave off early elections.

In the Netherlands, weeks of budget talks collapsed over the weekend when a government ally, the far-right Freedom Party of Geert Wilders, refused to support the additional cuts needed to bring the deficit in line with European Union (EU) rules. His walkout prompted Prime Minister Mark Rutte to announce that new elections were likely.

While many countries are in similar straits as recession bites into tax revenues, the Netherlands is in a particularly embarrassing position, since it has stood firmly with Germany in insisting on the primacy of fiscal discipline in responding to the debt crisis.

Although Rutte could be asked to try to form a new government, most of the other parties had been clamouring for elections, said Dick Houtman, a sociology professor at Erasmus University in Rotterdam. Rutte is expected to stay on as caretaker until an election can be held, most likely in September or October.

Yet, a long period of uncertainty will put further pressure on the country's credit rating, especially if the government fails to pass a budget in the meantime. Last week, Fitch Ratings, a global credit rating agency, said it was watching the budget talks closely and would reconsider its rating in June.

"If the country loses its AAA status, then even larger cuts may be necessary" because borrowing costs would probably rise, Houtman said.

While the two-year-old Dutch government had been especially fragile because of its reliance on Wilders, a populist, anti-Islam campaigner, it would hardly be the first in Europe to fall victim to pressures from the financial crisis. Greece, Italy, Ireland, Spain and Portugal have all seen changes, and President Nicolas Sarkozy of France is running hard to avoid a similar fate.

Jean Pisani-Ferry, director of Bruegel, an economic research institute in Brussels, said the Netherlands was different in the sense that the country was on a much sounder footing -- yet still it ran into problems meeting deficit goals when the Dutch economy took an unexpected downturn.

"It shows how the very idea of having nominal targets and enforcing them quite mechanically is not a good idea," Pisani-Ferry said.

"There's a clear clash between domestic politics and this rule-based, technocratic system."

Like Sunday's vote in France and elections in Greece next month, the Dutch elections would be at least in part a referendum on the newly tightened euro rulebook, which demands spending be reined in to help restore confidence in the shared currency.

Many economists see the austerity drive as counterproductive, given the bleak economic outlook across most of the continent.

The European Commission, which enforces the rules, said it expected the Dutch government to "continue to seek budget solutions that are important for the financial stability of the country and the welfare of Dutch citizens".

Dutch Finance Minister Jan Kees de Jager went into meetings on Sunday after returning home a day early from Washington.

A ministry spokesman, Marcel van Beusekom, said the Netherlands still intended to meet the end-of-April deadline for EU countries to submit their medium-term budget plans to Brussels.

A package of additional measures had been under negotiation to save about US$18 billion (RM55.16 billion) after government forecasters in March said the budget deficit would come in next year at 4.6 per cent of gross domestic product, well above the three per cent goal.

In a statement on Saturday, Wilders argued that the cuts would have caused his supporters too much pain, particularly those living on retirement benefits.

"We don't want our pensioners to bleed just to meet the dictates coming from Brussels," he said, according to Dutch radio network RNW.

De Jager argued that it was "good for all Dutch people", particularly "vulnerable groups" in society, to keep investor confidence in the Netherlands high, "as they create jobs in our country".

"We will consolidate our budget and reform our economy not because of European rules or Brussels, but to improve the situation of our country," he said.

De Jager also said the government would "look for majorities in Parliament in order to implement the necessary measures". But that could prove difficult as the election campaign hots up.

In Washington, where he attended the meetings of the International Monetary Fund and the World Bank, de Jager said Europe had made significant progress towards quieting its sovereign-debt crisis through closer fiscal coordination and austerity budgeting. NYT

Dutch anti-immigration politician Geert Wilders speaking to the press at the Hague on Saturday. April 21, 2012. Wilders pulled out of budget talks with the government on Saturday and called for elections to be held as soon as possible. Reuters pic

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