You’ve probably noticed the Netherlands hitting the headlines these past few days. However, it’s not for the right reasons! Mark Rutte, the country’s Prime Minister, submitted his resignation letter to the Queen after a few policymakers walked out of the Parliament while new austerity measures were being discussed.
Getting the consensus of all politicians had never been easy for Mr. Rutte. He ruled a fragile coalition government with no Parliamentary majority. However, he always found an ally in the leader of the Freedom Party, Geert Wilders. That is, until he submitted his austerity measures which aimed to cut down Holland’s foreign aid contributions and increase the retirement age from 65 to 66.
Wilders withdrew his support, citing that the new austerity measures would be discriminatory towards the elderly. Prime Minister Rutte then figured that with no more support from the Freedom party, he was a sitting duck in Parliament and realized that he might as well resign. Bummer!
Other politicians have remarked that the new austerity measures, which amount to just over 12 billion EUR, were proposed at the worst possible time especially since the Netherlands is already in a recession.
However, in his defense, Rutte argues that more cuts are necessary to meet the EU’s mandated debt-to-GDP target ratio of 3%. The country has relatively low levels of national debt but it is expected to post a budget deficit of 4.6% in 2012.
The news of Rutte’s resignation sparked renewed concerns about the European debt crisis, as the Netherlands is now in danger of losing its prestigious AAA-rating. Take note that last week, Fitch warned that it could downgrade Dutch debt should the austerity talks break down.
Dutch bonds, which have typically been a relatively safe place to park your money, saw the spread over German bonds hit 0.87%, as Dutch 10-year bond yields hit a 3-year high at 2.47%.
The pain was also felt on Monday, as EUR/USD gapped down to begin the week and hit a low at 1.3104 before recovering on Tuesday.
Looking ahead, Dutch Finance Minister Jan Kees de Jager (no relation to Mick Jagger… I think) insists that he will be passing a budget plan to the EU before April 30, next Monday.
In the meantime, Rutte will serve as “caretaker” of the Dutch government for the next five months as word on the street is that September 5 would be earliest possible date for a new ballot to be drawn up.
So for the next few months, look for political leaders like Rutte and Wilders to work their charm and try to form a majority government. As it stands, Rutte’s Liberal Party holds just 31 out of 150 seats in Parliament, while the Freedom Party (headed by Wilders) controls just 24 seats.
Only time will tell how this will all play out. Hopefully though, this gets resolved quickly, as it could quickly become a major thorn on the side of the European debt crisis.