Dutch crisis calls eurozone strategies into question


The Dutch cabinet became the latest victim of the EU-imposed push for austerity, with liberal Prime Minister Mark Rutte presenting his resignation to Queen Beatrix yesterday (23 April). The case of the Netherlands, a triple A eurozone country which is becoming prey to the markets, is raising doubts about the 'fiscal compact' merits, experts warn.

Rutte lost the support of Geert Wilders' far-right Freedom Party (PVV) over additional cuts of at least €9.5 billion, needed to satisfy European deficit limits.

In its caretaker capacity, Rutte will now handle current affairs until elections are held, while still being charged with presenting a budget for 2013.

The Dutch parliament is currently squabbling to find a date for holding snap elections, after or before the summer break. Rutte will appear before parliament today for a debate on how to proceed with austerity measures and the timing of elections.

Loosing its triple-A credit rating?

The Dutch State Treasury Agency hopes to sell up to €2.5 billion at an auction of two-year and 25-year state bonds today, Reuters reported. The sale is expected to see reasonable demand as it is the last issue of long-term bonds scheduled for this year but borrowing costs may creep up as investors demand a higher premium to hold the paper.

Adding to concerns over the possibility the Netherlands could lose its triple-A credit rating,  Moody's credit rating agency said yesterday the government's collapse was a credit-negative, but maintained its triple A rating with a stable outlook.

Moody's said that if the country weakened its commitment to fiscal discipline, the rating could face downward pressure.

In an editorial article, Bloomberg press agency underscored that the Dutch cabinet collapse showed the "folly" of the 'fiscal compact' treaty, promoted by German Chancellor's Angela Merkel.

Europe's financial predicament is surging again, and the cause is the fiscal pact, which instead of restoring stability, is doing the opposite, Bloomberg's editors  write.

Ironically, Rutte has helped Merkel to sell the "fiscal compact" to the profligate countries in the EU South, but now he is the latest of about a half-dozen European leaders to be unseated by its consequences, the article further points out.

And as Spain remains the country to watch, the only solution appears to be the pooling of fiscal risk, which means the introduction of some form of eurobond or other collective borrowing arrangement. Merkel is opposing such a solution, but the alternative would be isolation of Germany and collapse in some eurozone countries.

"In either case, Germany pays — but in the second case, it pays much more," Bloomberg concludes.

The Netherlands has previously talked tough on budgetary discipline with regard to countries in the southern periphery.

This year, with weak economic performance, it emerged that without change the Dutch public deficit would reach 4.6% of GDP, far more than the EU’s 3% target.

To pass the measures necessary to reduce the deficit, the coalition Liberal-Conservative government depends on the support of the far-right and anti-immigrant Party of Freedom (PVV) of Geert Wilders.

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