Tuesday, April 24, 2012

Dutch crisis: PM Rutte addresses MPs on budget failure

Dutch PM Mark Rutte (R) 23 March 2012)

A day after the fall of his government, Dutch Prime Minister Mark Rutte will face questions from MPs on the next step in the country's budget crisis.

His minority government collapsed over last-minute disagreements on finding billions of euros in austerity cuts.

The Netherlands successfully raised 2bn euros at a bond auction on Tuesday, despite concern that the political crisis could worry investors.

The turmoil has also raised fears about the country's AAA credit rating status.

The Dutch government had been looking to raise between 1.5 and 2.5bn euros (£2bn; $3.2bn). It sold 1bn euros of a two-year bond with a 0.523% yield and, significantly, sold 995m euros of a 25-year bond at a yield of 2.782%, which is barely higher than Monday's rate.

One bond trader told ANP news agency the sale was "a good result in these circumstances".

The Netherlands is one of the few economies left in the eurozone with a AAA rating from all three major international credit rating agencies.

However, Fitch agency warned last week that if debt levels continued to rise, this top rating could come under threat.

Looking at some other key indicators, the Dutch economy appears to be in good shape.

Unemployment and inflation, for example, are relatively low.

However, as a big exporter, the Netherlands has been hit hard by the global downturn, which has affected demand for Dutch products, both in the eurozone and outside.

In fact, it exports a great deal overseas, and so has suffered from the relatively high level of the euro, says Jennifer McKeown, senior European economist at Capital Economics.

The Dutch housing market has also been very weak, hitting consumer confidence and spending.

These are the reasons why the economy is back in recession after contracting in the third and final quarters of last year.

When news of the government's imminent collapse emerged over the weekend, economists predicted that the cost of Dutch borrowing would rise and the country would lose its triple-A status, following in the footsteps of France and Austria.

One agency, Moody's, said on Monday night that the fall of the government was "a credit-negative" but added that the Netherlands had a stable outlook and was in "a position of relative strength".

Mr Rutte, in effect a caretaker prime minister since his resignation, will now seek an agreement with the Dutch parliament on a date for early elections and on budget cuts of 16bn euros.

The parties will have to choose between a general election in late June or after the summer recess.

Since it came to office in October 2010, the minority government of Mr Rutte's liberal VVD party and the Christian Democrat CDA had been reliant on the support of Geert Wilders' Freedom Party (PVV).

When Mr Wilders walked out of vital budget talks on Saturday arguing that the proposals would harm pensioners and affect growth, the two coalition parties could no longer stay in power.

The Netherlands has until 30 April to present the European Commission with a 2013 preliminary budget that will cut the country's projected budget deficit of 4.6% of GDP to within the EU's 3% limit.

Political commentators said that it would be impossible to reach a deal on austerity measures that would satisfy both the markets and Brussels unless all the centrist parties worked together.

One of the biggest dilemmas is for Labour party (PvDA) leader Diederik Samsom, commentators say, because he will have to decide between a compromise on cuts with Mark Rutte or confrontation, with a view to the forthcoming general election.



Source & Image : BBC

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