- Talks aimed at forming a new Dutch government have collapsed
- Parliament must now decide on next steps
- No reason to worry about the economy or the public finances
What has happened?
Two months after the parliamentary election coalition talks to form a new Dutch government have collapsed. The leader of the talks, Health Minister Edith Schippers will present her report to parliament and then parliament will decide what next steps can be taken. Her task was to explore the possibility of a four-party coalition. The current Prime Minister, Mark Rutte, still wants a new government to be formed before the parliament’s summer break (7 July), but that now looks ambitious.
Who were involved in the talks?
13 parties are represented in the lower house of the parliament. A coalition government of a relatively large number of parties is inevitable as even the largest parties have too few seats to form a government on their own or in a coalition of, for example two parties. Coalition governments are nothing new; Holland has always had coalition governments. But the next government will have to include a historically large number of parties, which complicates matters.
Since the elections two months ago, four parties have negotiated about a new programme for government: VVD (33 seats, Right-wing liberals), CDA (19, Christian Democrats), D66 (19, left-wing liberals) and GroenLinks (14, Green, left). This seemed a logical combination. VVD remained the largest party (although it lost 8 seats), while the other three parties were the big winners of the elections. Together, the four parties have 85 seats in the 150 seat parliament.
Why did the talks fail?
Coalition talks are held behind closed doors, so we do not know exactly what has happened. It would appear that the talks have broken down because of differences in view over immigration, where VVD and CDA stood against D66 and GroenLinks. But talks over climate policies were, apparently, also very difficult.
What happens next?
Ms Schippers will offer her report to parliament and parliament will then debate what should happen next. It is possible that a new coalition will be tried. VVD, CDA and D66 are likely to form the backbone of any new government. Another party, instead of GroenLinks could get involved. The ChristenUnie (5, Social Christians) are the most logical. However, that reduces the parliamentary majority to just one, although there is talk of further support of smaller parties.
Another problem with such a combination is that the ChristUnie’s views on immigration are similar to those of GroenLinks, while the ChristenUnie strongly opposes views held by D66 on issues such as euthanasia.
Another option might be to include the PvdA (9, Social Democrats) in the talks. However, this party lost 29 seats at the elections and their appetite to support a new coalition is most likely absent.
Geert Wilders’ PVV (20, Freedom Party) would, at least numerically, also be a possibility. However, most other parties have pledged that they will not work together with the PVV in a new government. It is hard to see them breaking that pledge.
A combination of smaller parties is also a possibility. This could be in the form of a minority government, supported by several smaller parties. However, such an option would not really create a stable government and lead to further complications.
Another possibility is that various options are explored before the four parties which have been involved in the talks from the beginning will try again. Forming a coalition government means finding compromises.
May a new Dutch government consider Nexit?
No. This question was raised by international media before the elections. There is little appetite (expect among PVV and one or two smaller parties) to consider Nexit in any shape or form. Whatever government is formed in the end, Nexit will not be on its agenda.
What does this all mean for economic policy?
Prime Minister Rutte has said that he still would like to see a new government installed before parliament’s summer break, 7 July. If a new government is in place before the summer, the new cabinet can write the 2018 budget and include new policy initiatives. If the current caretaker government is still in place during the summer, no new significant policy measures can be taken in the budget, which will be presented to parliament on the third Tuesday of September.
The Dutch economy is doing well. Economic growth is relatively strong. We estimate GDP growth of around 2.5% this year. That is above trend. Tax buoyancy is strong and public finances are developing favourably. The government budget was in surplus last year to the tune of 0.4% GDP. On unchanged policies the government is expected to run a surplus of 0.8 – 1.0% in 2018.
Any new government will engage in new policy initiatives that will cost money. Such initiatives will not derail the public finances, but without them, the government’s coffers will be even healthier in the short term.
Should international investors in Dutch securities worry?
No. A government will be formed in the end. A new government will be centrist, whatever happens. Nexit will not be on the agenda and the delay in forming a government will actually be beneficial for the public finances.