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Dutch government faces tough budget choices

Meeting EU limit on national deficit is No. 1 challenge

- Associated Press - Tuesday, April 24, 2012

THE HAGUE — The Netherlands' caretaker prime minister appealed to a polarized Dutch Parliament on Tuesday to help him get the economy back on track rather than let the country drift in political limbo until new elections.

Speaking publicly for the first time since he tendered his resignation Monday, Mark Rutte said the nation, long considered one of Europe's most fiscally responsible, has no time to waste in tackling its economic woes.

"I stand here in the hope that parties in this chamber are prepared ... to work with the Cabinet to do what is necessary to pull the Netherlands through these difficult economic times in a responsible way," he told lawmakers.

Mr. Rutte's 18-month-old conservative coalition government collapsed Monday after it failed to reach a deal on cutting its own budget deficit to meet the EU limits it had demanded of other countries.

The immediate question facing party leaders will be what budget statement they can allow Mr. Rutte to deliver to Brussels by April 30, a deadline for submitting a preliminary 2013 budget.

The note must explain how the Netherlands plans to bring its projected 4.6 percent 2012 budget deficit below the 3 percent European limit.

The Netherlands has a privileged economic place in Europe, one of only four of the eurozone's 17 nations with the coveted top-ranked AAA credit rating, but it is mired in a recession.

The government is keen to reassure markets it is doing all it can to rein in spending and meet the EU deficit limit - and rating agencies have warned they are closely watching events in The Hague.

A credit downgrade would drive up borrowing costs for the government, further compounding the Dutch economic malaise.

So far, financial markets appear to be giving the Netherlands the benefit of the doubt. Early Tuesday, the government was able to auction about $2.6 billion in bonds at highly reasonable rates, including $1.3 billion worth of two-year bonds at a yield of 0.523 percent - lower than before the political crisis began, according to treasury spokesman Ben Feiertag.

As the head of a caretaker administration, Mr. Rutte likely will have to agree upon some cuts with leftist parties he had snubbed during his two years as prime minister.

Key leftist opposition parties say they are willing to discuss more austerity, but they repeatedly have stressed that spending cuts and tax increases could do more harm than good to the ailing Dutch economy.

Finance Minister Jan Kees de Jager said Monday that reaching the 3 percent limit is "feasible" but the ball is now in Parliament's court.

"This is important not only because Europe and Brussels is asking for it," Mr. de Jager said. "It is important for the Netherlands."

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