Dutch Election Outcome Could Mean More Austerity

There is an eerie silence in Europe right now. The continent is catching its breath after some turbulent events recently:

  • In the Greek election voters narrowly re-affirmed their support for status quo but gave authoritarian parties 40 percent of the votes;
  • French voters redesigned the country’s political landscape by handing both the presidency and the national parliament to the socialists;
  • Spain has just received new austerity marching orders from the EU and is just about to start cutting spending again; and
  • There is rapidly growing resistance in, e.g., Germany to more bailouts for the worst-run welfare states in the EU.

Over the past year a clear divide has opened up across Europe. On the one hand we have the eurocracy and its support cadre of austerity-minded governments. They are relentless in trying to bring the continent’s fiscal house into order by means of spending cuts and tax increases. On the other side of the divide are the voters, taxpayers and consumers of government services who feel increasingly shortchanged. They see government take more of their money while giving less back.

Right now, this divide is not rocking Europe in either way. But recent events in Spain indicate which way things will be going in the near future. There is a rift growing between the central government and the provinces, and it is a direct result of EU-dictated austerity policies. This rift could actually have very serious consequences for Spain as a nation: just yesterday there was a massive rally for Catalonia to secede from Spain, with hundreds of thousands of protesters pointing to the austerity measures as the immediate reason for independence.

Waves of riots and unruly protests Spain, Italy and Greece have given voice to a widespread weariness with austerity. This weariness has also spread to less volatile countries, such as The Netherlands, where today on September 12 voters go to the ballots to elect a new parliament. The previous prime minister and his cabinet lost power in August after losing a critical parliamentary vote on austerity policies. As a reaction to such policies, Dutch voters – who realize that the austerity measures are dictated by the EU – have become increasingly friendly toward the socialists. They and other EU-skeptical parties have been gaining ground on an anti-austerity agenda, which has put the two dominant political parties – social democrats and center-right liberals – in a difficult position. They are both pro-austerity and strong supporters of the EU as a whole, but in order to secure an election victory they have to come across as skeptical to domestic austerity and bailouts for other countries.

This tactic seems to be working. According to the British think tank Open Europe, the most probable result of today’s election is a pro-EU coalition that will preserve political and fiscal-policy status quo:

The most likely outcome remains a centrist, pragmatic coalition, which clearly is the preferred option in Brussels and Berlin. The Dutch elections are therefore unlikely to radically change the immediate political dynamics of the eurozone crisis in the short-term.

EurActiv reaffirms the forecast, suggesting that the two centrist parties, the Social Democrats and the center-right VVD, will form a coalition:

Dutch Prime Minister Mark Rutte of the liberal VVD and the Labour (PvdA) leader Diederik Samsom were neck-and-neck heading into today’s general election, the latest polls showed. Polls put the VVD and PvdA at around 35 seats in the 150-seat parliament, indicating a coalition involving both parties may be inevitable.

This will, again, mean a return to austerity for the Netherlands and support for further EU-enforced austerity in other, more troubled member states. This means that the new Dutch government will support more bailouts, despite what the report from Open Europe suggests:

The country is likely to continue to oppose more bailout cash for Greece or any topping up of the eurozone’s bailout funds and remain a steadfast supporter of austerity in the struggling eurozone economies.

If you support austerity in your own country, you support it elsewhere. It means that you don’t see an alternative way to close a budget gap.

Furthermore, the dominant Dutch parties are firm believers in further centralization of political and fiscal power in the EU. The only thing that can hold them back is a surge in support for EU-critical parties, such as the socialists which are likely going to come in third in the election. The Open Europe report is skeptical toward that, at least when it comes to the socialists who rose in the polls in August:

In the medium to long term, however, the Netherlands could well be on the path to becoming a more assertive – and far more complicated – EU partner. With future decisions on potential eurozone debt pooling to come and the prospect of more EU powers over national budgets (including the Netherlands’), Dutch public opinion and the EU-critical parties such as the Socialists and PVV are likely to shift the country in a more sceptical direction. Although the EU-critical left-wing Socialist Party has had a strong election campaign, recent polls have seen a shift back towards the centre with the centre-left Social Democrats (PvdA) overtaking the Socialists (SP) to become the main challengers to Prime Minister Mark Rutte’s VVD party (centre-right).

The prevailing notion in EU-friendly circles in Europe is that both the political power of the EU and the currency union are in jeopardy if they stop forcing countries in bad fiscal shape to implement austerity policies. According to them, the only alternative to a continuation of austerity is the French route, meaning that instead of combining higher taxes with spending cuts, you combine them with spending increases.

The next Dutch government is not going to accept a shift in domestic fiscal policy in the French direction. The VVD party was part of the pro-austerity coalition that fell in April, and it is inconceivable that they have changed their minds since then.

This does not prevent them from paying lip service to the EU skepticism that has lifted primarily the socialists to a challenging third-place position in the polls:

Dutch Prime Minister Mark Rutte, the liberal party leader who is battling for re-election next week, says Greece should not get more financial aid from Europe. During a televised election debate on 4 September, the leader of the VVD stressed that Greece had already been given support twice and received loans of €240 billion and that is “enough”. “The Greeks are in a better position because of it, but I say ‘enough is enough’,” Rutte said.

No, they are not better off. The loans only provide temporary revenue toward admittedly smaller, but nevertheless permanent expenditures. The Greek economy is in a free fall, potentially shrinking seven percent this year. This means that the tax base shrinks as fast, and that demand for welfare-oriented tax-paid services from government is increasing rapidly. It does not take a Ph.D. in economics to help you realize that this means the Greek economy is worse off, not better off, as a result of the austerity policies.

Top Dutch politicians know this. They are not going to force Greece out of the euro zone, which would be the immediate consequence of the EU turned off the bailout faucet. Therefore, we can safely conclude that provided the recent polls (as reported by the Open Europe article) are correct, The Netherlands will get a new prime minister who will throw his country’s support behind a perpetuation of austerity across Europe – and with austerity, bailouts.

Down the road this means further destabilization of the EU and the euro zone. And tougher times for private businesses as well as for Europe’s families.