Netherlands Politics February 2017

Netherlands

Netherlands: Europe awaits Dutch elections with bated breath but few economic consequences expected

March 1, 2017

All eyes are on the next Dutch elections, which will kick off the EU’s 2017 voting season and test the resilience of the European project in the face of growing euroscepticism. The Netherlands will head to the polls on 15 March to elect all 150 members of the House of Representatives. Recent polls see Geert Wilders’ eurosceptic Party for Freedom (PVV) firmly in first position, followed by Prime Minister Mark Rutte’s pro-market and pro-European People's Party for Freedom and Democracy (VVD). Polls suggest that more than 12 parties will enter the lower house, which will translate into a highly-fragmented parliament and most likely a difficult government formation process.

While Wilders’ is expected to come out on top in the election, the majority of the parties have pledged not to form a government with the PVV and the most likely scenario is a coalition government without Wilders at the helm. Polls suggest that five or six parties could be needed to form a majority, and given very different political programs, negotiations are likely to be long and the government could be shaky as tough political compromises will be required. The possible economic consequences of the upcoming elections are thus rather muted, as the governing coalition will probably be similar to the current government. Given that platforms among different parties are quite different, the government will likely proceed down a “middle road”, with policy making and economic reforms proceeding slowly.

Wilders, and the PVV, campaigned on two main issues: immigration and the European Union membership. Key proposals include limiting immigration from Islamic countries, reducing public funds for immigration services and adopting measures to counteract multiculturalism. As for the second issue, he proposes to hold an EU membership referendum, in which he would support the “leave” option. Wilders’ most direct competitor, current Prime Minister Mark Rutte, and the VVD, defend a pro-market political platform, which includes a more flexible labor market as well a commitment to maintain the rising trend in retirement age. Rutte’s VVD has a softer position on immigration than PVV, but nevertheless hardened it in the current electoral campaign, adopting the slogan “integrate or leave”. Rutte has proven to be a competent prime minister, fueling the economic recovery by cutting income taxes and approving laws that reduced, albeit slightly, the incentives for households to take out new mortgages—which is particularly important due to the high level of household indebtedness.

Looking forward, coalition talks will be difficult and lengthy and it’s very likely that the reforms needed to liberalize the labor market, lower private indebtedness and strengthen the sustainability of the pension system—which passes through the strengthening of the individual saving schemes—will have to wait for more favorable political moment. However, the Dutch economy will continue to be supported by many structural strengths, including a responsible fiscal management, a strong external position and competitive business conditions, as well as by the ongoing cyclical recovery.

The FocusEconomics Consensus Forecast panel expects GDP to expand 1.9% in 2017, which is up 0.1 percentage points. In 2018, panelists expect the economy to grow 1.7%.


Author: Massimo Bassetti, Economist

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