A river under the bridge in the Netherlands

Netherlands Special March 2020

Netherlands: No significant policy shifts expected after 17 March election as VVD leads polls

Voters will head to the polls on 17 March to elect a new parliament, after roughly a year of Covid-19 and its associated containment measures dealing a heavy blow to the Dutch economy. While the management of the pandemic will be at the forefront of discussions, a substantial swing in political support and policy is not expected: Incumbent Prime Minister Mark Rutte’s People’s Party for Freedom and Democracy (VVD) continues to enjoy a large lead in opinion polls. The three likeliest outcomes therefore involve a coalition between VVD and a combination of smaller parties. Firstly, VVD could continue its current center-right coalition government with the Christian Democratic Appeal (CDA), the D66 centrist party and the Christian Union party (CU). Secondly, VVD could form a similar coalition with the CDA and D66, without the CU. Thirdly, Rutte’s party could agree to a center-left government complemented by the CDA, the Labour Party (PvdA) and the Greens (GL).

The first outcome would largely result in policy continuity from the current coalition. However, VVD is set to increase its number of seats in parliament and would therefore likely want to translate this into more market-friendly policies. A key bone of contention could be around abortion and other moral issues, given the difference of opinion in these areas between D66 and the CU. Negotiations between these two parties could fail as a result, meaning the second outcome of a triparty coalition of traditional centrist parties is a real possibility. Nevertheless, either of these first two outcomes would likely see less focus on fiscal consolidation, given the severe impact of the global health crisis on the economy. Fiscal responsibility would still remain a key pillar of government policy, but a rapid reduction of the public deficit has not been advocated by any of the parties, unlike in the aftermath of the global financial crisis. Long-term debt sustainability rather than short-term consolidation seems to be the aim.

The third outcome would entail a shift to the center-left on some policies, such as climate change and socioeconomic issues, due to the inclusion of the PvdA and GL—two parties that have ruled out joining a government without the other. Fiscal responsibility would take more of a backseat than in either of the center-right options, as the left-wing campaign rests mostly on social and climate issues. However, this does not mean that fiscal policy would be entirely free from sustainability concerns.

Lastly, Geert Wilders’ right-wing Party for Freedom (PVV) is likely to remain the second largest party in parliament; however, traditional parties have little appetite to form a government with the PVV. Similarly, other parties have largely ruled out entering into government with the conservative Forum for Democracy party (FvD). The significant electoral support for these two parties, however, highlights a shift towards more skepticism or pragmatism regarding the European Union over the years. Most of the parties that will negotiate the new coalition are emphasizing rules-based fiscal policy and solidarity based on conditionality at the European level. That said, the new government is unlikely to press for a radical change regarding membership of the single-currency bloc or the European Union.

Commenting on the probable outcome of a coalition government made up of traditional parties, as well as the fiscal implications, Marcel Klok, senior economist at ING, stated:

“A government of such traditional parties would not imply a huge regime change. Nevertheless, the Dutch mood specifically regarding quick domestic austerity seems to have changed compared to the previous crisis period: a focus on long-run sustainability seems more likely than a push for short-term debt reduction. Meanwhile, there is also a lot of support for more public investment.”

Analysts at the EIU added:

“We expect the centre-right Party for Freedom and Democracy, led by prime minister Mark Rutte, to emerge as the largest party, but a fragmented political culture makes forming a new coalition difficult.”

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