Bloomberg News

Dutch Ruling Parties See Scope for Deal on Budget Cuts

March 29, 2012

Dutch Prime Minister Mark Rutte’s minority government sees “sufficient perspective” to reach a deal on additional austerity measures needed to meet European Union budget rules.

The coalition parties made the comment in a joint statement today as talks resumed on new spending cuts after being suspended yesterday. The parties said that they won’t comment further until an agreement is reached.

Rutte’s coalition of Liberals and Christian Democrats has been negotiating with Freedom Party leader Geert Wilders since March 5 about the extra budget cuts. Wilders’ lawmakers have supported the minority government since it took office in October 2010, allowing it to pass legislation in parliament.

“The Netherlands, which can still boast a relatively good economic performance, faces big challenges,” Dutch Central Bank Governor Klaas Knot said today, urging the party leaders to quickly agree on the necessary reductions and on reforms of the labor and housing markets. “With the highest credit rating and relatively low unemployment, we have much to lose.”

The government has to find more than 9 billion euros ($12 billion) in additional cuts to meet EU deficit rules by 2013 and protect the top credit grade that France and Austria lost in January. The budget shortfall is forecast at 4.6 percent of GDP in 2013, exceeding the 3 percent EU limit for a fifth year.

‘Worrying’ Development

In light of structurally lower growth in the coming years, the development of state finances is “worrying,” Knot, who also sits on the European Central Bank’s governing council, said at the presentation of his bank’s annual report in Amsterdam.

The risk premium demanded by investors to own Dutch 10-year bonds relative to Germany’s has more than doubled since January. Dutch yields surpassed those of AAA rated Finland in February for the first time since August. The spread between Dutch and German yields was at 58 basis points, or 0.58 percentage point, as of 4:02 p.m. in Amsterdam, from 57 basis points yesterday.

“If the Netherlands wants to continue to profit from a low interest rate, it has to seriously reduce the deficit,” Knot said. “If the political developments would be of such a nature that the answers to the economic challenges we’re facing are delayed or weakened, we will definitely see a response in financial markets.”

To contact the reporters on this story: Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net; Fred Pals in Amsterdam at fpals@bloomberg.net

To contact the editor responsible for this story: James Ludden at jludden@bloomberg.net


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