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09 October 2013

WSJ: Dutch budget talks in trouble as another party walks away


Talks between the Dutch government and the opposition entered a crucial phase on Wednesday, calling into question the government's ambition to rally support for next year's budget and prevent a standstill on reforms needed to shore up public finances.

Wednesday saw a second opposition party quit the talks amid rising concern about the effects of increased austerity on the fragile Dutch economy. The impasse reflects the difficulties the government faces in pushing through reforms and meeting European Union budget targets. While the Netherlands has been a strong supporter of the German-led austerity drive in Europe, it struggles to push that agenda at home because of a weak economy and a fragmented political landscape.

The need for a budget deal was highlighted late Tuesday, when the Senate blocked a pension reform that deals a huge blow to the government's efforts to fix Dutch public finances. At issue was a plan to lower tax deductions on pension contributions, which would generate about €3 billion ($4.07 billion) in savings by 2017.

To comply with EU budget rules next year, the government aims to implement €6 billion in tax increases and spending cuts on top of a €16 billion austerity programme that was agreed on in November 2012 and includes the proposed pension overhaul.

While the government of Prime Minister Mark Rutte's centre-right Liberal Party and the leftist Labour Party holds 79 of the 150 seats in the House of Representatives, it lacks a majority in the Senate and won't be able to pass next year's budget and economic reforms without the opposition's support. But negotiations on next year's budget, now in their second week, have stumbled amid disagreement over €6 billion in new tax increases and spending cuts and the pace and details of job-market reforms.

On Wednesday, the Green Party said it had pulled out of the talks because the government refused to relax its austerity programme. The move came days after the Christian Democratic Party walked away for similar reasons.

Klaas Knot, president of the Dutch central bank, said during the week that a lack of agreement on the budget was the biggest threat to the country's economic recovery. The Netherlands is the only country in the "heart" of the eurozone still be plunged into recession, suffering from a housing crisis, a rising unemployment rate and a low level of household consumption.

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