Dutch Politics Recapitulate Euro Area Debate

Dutch politicians continue to try to form a government. Since the end of WWII, it has taken the Netherlands about three months on average to form a government following a national election. After the last election in 2010, it took almost 130 days.

In some ways, the debate between the Liberal (41 seats of the 150 seat parliament) and the Labor (38 seats) recapitulates the debate within the euro zone.

Rutte, the leader of the Liberals wants the Dutch to commit to more austerity measures to ensure reaching the EU mandated 3% deficit/GDP next year. What is good for the Dutch is good for the Greeks and Rutte insists not a euro more for Greece. 

Samsom who leads Labor wants the Dutch to have more time to reach the budget goals. He also favors giving Greece more time. Their consistency is proving difficult to find room for compromise. 
The markets do not seem deterred. Over the past week, for example, the benchmark 10-year Dutch bond is unchanged, essentially matching the performance of the German bund. Over the same time, the Dutch stock market has also fared slightly better than the Dow Jones Stoxx 600. 
It is interesting to note that the Bruegel think tank, which reportedly has close ties with European officials has also recently called for allowing the 21 of 27 EU government under surveillance for exceeding budget limits an extra year to reach the targets. Moreover this should be done, they argue, before the 2013 budget are finalized in Q4. This would provide more breathing space and help balance austerity and growth concerns. This may also help stabilize the political environment. 
We have argued along similar lines, suggesting that a modest relaxation in deadlines can be beneficial without jeopardizing the discipline and the possibility of a one-year extension is fully allowable under current agreements. 
Indeed, a one year extension of fiscal targets would also further reinforce the reduction of tail risk that Draghi's plan (OMT) was directly. It also underscores the point made by Draghi (as well as Bernanke about the US), monetary policy cannot by itself resolve the crisis.

Dutch Politics Recapitulate Euro Area Debate Dutch Politics Recapitulate Euro Area Debate Reviewed by Marc Chandler on September 19, 2012 Rating: 5
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