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Dutch budget deal offers lessons to the US

Prime Minister Mark Rutte of The Netherlands
Michel Porro | Getty Images
Prime Minister Mark Rutte of The Netherlands

As the clock ticked down, talks over a budget deal were deadlocked. A government lacking a majority in one house of the legislature faced unprecedented resistance, with the opposition employing obstructionary measures that had previously been considered off-limits. Approval ratings for all the parties suffered, the government risked lame-duck status, political uncertainty threatened to kill off the green shoots in the economy and fears grew of the rise of a populist rightwing faction.

Yes, it has been a difficult month in the Netherlands.

(Read more: 'Abysmal' Dutch economy threatens euro zone recovery)

As with the Obama administration in the U.S., the cabinet of Mark Rutte, the Liberal prime minister, has spent the past few weeks battling an emboldened opposition and facing an unyielding deadline: the demand by the European Commission for a new Dutch budget for 2014 with an extra €6bn in austerity measures. This demand exacerbated an increasingly vicious ideological polarisation in the Netherlands which in many ways mirrors that in the US, with centrist parties under pressure from the far left and right.

But on Friday, the government and three moderate opposition parties cut a budget deal that will provide a bare one-vote majority in the Dutch Senate. The fragile accord shows that despite a rising tide of populism, the country's traditional governing culture of coalition and compromise is still working – just.

More from the Financial Times:

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The background for the Dutch deadlock was the country's severe year-long recession and growing opposition to austerity measures demanded by Brussels in order to bring the deficit down towards the EU's limit of 3 per cent of GDP. The centrist cabinet, a coalition of Mr Rutte's centre-right Liberals and the centre-left Labour party that took office just a year ago, has seen its popularity drop below 20 per cent. The far-right Party for Freedom of Geert Wilders, which opposes austerity (and indeed wants the Netherlands to exit the EU), has risen to the top of the polls while the far-left Socialist party is running well ahead of Labour.

(Read more: How the Dutch can save their 'abysmal' economy)

The Liberal-Labour coalition has a majority in the Dutch lower house but not in the Senate. Normally that would not matter; the Senate is a traditionally weak body, rejecting legislation only if it is unconstitutional or impossible to carry out. But just as Republicans in the US have recently used filibusters and the debt ceiling in unprecedented ways, Dutch opposition parties under pressure of popular anger have this year begun voting down legislation in the Senate. That forced Mr Rutte and his Labour finance minister, Jeroen Dijsselbloem, into negotiations with centrist opposition parties.

As talks dragged on, one by one the potential partners dropped out. The Christian Democrats, once the classic centrist party of power, blasted the budget deal's proposed tax increases. Next to go was GreenLeft, who insisted on substantially less than €6bn in austerity. Both parties have seen their supporters defect to the far right and left and clearly felt that taking responsibility for an unpopular austerity budget could be fatal.

(Read more: Can the Netherlands Keep Its Triple-A Rating?)

In the end, the government struck a deal with the left-liberal D66 party, the centre-left Christian Union and the tiny rightwing Christian SGP party. The combination is bizarre enough that Dutch journalists, accustomed to dubbing every coalition with a handy moniker, are struggling to find a name for it. (Since the right-left Liberal-Labour-D66 coalition is traditionally known as "purple", some are calling the new arrangement "purple with the Bible".)

The deal rests on old-fashioned horse-trading: D66 will get extra education spending while Christian parties will get fewer cuts in childcare subsidies. The concessions will be made up with some tax rises (on car ownership, among others). That will let the government meet its €6bn austerity target but will probably anger some Liberal voters. Labour market flexibility will also be hastened, which could further weaken Labour, as the country's largest worker federation said on Friday it opposed the deal.

But if the three opposition parties that backed the deal must now share popular anger at austerity, they will benefit from a glow of public approval for having reached a compromise that allows government to proceed. To judge by the reaction so far, Dutch voters are still prepared to reward parties for taking responsibility for difficult but necessary compromises, even if they dislike the content of those compromises.

If there is a lesson here for the US, that would be it.

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