With rising populist sentiment across the world, the Dutch elections – the first in a series of key elections in Europe – were in the international spotlight. The country’s narrow escape from a protectionist agenda was cause for relief in the region. Aleya Begum reports.
Relief was the word of the day when the Dutch election results were tallied. After a year that saw the UK vote to exit the European Union and a protectionist agenda help US President Donald Trump come to power, the trade world was braced for another potential blow. The defeat of Geert Wilders’ far-right Party for Freedom (PVV), which had rallied on the back of much of the same rhetoric as the UK’s ‘Leave’ campaign and Trump’s ‘America First’ mandate, has provided some respite. But since both the governing centre and left parties lost seats, while PVV gained ground to finish in second place, the result is not seen as a vote of confidence for more trade-friendly liberalism. Change is expected in the Netherlands and across Europe, where other national elections will see the EU and the status quo tested.
Within his one-page manifesto, Wilders pledged to take the Netherlands out of the EU, cut taxes, ban all immigration and ‘de-Islamify’ the country. ‘Nexit’ was on the agenda as anti-globalisation sentiment rose across the globe, and with the vote taking place in one of the EU’s founding members, all eyes were on the Dutch.
When incumbent Prime Minister Mark Rutte’s centre-right People’s Party for Freedom and Democracy (VVD) won on the day, he hailed it a victory against the “wrong sort of populism”. However, winning only 33 seats out of 150, the party is now faced with the task of forming a majority coalition.
Its previous coalition partner, the social-democratic Labour Party (PvdA), saw a colossal 29-seat loss and came in at fifth place with a meagre nine seats. Meanwhile, the Christian Democrats Appeal (CDA) and pro-European Democrats 66 (D66), came in joint third place with 19 seats each – one seat behind PVV’s 20. In joint fourth place were the Socialists Party (SP) and the Green Links (GL) with 14 seats each. With such fragmented results, coalition talks could take months, and the outcome is unclear.
“It remains to be seen what sort of coalition we will get. Of course, it’s a relief from the trade perspective that Wilders’ party hasn’t turned out to be the largest one,” says the head of international trade research at ING, Raoul Leering.
Likely coalition candidates
In order to form a majority representation, VVD needs to accumulate 76 seats. This means a coalition with at least three other parties. Incorporating Wilders’ PVV is not an option as all major parties have refused to work with the one-man band on the grounds of strong ideological differences.
“The new government is likely to include at least four parties from the centre-right, the liberal centre, and possibly the left,” says senior country risk analyst at IHS Markit, Jan Gerhard. “The expected main participant parties, VVD, CDA, D66 and GL, are likely to have very similar views on economic policies overall and all support European integration.”
For its part, VVD is a centre-right, conservative liberal party that supports private enterprise, the free market and international co-operation. Over the last few years, the party has shifted more and more to the right and imposed fiscal austerity measures and welfare cuts.
VVD is pro-EU and the single market, but with limits, explains Leering: “It is in favour of a free European market and open borders. But they are a party that thinks the EU should focus more on important issues and leave non-core issues to member states – the core issues being climate, migration and trade.”
The CDA has formed part of almost all the ruling coalitions in the Netherlands since 1945 and despite its name, has both Christian and non-Christian supporters. It’s a centre-right party but with some centre-left leanings. While the party has a strong focus on national identity, it supports remaining in the EU and keeping the euro.
D66 is a progressive and social-liberal party which was formed in 1966. The party campaigned for the EU and supports increased power for the European parliament. It has been one of the most active supporters of a relaxed drug policy, legalised prostitution and abortion as well as euthanasia. Ahead of the elections, party leader Alexander Pechtold said his party was catering for “the real liberals” and accused Rutte and VVD of becoming “PVV-lite” as Rutte took a tougher line on immigration and integration in a bid to stop voters defecting to Wilders’ party.
The biggest winner on election day was the GL party. Despite most left and centre-left parties in Western Europe facing an identity crisis and waning support, GL more than tripled its seats from four in 2012 to 14 this year, on the back of traditional left policies and a pro-EU stance. Its name, Green Left, sums up neatly what the party stands for: “a sustainable and ecologically balanced environment” while protecting the “most disadvantaged in society”. The party is led by 30-year-old Jesse Klaver, who, dubbed by some as the “Jessiah”, has injected inspiration back into Dutch politics and created somewhat of a movement through his grass roots campaign.
Ahead of the election results, Klaver, who has been likened to Canadian Prime Minister Justin Trudeau, both in terms of his policies and looks, was quoted as urging “left-wing friends in Europe” to “stand for your principles”, “be straight, be pro-refugee and be pro-European”. Out of the likely candidates, GL is probably the furthest away from the VVD agenda, and joining a non-left coalition would require compromises that threaten to slowdown Klaver’s momentum.
While most expect coalition talks to progress in a professional and pragmatic manner, there are several notable sticking points that could hamper advancement.
On the domestic side, for instance, GL calls for an increase of corporate taxation, while Rutte’s VVD seems to favour keeping current levels or potentially lowering corporate taxes.
On climate change, the parties are miles apart, with VVD having clear opposition to parts of D66’s and GL’s environmental and energy policies. While the latter want to increase taxes to promote sustainable energy consumption, VVD is prioritising cheap petrol and fast roads.
The parties are also expected to disagree over local labour market reforms. VVD and D66 want to limit further regulation of self-employment and favour a more flexible market overall, while this is widely opposed by the CDA and GL.
On the European side, despite being pro-EU, the parties could differ on their views of the future of the bloc. Following the UK’s decision to leave last year and continued challenges on various fronts including monetary union, immigration, and the rise in EU-sceptical parties across member states, the EU has been forced to rethink its strategy going forward. The grand idea of ever deeper European integration has become less feasible and a more flexible approach has been deemed necessary.
In a whitepaper published by the European Commission earlier this year, where various options are outlined, a multi-speed system is one that is gaining ground.
The “new form of co-operation” as it was described by French President Francois Hollande, would allow some member states to “go more quickly” and “further in areas such as defence and the eurozone, by deepening the economic and monetary union, and by harmonising fiscal and social policy”. Meanwhile, others could choose to opt out of measures intended to deepen the integration.
In the Netherlands, the idea of a multi-speed Europe has been signed off by the current government and is supported by the CDA. However, it is unclear if D66 or GL will favour a proposal that critics say will perpetuate divisions and result in first and second-class members – countering the founding ideals of the union.
“It’s difficult to make a reliable forecast on what this will mean,” says Leering at ING. “From an integration view point this is good news for Europe because at least some countries could take further steps towards that. But it could work favourably or negatively for trade. It depends on the effect it will have on the trade of the frontrunners with the rest of the EU.”
On the trade front, the previous government actively sought to strengthen Dutch relationships outside the EU, in an effort to lessen the country’s exposure to downturns in Europe.
“We would expect that the incoming government will continue this policy, in part because of the continued strength of the VVD in this new coalition, but also because it is sound economic policy,” says economist at IHS Markit, Francesca Peck.
“All the parties in question tend to be broadly pro-trade. We expect that the incoming coalition, whatever its end format, will certainly be pro-trade in its stance. With the caveat that the Green Links party may be slightly less positive on some issues from an environmental perspective; but given the size of the party, it is unlikely that they will make much headway on this sort of issue.”
Public and private finance
On the public finance side, economic policies have been focused on strengthening the Dutch financial situation. When Rutte’s government took over in 2012, the Netherlands, like much of mainland Europe, was hit by recession. The government acted to cut the budget deficit through austerity reforms which most analysts described as moderate. The reforms succeeded in bringing the country’s budget back into black, but have been criticised by some as counter-productive.
“We have a budget surplus now and we have had quite an extensive debate on the effects of the austerity policy,” says Leering. “The current government has a Margaret Thatcher-type view on budgetary policy – in that the government budget is like a household budget: you can’t spend more than what is coming in – thereby neglecting the macro effects of government budgetary policy.”
According to figures from Statistics Netherlands, the Dutch government ran a budget surplus of around €3bn, or 0.4% of GDP, last year – its first surplus since the 2008 financial crisis. Many of the likely coalition partners are pushing for spending increases on healthcare and the environment.
On the private finance side, Dutch businesses have been facing a credit squeeze and are finding it hard to access capital. A European Central Bank survey last year found about 12% of the country’s small and medium-sized enterprises reported trouble getting a bank loan, one of the highest occurrences in the eurozone area, beaten only by Greece and Italy.
Nevertheless, compared to a few years ago, loan rejection rates have gone down and the issue has been addressed by the current government, which has set up new guarantee instruments for banks that make it less risky for them to supply funds to SMEs, says Leering.
“One specific example for SMEs is BMKB, a guarantee facility, where up to 50% of the loan is guaranteed by the government. The lending bank therefore has to reserve less capital than without the guarantee. The amount of loan that can be subject to this guarantee has been raised a couple of times,” he says.
“Another factor to consider is that the demand for credit has been low due to the recession. With the country now out of recession and the economy performing relatively well compared to other EU countries and recent Dutch history – we see investment picking up moderately, and this will lead to extra demand for credit,” he adds.
With an economy that is forecast to continue to grow over the next couple of years, many expect a new coalition to push for a loosening of the purse strings to encourage further growth and investment.
A narrow escape
Despite what can be considered a narrow escape from nationalist populism for the Dutch, upcoming elections in France and Germany are still a concern. Wilders’ policies echo those of France’s National Front party, whose leader Marine Le Pen wants the French out of the euro and a ‘Frexit’. Much like Wilders, Le Pen has seen a rise in popularity and her strengthened candidacy in the French elections in April and May poses some serious threats for the bloc and the single market.
“The good thing about Holland is that they have many parties, which means it’s very much diluted. The bigger risk is France. If Le Pen wins in France – that will be drama for trade,” says deputy secretary general at factoring body FCI, Erik Timmermans. “The French will say ‘no way’, but last year in the UK people said ‘no way’ about Brexit and in the US people said ‘no way’ Trump will win.”
Le Pen’s case is helped by the fact that the obvious alternative for the right-leaning, François Fillon and the Republican Party, have seen their campaign plummet after Fillon was charged with fraud for paying his wife to do a job that never existed.
In Germany, the Alternative for Germany (AfD) party, which was founded in 2013 as an anti-euro party to challenge the eurozone bailouts and reject the euro, has been gaining popularity. More recently, it has turned its focus to immigration and Islam and has seen growing support due to the ongoing refugee crisis in Europe, and a backlash to some of Chancellor Angela Merkel’s policies. It opposes all “centralising” moves in the EU and argues that elite, establishment politicians are too remote from ordinary voters. The party promises to give German voters a referendum on the euro and membership of the EU if structural reforms are not made.
The party’s policies are in line with both Wilders and Le Pen, and the three recently shared a platform in the German city of Koblenz. During the rally, from which mainstream German media were banned, the BBC reported the AfD’s leader Frauke Petry as likening the EU to Nazi Germany or the Soviet Union and the three calling for a revolution in Europe.
Senior director at think tank Global Counsel, Stephen Adams, points out that the Dutch elections could offer a lesson on defying populism. He highlights that with parties rallying on both the right and left extremes, Rutte and the VVD had to make important choices in the space between these two points.
“The party moved towards Wilders with a vision of a more culturally (if not racially) homogenous country, more sceptical on migration and overt on social integration for migrants,” he writes in a blog post.
“Rutte doubled down on Dutch pragmatism and lack of sentimentality about the EU and made a public point of rejecting the notion of an ever closer union. The VVD almost certainly reduced their potential losses by doing so. Rutte won not by reasserting centrist values per se, but by recognising that the Dutch centre itself may be a moving target.”
However, Adams also points out that European populism varies from party to party and country to county and can be defined in a range of forms including “a selection of economic nationalism, Euroscepticism, anti-globalism, anti-austerity, racialism and identity politics”.
“The responses to it are going to be just as various. It is now pretty much impossible to find a mainstream politician in the EU that doesn’t think that the economic, social and cultural concerns behind these prescriptions need to be taken seriously,” he writes.
“The question is how they define the ‘right kind of populism’. Rutte’s campaign provided one answer to how politicians might approach this problem. The French and German elections this year will certainly provide two more.”