Spain, then France, now the Netherlands--where's the euro debt crisis going to pop up tomorrow?

04/23/2012 6:10 pm EST


Jim Jubak

Founder and Editor,

Europe felt a bit like Whac-A-Mole today.

Just when we were thinking that it was Spain that we should watch or maybe France, the Netherlands pops up on the game board.

The Dutch coalition government of Prime Minister Mark Rutte tendered its resignation this morning to Queen Beatrix after the far-right Partij voor de Vrijheid (Freedom Party) of Geert Wilders refused to support plans for 16 billion euros in budget cuts needed to bring the country’s budget for 2013 into alignment with the EuroZone’s 3% budget deficit limit. Projections now call for a 4.6% budget deficit in 2013. Without the backing of Wilders’ party the collation does not have a clear majority in parliament. The Queen asked Rutte and his government to stay on board until elections that could take place as late as September.

The crisis in The Hague exacerbates the current round of the euro debt crisis because the Netherlands has been one of Germany’s staunchest partners in pressing for an austerity-first solution to the debt crisis. And as one of the four remaining Standard & Poor’s AAA-rated countries among the 17 EuroZone members (the others after January’s downgrade of France and Austria to AA by S&P are Germany, Finland, and Luxembourg), the Netherlands’ guarantee is one of the reasons for the low interest rates paid by the European Financial Stability Facility when it sells bonds as part of its bailout program for Ireland, Portugal, and Greece.

The resignation of the Rutte government makes it unlikely that the country will be able to reduce its budget deficit to the 3% target, although the opposition Labor party has said that it would be willing to help pass a new budget—with smaller cuts—if elections are held before September.  Yields on the Dutch 10-year bond climbed 0.07 percentage points on the news with the premium to yields on German 10-year bonds climbing to a three-year high.

But don’t concentrate your attention on this new aspect of the crisis. As any good Whac-A-Mole player knows that’s exactly how you lose when the mole pops out of an unexpected and unwatched hole. Next up might well be the Czech Republic where Prime Minister Petr Necas is trying to push through budget cuts despite the breakup of his coalition.
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