Europe’s public debt crisis is experiencing new difficulties in the wake of the presidential election in France. The situation is deteriorating.
Dutch Prime Minister Mark Rutte resigned after crucial negotiations on the national budget collapsed over the weekend. His departure darkens the cloud hanging over the Eurozone’s debt issue.
The Netherlands is scheduled to hold an early general election on September 12. The decision was made when Queen Beatrix ordered the Dutch Parliament to dissolve on April 24.
The Dutch economy has been deteriorating since the middle of last year, causing unemployment to climb 6 percent. To meet EU requirements and avoid losing its triple-A credit rating, the Netherlands needs to cut its budget deficit by 9 billion Euros, equivalent to 1.5 percent of its GDP.
But negotiations by the 3 major political parties on an austerity plan ended in failure. As a consequence, the coalition government remains unable to get the Parliament’s approval for a 16 billion Euro austerity package, which the Prime Minister believes is essential to prevent the budget deficit from increasing to 4.7 percent of the GDP, about 28 billion Euros, next year.
The bottleneck facing the Rutte administration is that the coalition government does not have a majority in the Parliament. Without support of the Party of Freedom, the plan to keep the budget deficit below 3 percent is unlikely to succeed. Next year’s budget deficit is predicted at 4.6 percent of GDP and the Netherlands needs to submit its budget plan to the EU by April 30.
Economists believe the collapse of the Dutch government will create a power vacuum in the middle of Europe’s economic challenges. The problem is not the public debt, which equals 66 percent of GDP, but the burden placed on many households by the collapse of the real estate market. Statistics show that private real estate debt accounts for 249 percent of GDP, the highest in the Eurozone.
Eurozone leaders are under additional pressure following the collapse of weaker economies like Portugal, Ireland, Italy, Greece, Spain, and now the Netherlands. The EU released an official statement on April 24 which shows that the total debt of its 17 member countries has risen to 87.2 percent of GDP, a record level since the Euro was made the common currency in 1999.
At the moment, many countries in the Euro zone are redoubling efforts to reduce their own budget deficits and contribute to the 386 billion euro bailout package given to Greece, Ireland and Portugal. In the meantime, a crisis warning is sounding for Italy and Spain, the EU’s third and fourth largest economies.
Currently, the Netherlands remains one of 3 Eurozone countries with a triple-A credit rating. But economists say that only Germany deserves this rating. To preserve its rating, the coalition government is seeking support from the opposition parties for its plan to slash the budget./.