Is Geert Wilders your Dutch uncle or is he another populist?

Dutch elections

Many investors have been flagging 2017 as carrying a high degree of political risk in Europe, with some of the big economies heading to the ballot box. The importance of Germany and France, given their economic size, political clout and as two of the founders of the EU, is without question. However, another founding member, albeit smaller, is the first one to hold elections this year on 15 March 2017. Could the outcome of the Dutch election be a threat to the European Union?

If hairdo and the love for tweeting is anything to go by, could Geert Wilders from the PVV or Freedom Party become the Dutch Trump? (You get Boris Johnson’s coiffure as a bonus). Like a good Dutch uncle, Geert Wilders has been warning the Dutch electorate of international threats and his anti-establishment tone has gained him support among disgruntled voters. Would he call for a referendum on EU membership, possibly resulting in a so-called ‘Nexit’? That this topic gets my attention should not come as a surprise; just try to pronounce my surname!

 

Social profiles aside, the current political landscape in the Netherlands is one of fragmentation, with a record number of political parties participating at the coming election (> 80 registered parties!). The traditional left-right divide is harder to apply, with parties jumping on popular themes instead, and sometimes just one single theme (e.g. the animal party).

 

There appears to be little doubt that something will change. The current government, with 75 seats in parliament out of a total of 150, has lost a great deal of support, with only 36 seats in the latest poll of polls. Meanwhile, while the PVV is currently polling as the largest political party in the Netherlands, albeit with nowhere near an absolute majority.

The Freedom Party’s number one pledge is to de-Islamise the Netherlands, followed by making the Netherlands independent again ('Nexit')

The Freedom Party, better known as Geert Wilders’ party, is founded and led by him. The party leans heavily on his leadership and popularity. It has never governed, although it formally supported a minority government in 2010, which only lasted until 2012. The fall of that cabinet is attributed to the PVV’s refusal to accept austerity demands.

 

PVV’s election manifesto fits on a single page and is titled "Netherlands ours again!". Its number one pledge is to de-Islamise the Netherlands, followed by making the Netherlands independent again, i.e. exiting the EU (‘Nexit’). The latter could prove to be an existential threat to the EU (since Brexit wouldn’t be a unique event anymore), as well as the euro.

 

Even if the PVV becomes the largest party, the likelihood of the PVV being able to form a government is still quite small. The Liberals (VVD), the ruling party of Prime-Minister Rutte and currently the largest party in parliament, are still scarred from this minority government episode. Last weekend Prime-Minister Rutte said there is a 0% probability that the VVD will govern together with the PVV. Most other political parties go one step further and prefer a cordon sanitaire.

‘Nexit’ could prove to be an existential threat to the EU, as well as the euro

Supposing the PVV does make it into government, it’s unlikely it will be able to find enough support from its coalition parties or opposition parties to exit the EU. Holding an advisory referendum on EU membership could be a compromise, but under current Dutch law this is not possible (referendums can cover only new legislation and treaties, and are anyway only advisory), and would first require a change in law with support from both chambers. Furthermore, until now surveys haven’t shown enough support among Dutch voters to leave the EU.

Financial markets should hold their breath, because the tradition is for the largest political party to try to form a government first

So, our base case is a victorious PVV in the March election, but eventually not being part of the new government. Europe will cheer, but the Netherlands will be left with a messy and potentially weak 4-party or even 5-party coalition. And with the PVV stronger, it will have more influence on policy, but an EU referendum still looks very unlikely at this stage.

 

However, financial markets should hold their breath, because the tradition is for the largest political party to try to form a government first. So, Europe and financial markets may have to wait a bit longer than 15 March before the all-clear signal can be given.   

 
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