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Friday, 7 September 2012

Letter from Alec Niedenthal of Minyanville about the Dutch elections

Yesterday, I received a letter from Alec Niedenthal of Minyanville with some questions about the Dutch elections and the consequences for the Euro and the Euro-zone.

As these were very good questions and they give me a chance to tell something more about the Dutch political system of coalition-forming, I want to share these questions and my answers to them with my readers:

Hi Ernst,

Just a few questions via email.

So first I'd like to ask: what do you make of the closeness between Roemer's anti-Brussels position and Wilders? Why do their positions seem to mirror each other? Also, I couldn't find info on this anywhere, but is Roemer supporting a return to the gilder?
Good question: the strange fact is that although the SP of Emile Roemer is considered to be a socialist, (extreme-) leftwing party and the PVV of Geert Wilders an extreme rightwing party, both parties share a strong social-conservative AND a strong anti-Europe agenda.
Both parties want to keep social security and benefits at a very high level with high unemployment benefits, affordable healthcare for everybody (in spite of the aging process) and high welfare subsidies. Of course, the PVV aims specially at the ‘real’ Dutch, older people and not at the immigrants of the last 50 years.
The SP has traditionally been an anti-European party (Europe is like the four-headed dragon for this party, a ‘bureaucratic monstrosity that takes decisions on people without democratic control by the Dutch parliament’). Geert Wilders has proved himself an opportunist on many occasions. Until the recent past he has been banging the anti-Islam drum, but in these worrisome times he is banging the anti-EU drum more successfully.
Both parties are – in reality – politically much closer than they appear at first sight and share a certain xenophobia, although the SP is expressing it not so clearly.
I wouldn’t say that Roemer is supporting a return to the Dutch guilder (Gulden). Although the SP is quite anti-European Union, he doesn’t want to jump in the adventure to leave the Euro. The SP is not so opportunistic as the PVV and not so sensitive for the ‘vox populis’. Roemer understands that leaving the Euro would be one bridge too far, although deep in his heart he likes the idea.

How exactly does coalition-forming work in The Netherlands?
If the centrists win, will the radical parties be de facto excluded from any possible coalition?
The process of coalition-forming is very complex and opaque, but a necessary ingredient of Dutch politics: no party has ever had the absolute majority in parliament. It is tradition that the biggest party in the elections has the right to start the coalition-forming process, as it is plausible that this party delivers the Prime Minister.
Usually the (would-be) PM starts to negotiate with the largest parties, as these can deliver a majority in parliament. Without a majority in parliament, it is very hard to form a viable government (see the last 1,5 years). This is the reason that negotiations are almost always started between CDA (Christian-Democrat), VVD (Liberal-Conservative) and PvdA (Labour) as these have been traditionally the largest parties. In some cases the PVDA, VVD and CDA have formed a government together, but these are rare exceptions. Most coalitions have existed from the combinations [CDA + PVDA], [ CDA + VVD] and (twice) [PVDA + VVD].
If such a combination doesn’t have a viable majority yet, or if these parties are very different in their opinions, often one or two smaller parties (often D66 (liberal-progressive)) are added to the coalition to get the majority and to act like a ‘lubricant’ between the parties.
What made the last 12 years different from the earlier past is that new, more radical parties came up (LPF, PVV, SP) and collected enormous amounts of votes, making those parties de facto influential.
The reason that these radical parties are often ‘negotiated away’ in coalition-forming is their presumed instability (often these parties suffer from dictatorial leaders, bad candidates (sometimes with a doubtful past)  and large internal arguments), one-issue history and their radical opinions that scare away other parties. Still, at the beginning of this century and during the last 1.5 years , respectively the LPF (Pim Fortuyn) and PVV have been part of short-lived cabinets. Both experiences could better not be repeated.

If the Labour party wins, how do you think the markets will react, and why?
Do you think Labour's party line is irreconcilable with the Liberals'?
The PVDA is not a classic ‘Neil Kinnock-ish’ Labour Party. Some of the most successful cabinets of the last 40 years had a PVDA PM (Cabinet Den Uyl, Purple cabinet with Wim Kok) and especially the Cabinet Kok was not very left-ish.
Diederik Samsom, the current leader of Labour and originally a nuclear physicist  has a radical left-wing past, but has grown into a sensible and intelligent leader that will sail a moderate course. He is more left-wing than the earlier mentioned Wim Kok, but he will certainly not scare the markets away.
Funny enough, it is the liberal-conservative VVD that has turned more radically right-wing during the last years in an attempt to bind the voters that have fled to the PVV of Geert Wilders. It has been Mark Rutte’s plan to attack the PVDA on being ‘too socialistic in the spirit of Joop den Uyl’. The VVD is scared  that its radically conservative grassroots will all move to the PVV if Rutte negotiates with the PVDA. This will make it very hard for the VVD to really negotiate with the PVDA. The PVDA itself doesn’t have much problems to negotiate with Rutte’s VVD and both parties have a successful history of cooperating. Still, this is not a very plausible option at this moment.

Do you think there's an issue that all of the candidates are avoiding in debates, rhetoric, etc.?
Hard to say: the real elephant in the room is what it will really cost to keep the Euro-zone together and what it will cost to let it implode. None of the parties has told a fair story on Europe: most parties stick with throwing out their fixed clichés of being pro or contra Europe: “not a penny for the Greeks”,” abolishing the Euro will open the Box of Pandora”. You know the drill… What I really miss in Dutch politics, is a SWOT analysis and what if-analysis on Europe that tells the whole financial story of the European Union and the Euro. The national debate has been of poor quality, as also the leading economists rarely exceed the fixed clichés on the EU and the Euro-zone.

What party do you think is best for investors in the Euro, Dutch bonds, etc.?
You don’t need a party. You need a coalition! One party cannot decide on the future of the Euro in The Netherlands, as one party will never get an absolute majority. At this moment I would opt for a coalition of PVDA and CDA, in combination with the VVD, but WITHOUT Mark Rutte and their current generation of leaders. A combination of D66, CDA + PVDA would also deliver a viable coalition; arguably the most viable coalition of this moment. These coalitions would deliver a moderate economic politics, in combination with a pro-Europe approach that would really help the Euro-zone and the EU. If Mark Rutte stays as leader within the VVD after the election, I would opt for the second option as this would bring more stability.

Update September 11, 2012:

Here is the link to the article that Alec Niedenthal wrote on Minyanville today.

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