Dutch gov't close to collapse as cuts talks fail

[April 23, 2012]  THE HAGUE, Netherlands (AP) -- The Dutch government was close to collapse on Monday, with the prime minister widely expected to resign after top-level talks on an austerity package failed.

The Dutch Cabinet gathered to discuss what to do after Geert Wilders and his Freedom Party, the government's main ally in parliament, walked out of the talks designed to meet European Union budget deficit rules.

Without the Freedom Party, Prime Minister Mark Rutte's right wing coalition no longer commands a majority in parliament. Rutte is widely expected to offer his resignation when the meeting ends this afternoon, clearing the way for national elections later this year.

As the Cabinet meeting broke up, Dutch media citing anonymous sources reported Rutte would quit later in the day. Ministers leaving the meeting declined to confirm the reports.

Scoial Affairs Minister Henk Kamp said the Cabinet "discussed the situation" and added that Rutte would give more details later Monday.

Rutte was scheduled to pay his regular weekly visit to Queen Beatrix in the early afternoon and the government information service said he would update her on the political crisis.

The remaining question hanging over the Cabinet is how -- as a caretaker government -- it can best comply with European rules and shrink its deficit.

"Our main concern is how we can keep the state finances on the rails on the way to elections," said Economics Affairs Minister Maxime Verhagen via his Twitter feed.

Although the Netherlands has relatively low levels of national debt, its economy is in recession and it is expected to post a deficit of 4.6 percent in 2012 -- well over the 3 percent mandated by European rules.

Opposition lawmakers say they are prepared to work with Rutte to draw up a 2013 budget -- but only if he quits first.

The package Rutte had been negotiating with Wilders would have slashed foreign aid and hastened a phased increase in the retirement age to 66 from 65.

Wilders said he ultimately could not support the package due to provisions for state pension cuts.

"We don't want our pensioners to suffer for the sake of the dictators in Brussels," he said.

European Commissioner Neelie Kroes said in an interview with national broadcaster NOS that Wilders was being hypocritical, since the Netherlands itself, along with Germany, had been one of the loudest in demanding Brussels adopt 3 percent deficit limit.

"Pointing to Brussels now is dumb, it's untrue, it's distracting, and it doesn't solve anything," said Kroes, who is a member of Rutte's free-market VVD party.

She added that she still expects the Netherlands, like other countries, to turn in a preliminary 2013 budget plan by April 30.

If Rutte is able to work with left-leaning opposition parties, they will likely seek to refocus attention in part on tax increases on the wealthy rather than just spending cuts, notably by reducing a tax deduction on mortgage debt.

Rutte and his conservative VVD party have previously said the deduction is not negotiable, but economists say it is a major contributor to Dutch citizens having some of the highest personal debt levels in Europe.

Financial markets have so far taken the Dutch crisis in their stride, with yields on Dutch bonds just 0.11 percent higher than they were before the weekend. Netherlands government bonds are trading around 2.35 percent for 10-year debt, about 0.6 of a percent more than Germany.

However, ratings agency Fitch last week warned the Netherlands stands to lose its AAA credit rating depending on the outcome of the budget talks that failed Saturday.

The Netherlands' Central Bank President Klaas Knot has said Dutch interest rates will likely rise by around 1 percent if the country's rating is cut, making budget reform vital.

[Associated Press; By MIKE CORDER and TOBY STERLING]

Sterling reported from Amsterdam.

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