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The Netherlands: Expect No Early Resolution of Political Uncertainty

DBRS Morningstar takes the view that policy uncertainty in the Netherlands has increased over the past few days. Last Friday, the four-party coalition government that had only been in power for nineteen months collapsed over different views on migration policies. This was followed by yesterday’s announcement by long-serving Prime Minister Mark Rutte that he will leave politics after the upcoming elections, likely to be held in November 2023. Mr Rutte was the leader of the centre-right People's Party For Freedom and Democracy (VVD) for the past 17 years and PM since 2010, under four different coalition governments.

In our view, the exit of Mr. Rutte from politics, in tandem with the recent rise of the populist Farmer-Citizen Movement (BBB), makes predictions about the electoral outcome more challenging. Furthermore, we expect some degree of political uncertainty to persist beyond the next parliamentary elections given the current levels of political polarization and the fragmented nature of the Dutch political landscape. These factors are likely to lead to a lengthy process of government formation. Nevertheless, despite the political and policy uncertainty, currently we do not expect the Netherlands to depart from its overall stance of fiscal prudence.


Key Highlights

-- Parliamentary elections are likely to take place in late 2023 following the early collapse of the outgoing four-party coalition government.
-- The process of forming a new coalition government will face challenges in reaching common ground on a range of contentious domestic political topics such as the nitrogen crisis, migration and the housing market.
-- The government formation process is likely to take time given the fragmented political landscape.


“The policy stance of a future government coalition is very difficult to predict at this point in time due to recent electoral shifts and large programmatic differences across political parties,” said Yesenn El-Radhi, Vice President of the Sovereign Group at DBRS Morningstar. “While we expect policy uncertainty to remain high over the next few months, the credit profile of the Netherlands continues to be supported by important strengths such as high institutional quality, a highly productive and competitive economy, moderate government debt levels and a strong external position.”