Dutch Government Falls After Clash Over Budget

The conservative Dutch coalition government was unable to reach agreement on the 2013 budget. It is required to reduce the deficit to 3% by the new eurozone fiscal policy agreement. Its current deficit projection is over 4% and it must determine a combination of spending cuts and tax increases to conform to the eurozone agreement.

The Netherlands is in good fiscal shape relative to other nations in the eurozone. The failure of the Dutch government shows some of the political problems that have surfaced in the eurozone. The debt agreement was set in Brussels and it constrains fiscal policy. Interest rates on sovereign debt are affected by external credit agencies, and monetary policy is determined by the ECB. The failure of the Dutch coalition government was partially due to the unwillingness of one of the coalition political parties to accept the loss of sovereign control over state policies.