Editor’s note: This is the first in a new blog series about the forthcoming European elections. Follow the series and watch for the next post that discusses the outlook for the 2017 German elections.
The Dutch elections – a Bellwether of European Populism?
The European political calendar kicks off with the Dutch general election on 15 March. In light of the surprise victories of Brexit and Donald Trump in 2016, global investor interest in the Dutch elections is greater than it may otherwise have been. This attention is not misplaced: according to polls, the populist, anti-immigration, anti-EU Freedom Party (PVV) could win the most votes and emerge as the main party in parliament. However, PVV is unlikely to win a majority and its isolation in the Dutch political landscape means that it is unlikely to be able to form a coalition to govern.
The Dutch electoral system is based on proportional representation. There are 150 seats in the lower house of the parliament (the House of Representatives) which initiates all legislation, and 76 seats are required for a majority. It is a multi-party system, with numerous parties, so it is unusual for a single party to secure an overall majority of votes. In fact, not since World War II as there been a single party majority. As a result, coalition governments are the norm.
Three parties have historically dominated the formation of governments in Netherlands: the conservative-liberal VVD, the Christian democrat CDA, and the social democrat PvdA. However, the populist Freedom Party (PVV) has been growing in popularity and has secured parliamentary seats in every election since it was established in 2006. In 2010, PVV came third in the election, securing 24 seats in the parliament.
This time round, support for the centre-left coalition government (made up of the Liberals and Social Democrats) has been waning. Polls indicate a close race between incumbent Prime Minister Rutte and Geert Wilders (leader of PVV); although in recent weeks PVV has lost considerable momentum. If PVV does win the most seats, it wouldn’t necessarily mean that it will be part of the government. In a proportional system the parliament majority, alone, counts. Other parties are able to form a governing coalition that could exclude the party with the most seats. As the mainstream Dutch parties have clearly expressed their opposition to forming a coalition with PVV, not only is the probability of the PVV becoming a single ruling party very low, but the likelihood of it being a member of a ruling coalition is low.
Not quite plain sailing
While PVV may not officially be part of the government, it can still have influence. Domestically, its increased support means that PVV will to some extent shape policy agenda. Already, that is becoming increasingly clear. Up till now, PVV has been the main vehicle for expressing anti-EU and anti-immigration sentiment in the Netherlands, calling for an end to immigration from Islamic countries and promising a referendum on EU membership. More recently, however, PM Rutte has tried to fend off the PVV challenge by making a foray into the right-wing populist arena, condemning people who “accuse regular Dutch people of being racist” and warning that the “silent majority” would no longer tolerate immigrants who come and “abuse our freedom.” The implication is that policies in the Netherlands are likely to tilt to the right and become more nationalistic.
The latest polls suggest a very fragmented lower house, with 80% of the seats tightly split between six parties. This is likely to result in a prolonged period of post-election negotiations and an eventual coalition made up of the three mainstream parties (excluding PVV), in addition to one or more of the smaller parties. Not only would a multi-party coalition such as this be fragile, but the government may also need informal support from PVV in order to pass legislation through parliament, as was the case in the 2010-2012 government. So although PVV would not have any seats in the cabinet, it would still have a significant say in the policy agenda. In this negative scenario, the Netherlands would be governed by a weak coalition dependent on populist support.
Globally, a strong showing for PVV – particularly one that propels it to first place – would spook markets. The Dutch election is considered as the first test for Europe’s populists and is being called the Bellwether of European Populism. It would be interpreted as a sign of continued anti-EU and anti-establishment ahead of the key French elections and we would envisage an immediate negative reaction from the currency markets as well as European sovereigns.
Understandably, polls are being taken with a pinch of salt. Their accuracy came under focus last year and there is a good deal of mistrust. What if the polls are wrong and PVV wins a majority and, as promised, calls for a referendum on EU membership?
Keeping to their promise would be tough. Since mid-2015, under the Advisory Referendum Act, a referendum can be requested for any piece of primary legislation, including treaty ratifications. However, as a referendum has to be on a primary law, a vote on the Netherlands’ membership of the EU (Nexit) would require an amendment to the constitution which, in turn, would require a two-thirds majority in parliament in order to be ratified. This is quite a steep hill to climb. And yet, PVV could still cause problems for the EU. After all, it would require just 300,000 votes from eligible citizens to call a referendum against any new EU-related law that needs to be approved by the country.
It is worth reiterating that achieving a majority would be an almost insurmountable challenge for PVV. It is currently polling at around 24 seats (up from 15 in 2012) and so would need to more than triple its current support (and improve its 2012 performance five-fold) to gain a majority.
Populist influence structurally limited
2017 holds significant political risk and we do not expect the Dutch elections to provide much relief. PVV is set to be either the largest or second largest party. Even if, as looks likely, it does not become a part of the government, the result would nurture fears of the populist rising across Europe. On a positive note, however, it could also serve as a reminder to markets that although populist parties have substantial support, they are still unable to form stable political relationships and coalitions, limiting their overall influence on policies.
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