Dutch Election: Where Rubber Meets the Road

The conventional narrative is that a wave of populism-nationalism is a sweep in the US and Europe.  This is not as obviously true as many seem to think.  The most likely scenario is that in the three European elections this year, that the populist-nationalists do not succeed in being part of, let alone leading governing coalition.  

The actual success of populism-nationalism in the UK and US was a function of the center-right parties adopting the populist-nationalist agenda.  No populist party won in the US and UK. In the UK, the Tories promised a non-binding referendum on EU membership and then embraced the narrow result as if it were binding. In the US, the Republican Party at first resisted, but then capitulated to at least parts of Trump's agenda.  In Europe, the center-right parties are running against the populist-nationalists.  

While the two-party systems in the US and UK may have helped facilitate a victory for (at least part) of the populist-nationalist agenda, the multi-party systems in Europe are a check.  This will be particularly clear in next week's Dutch election.   There are more than two dozen Dutch political parties, and an almost half may be represented in the next parliament.  The current parliament seats 11 parties.  The threshold is low.  A party only needs 0.66% of the vote to secure a seat.  This suggests another dimension to democracy.  

The Dutch Parliament has 150 members.  No party is likely to secure more than 30 seats.  The fragmented parliament means that what the British call a hung parliament is normal in the Netherlands.  The next government is likely to require the cooperation of four or five political parties.

The fragmentation and need for coalitions force compromise and acts as a check on innovative or bold changes. In recent years, the old centrist parties have seen their fortunes erode.  The main three parties used to draw 80% or more of the vote.  Their draw has been roughly halved.   

Many suspect that economics have something to do with the appeal of the populist-nationalist.  Whatever that relationship is, it is not straightforward.  The US and UK have performed among the best since the Great Financial Crisis, and their unemployment is half of what it in the eurozone.  The Netherlands also enjoy a relatively strong economy.  Unemployment stood at 5.3% in January, a five-year low.  The economy grew by 0.5% in Q4 16 for a 2.3% year-over-year pace.  There were about 30k asylum seekers last year, a third of what the government had anticipated.  

There are five political parties that the polls suggest could come in first place.  Most recently,  support for Wilder's Freedom Party (PVV) has slipped to the benefit of some of the medium-sized parties.  Wilder's is not the first anti-immigration populist to strike a chord in the Netherlands.  Back in 2002, Pim Fortuyn List to lead his populist party to 26 seats, that he was assassinated by an environmentalist a little more than a week before the election.  No government was able to form, and a new election was held in 2003, and the party won only eight seats.  In the next election, it did not win any seats.  

There are three Dutch conventions that will shape the next government.  First, the party that receives the most votes should get the first chance to put together a coalition.  The challenge is that Wilder's has organized the PVV, so he is the only member, and it appears he has gone out of his way to antagonize the other parties.   He will find it difficult if not impossible to find sufficient coalition partners to form the next government.   Second, the coalition should include two of the three largest parties.  This is not impossible if the PVV is the party not included.  Third, the coalition should include at least one party that managed to increase the number of seats in parliament.  This too is not a particularly difficult hurdle.  

To the extent that there is a concern about the election, and one cannot see it in the performance of Dutch assets,  it is the possibility of a referendum on EU or EMU membership.  It is highly unlikely, and talk of Nexit is an exercise in hyperbole.  It is true that the Dutch electorate has not always taken a pro-EU line.  They rejected the EU constitution in 2005 and last year rejected an associate agreement with Ukraine.  Nevertheless, there is overwhelming support for the EU and the euro.  

Referendums in the Netherlands are rare and not explicitly grounded in the Constitution.  It is advisory only (yes that is what the UK electorate was told too).  A referendum requires both houses of parliament to approve the referendum.  Last year, after the UK referendum, Wilders supported a motion calling for a Dutch referendum on EU membership.  It was rejected on a 136-14 vote.  

On the one hand, the defeat of the PVV in the Netherlands would support our thesis of no nationalist-populist wave sweeping through Europe, let alone the world.  On the other hand, one should not confuse this defeat with some kind of closure.  The populist-nationalist sentiment appears to be encouraging center-right parties to tack further toward a hardline on immigration, and stronger law-and-order messages.   The centrist parties need to address the underlying question populism is raising about national identities and the rights (and responsibilities) of citizens.  On top of that is the future of Europe.  Compare Juncker's five scenarios that were recently released, with the strong commitment of more integration outlined in the Five Presidents' Report. 

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