Election Advisory Series | A Dutch Coalition

In the first edition of the series, Casper Goldman, an associate in our Europe team discusses emerging risks, challenges, and opportunities with the Dutch coalition negotiations.

What’s important to know about the outcomes of the recent elections in the Netherlands?

Casper: The Netherlands went to the polling stations on November 22nd. But before I get into the outcome of that election, which was quite a surprising one, let me provide you with some background information on the Dutch political climate prior. 

The centre-right liberal VVD party under the leadership of prime minister Mark Rutte has been the largest party in parliament and the leader of the government coalition since October 2010. The party has run the country on a firm pro-business and low-tax agenda. In July last year, Rutte’s coalition fell apart after the parties failed to reach an agreement on immigration policy. This happened when Rutte’s party took a harsh line on family reunification for refugees which wasn’t acceptable to its coalition partner the Christian-democratic Christian Union. 

Shortly after, Rutte announced his departure from Dutch politics. This was followed by several significant changes in the Dutch political landscape. A number of other prominent party leaders resigned and the two largest left wing parties – the Green Left (GroenLinks) party and the Labour (PvdA) party – de-facto merged by running a joint campaign. The key topics in the election campaigns became immigration and climate policy. However, the most important topic – and the buzzword of the election – was ‘bestaanszekerheid’ which translates roughly to livelihood security and includes a discussion about whether or not basic needs such as income, a home, access to education and care, are being met for all Dutch citizens. 

Ultimately, in a shock outcome, the elections were overwhelmingly won by the extreme right populist PVV, Party for Freedom, of Geert Wilders. The party gained 20 seats compared to the last election. This means it became the largest party by a margin with 37 out of the 150 seats in the Dutch parliament. Wilders’ party is notorious for running on a radical anti-EU, anti-immigration, and anti-Islam agenda (having proposed bans on Islamic schools, the Quran and Mosques). 

In second place came the leftist block with 25 seats, and for the first time in more than decade, the VVD came in third with 24 seats, having lost 10 seats. 

Most of the election coverage focuses on the rise of Geert Wilders but there are two other notable winners. First, New Social Contract, a new political party that won 20 seats. The leader of the party, Pieter Omzigt, is known for leading the toppling of the government in 2021 over a child benefit scandal. His newly incorporated party ran a centrist campaign focused on good governance and social security. Second, the Farmer-Citizen Movement, a right-wing agrarian party that won seven seats, up from a one-woman political fraction. The party gives voice to a movement of farmers which have staged large scale protests dubbed the farmers’ revolt and generally opposes environmental rules aimed at curbing farm emissions. 

Following the result, it is now up to Geert Wilders to attempt to form a coalition. 

In February it looked like coalition negotiations in the Netherlands to form a new government failed, can you provide us with some background? 

Casper: The VVD, the Farmer-Citizen Movement, and New Social Contract were willing to enter into negotiation talks with Geert Wilders and explore a potential coalition government. 

However, there are significant differences that need to be bridged. First and foremost, the parties discussed their stances on the Dutch constitution. On this point, Wilders agreed that he wouldn’t propose anything that would clash with fundamental rights. In particular, he acknowledged that Islam is a religion covered under freedom of religion – as opposed to a totalitarian ideology – which is how he described the religion previously. 

The negotiations broke down, however, after New Social Contract leader Pieter Omtzigt suddenly announced to the press on 6 February that he would exit the negotiations quoting concerns over the financial health of the Dutch government. The announcement came as a shock to the other party leaders who found out in the press and were later informed via WhatsApp.   

The underlying issue, though, appeared to be the lack of consensus around what a new coalition might look like. The background here is that in the failed round of negotiations, both VVD and NSC had ruled out joining the negotiations as a full coalition partner, instead preferring to support the government in a confidence and supply agreement. However, the consensus across the board is that a coalition supported in confidence and supply by two parties would not be a stable one and is not preferred. 

So following the breakdown of negotiations- what’s next?

Casper: Following the failed negotiations, the VVD changed their tone and has said that they would be willing to join a so-called extra-parliamentary coalition. This would look like  a looser alliance of parties that governs without a tight coalition agreement and may involve independent ministers. The VVD said it would be willing to join such a coalition as a full partner, provided that Pieter Omtzigt would do the same. Meanwhile, Omtzigt said he’d still prefer supporting a coalition in a confidence and supply agreement – though did not rule out joining an extra-parliamentary coalition.

As a next step, on 14 February, Geert Wilders appointed veteran politician Kim Putters who was tasked with exploring what form of government the party leaders prefer. He was also tasked with more clearly defining what an extra-parliamentary coalition would look like, as it is a relatively unprecedented form of government in the Netherlands. Yesterday, Putters reported to parliament that the four parties agreed that the only feasible option would be to form an extra-parliamentary coalition, though he did not define the concept much further. 

In their discussions with Putters, the parties did agree that the primacy in this form of government lies with parliament. Therefore, all party leaders will be leading their parties from parliament rather than taking on cabinet positions. This is a huge concession for Geert Wilders who was hoping to join the cabinet as prime minister but has had to rule out doing so to prevent the negotiations breaking down. The question of who will fill in the prime minister vacancy in his absence remains unanswered. Now, the parties will enter a new phase of negotiations during which they will start discussing policy and budget. 

Given Geert has given up the Prime Minister position – what can we expect going forward and what are the implications for businesses in the Netherlands?

Casper: Even though Geert Wilders won’t be PM, his party – as the largest coalition partner – would still be hugely influential. As such, should the parties agree to form a government we can expect a significant swing to the right. Where previous VVD coalition partners were typically more centrist, the PVV and Farmer-Citizens Movement operate on the further end of the political spectrum. Specific topics that would be frontloaded are immigration and climate policy.

When it comes to the latter, the PVV is notorious for proposing to end all climate policy. In turn, this has the potential to impact the ESG investment climate in the Netherlands. Currently, companies are subject to a number of restrictions and can receive a range of subsidies and tax benefits. These regulations are designed with the dual aim of A) reducing reliance on fossil fuels and B) enhancing the competitiveness of the Dutch renewable energy sector. 

What is certain, is that a coalition of the four parties would have a different and less friendly outlook on climate policy. The extent of which though remains to be determined – with the VVD and NSC recognising climate change as a serious issue. A key topic we are watching is the Dutch climate fund, which was approved by the senate in December last year and freed up 35 billion Euros to make the Dutch economy more sustainable, and amongst other things seeks to promote investment in renewable energy infrastructure as well as investment in new energy-efficient technologies such as green hydrogen and nuclear energy. All parties, except for the VVD, voted against the fund, and it remains to be seen whether it will stay intact under a new government. 

The other big topic will be migration. Across the board, the new coalition will have a less friendly attitude towards migration. This is likely to target all forms of immigration, ranging from international students, to refugees, to migrant labourers. The latter will impact businesses in the Netherlands who have been experiencing significant labour shortages and have sought to fill gaps through labour migration. Several companies, including Dutch semiconductor company ASML – which has the Netherlands highest market capitalisation – have voiced their concern over the potential curbs, stating that their business operations are reliant on labour immigration and international students that stay to join them after graduating from Dutch universities. 

More broadly, the negotiations and associated potential shifts in government policy bring uncertainty to investors – who are navigating an increasingly less predictable business climate in The Netherlands. This is something that investors have been warned about for a number of years now. Political instability and the unpredictability surrounding swings in the government policy that have come with recent elections –  were both cited as one of the reasons consumer products giant Unilever and energy giant Shell moved their operations from the Netherlands to the UK in 2020 and 2021. 

However, at the same time, the requirement to form a coalition also acts as a constraint on the more radical agenda of the PVV and BBB, and it very much remains to be seen how much of their party programs would remain intact in any potential coalition. 

We’ll continue to keep a close eye on the Dutch political climate and remain on call for our clients to help them make sense of this environment within the context of their business operations in the country. 

Photo by SEM VAN DER WAL/ANP/AFP via Getty Images