Dutch Macro Perspectives - Wilders blows up coalition amid elevated uncertainty

• The timing is unfavourable, leaving the government without a mandate while US tariff negotiations take place and the country hosts a Nato summit in The Hague in June

• The government's fall delays solutions to current supply side constraints and increases domestic policy uncertainty while international uncertainty is already high

• The pension reforms are unlikely derailed by this news

Geert Wilder’s PVV quits the coalition

After only 336 days in office, the Schoof 1 cabinet fell this morning after the far-right PVV announced that they step out of the coalition over stricter migration legislation. The cabinet, consisting of election winner PVV (far-right), former prime minister Rutte’s VVD (liberal centre-right) and newcomers the Farmer Citizen Movement (BBB, right) and New Social Contract (NSC, centre-right), was in office since July 2024.

An unhappy marriage since day 1

After the November 2023 elections, a lengthy negotiation process followed in which the VVD and NSC were initially reluctant to enter a coalition with the PVV. Eventually in office, the coalition backed by the four parties never really formed a team. This resulted in a host of political crises, ad hoc policy making and a coalition agreement which favoured short term spending over long term policy goals, backed by shaky cuts. Politically, the position of the coalition was weak as they lacked a majority in the Senate. All being told, the government still sat longer than the general public expected.

The Coalition became more unstable as support faltered

Recently, public opinion soured on the coalition. The four parties started in 2024 with a majority of 88 seats, of the total of 150 seats in parliament. Currently the coalition polls at 62 seats. Primarily NSC (from 20 seats to 2) and the BBB (from 7 seats to 3) have lost significantly for several reasons such as NSC leader Omtzigt quitting politics and in case of the BBB over the inability to deliver on solving the countries’ long standing nitrogen issue. More recently, with geopolitical uncertainty and national security rising as public themes, the VVD is gaining ground in the polls, whereas the PVV bears the brunt of the opposite side of the coin; migration getting less attention.

What now? Uncertainty and probably new elections in October

While the news is still fresh and uncertainty high, new elections loom as the opposition, having gained in the polls, will not step in to fill the gap, which means that there will be new elections. A reasonable base case would see elections probably take place in October after which a formation process has to take place. Judging from recent formation processes, this means 2026 will likely be well underway before a new government will be installed. Until then, the current coalition assumes caretaker status. Likely without Ministers from the PVV as Geert Wilders has ‘pulled them back’ – it is unclear at this stage what that means. A caretaker government only takes essential decisions and cannot govern on topics that are declared controversial. In theory there is a possibility that parliament allows the caretaker government active on certain topics but given the situation in the polls that seems unlikely at this stage.

Caretaker government amid geopolitical uncertainty, NATO summit and domestic constraints

The timing of the fall of the Dutch government is salient for three reasons. First, as a small open economy the Dutch economy faces threats from the unfolding tariff war. Just as negotiations between the EU and the US are taking place the Dutch government is at the very least preoccupied with today’s news and can exert less influence on the negotiations. Second, the same can be said for the upcoming NATO summit at the end of June, which the Dutch government actually hosts in The Hague. The Dutch government was already constrained in European security negotiations (ReArm Europe) by a motion from parliament. But now has to host a NATO summit without the ability to give credible commitments over ramping up defence spending. Other NATO member states and notably the US would prefer negotiating with a mandated government. Finally, in light of international volatility, the Dutch government would ideally be doing more to strengthen the economy. And on that front the recent track record is suboptimal. As mentioned in our own publications and reiterated recently by the IMF the Dutch economy faces several supply side constraints which limit its growth potential such as electricity grid congestion, the housing market and the labour market. The fall of the government will delay solving these constraints and will increase (domestic) policy uncertainty in the short run, adding to a situation where international policy uncertainty is already elevated. At the moment we keep our base case as is, but zooming out, more uncertainty risks creating an additional drag on the economy going forward.

No impact expected on pension transition

Another heated topic is pensions reform. The fall of the government is not expected to delay the ongoing pension transition in The Netherlands. The rejection of the proposals to amend the pension law in parliament two weeks ago demonstrates that there is no majority in the current parliament to amend the legislation, while there is a clear majority in the Senate in favour of the law. In addition, the first pension funds have already transitioned to the new framework and, according to schedule, a large group of pension funds will transition on 1 January 2026. Considering that new elections will likely take place in the autumn at the earliest, followed by coalition agreement negotiations, a new government is expected to be installed only by early next year. By then, nearly half of the pension assets will have switched to the new framework, making any adjustment to the law that would delay the transition unlikely.

No major changes expected in DSTA's funding need

A caretaker government generally refrains from taking major decisions, as controversial topics are deferred to the next administration. Many of these topics often involve substantial expenditures, such as increased defence spending, which may have a favourable impact on the budget in the short term. Consequently, the fall of the government is expected to have a minimal effect on the Dutch State Treasury Agency's funding needs for the current year and a reducing effect for next year. The latter is because the new cabinet's policy cannot be implemented until next year at the earliest.

After the fall of the government was announced, the 10-year DLS underperformed slightly compared to its peers, but the spread quickly recovered, indicating that the market does not see the political situation in the Netherlands as a major risk.