The People’s Party for Freedom and Democracy (VVD), the liberal, centre-right party led by incumbent Prime Minister Mark Rutte, has emerged as the biggest party, fighting back the predicted challenge of Geert Wilders’ far-right PVV party. Rutte is likely to have benefited from the high voter turnout (81%) and his tough stance in the diplomatic row with Turkey over the past week. EUR/USD moved up one figure to 1.073 on the publication of the exit poll, which shows that VVD remains the largest party.
Wilders, despite a projected second place with around 20 seats, is not likely to be part of any coalition negotiations, with all major parties unwilling to work with his populist, anti-immigration MPs. The PVV is likely to spend another four to five years in the opposition.
The unexpected victor of the night was GreenLeft, led by 30-year-old Jesse Klaver, which increased its four seats to a projected 14. It could now play a crucial part in the upcoming coalition talks.
Rutte’s party is likely to get 33 seats (a loss of eight versus 2012) and will need to enter into coalition talks to form a new government, although Rutte is likely to stay on as Prime Minister. The collapse of Rutte’s former coalition partner, the social democratic PvdA, tumbling from 38 seats to a projected nine, means the PM will need to seek new agreements. The Christian Democrats CDA (centre-right) and Democrats 66 (centre), each with an expected 19 MPs, are the most obvious candidates to join a VVD coalition. However, that still leaves him five seats short of the 76 needed for a majority, which is why a fourth coalition partner will be needed. The Christian Union CU (centre-right) or the GreenLeft could also be candidates.
Talks are likely to last for some time – possibly months. The final official election results will be published on 21 March by the Dutch Election Commission.
The new parliament will meet for the first time on 23 March, when official coalition talks will begin. However, informal coalition talks are likely to start today.
Depending on the composition of the new governing coalition, we might see more fiscal easing in the Netherlands going forward, as most parties want to increase borrowing and lower taxes to boost jobs and growth. However, the economy is in good shape generally and there is fiscal room for growth-enhancing reforms.
The first defeat for populists in Europe might also have important repercussions for the upcoming French presidential election on 23 April and we could see Le Pen losing momentum in the polls and markets starting to reprice risk. For the short-term market implications of a Le Pen win see also Le Pen – What If? Implications for Euro and Nordic markets, 13 February 2017.