U.S. Markets closed

Eurogroup head cancels IMF trip due to Dutch budget talks

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013. REUTERS/Yuri Gripas

By Anthony Deutsch and Thomas Escritt

AMSTERDAM (Reuters) - Dutch finance minister and Eurogroup head Jeroen Dijsselbloem pulled out of annual IMF meetings in Washington on Thursday to deal with threats at home to the governing coalition's budget strategy.

Dijsselbloem and Liberal Prime Minister Mark Rutte need the support of smaller opposition parties to push through 6 billion euros ($8 billion) in additional austerity measures in 2014.

Without more political backing, the Cabinet will not be able to get the budget approved. That could thrust the country into a political crisis just as the economy is at a turning point.

While analysts say the government is still likely to achieve the targeted cuts, it may now have difficulty making progress on promised changes to pensions and the labor market.

Dutch Central Bank President Klaas Knot said this week the government's failure to reach an agreement on the budget was the biggest threat to an economy still trying to escape a recession in which it has spent eight of the past 10 quarters.

Dijsselbloem had been due to represent the euro zone countries during the annual meetings in Washington starting on Thursday, but changed plans at the last minute, a Finance Ministry spokesman said.

"He regrets the decision, but at the moment he had to give priority to domestic matters," spokesman Michel Reijns said. "It is an attempt to find support for the budget measures."

Dijsselbloem announced the move after five hours of talks with opposition leaders dragged on into the early hours of Thursday. Two of five parties the Cabinet is seeking support from have already dropped out of the discussions.


Dijsselbloem was to continue the discussions on Thursday with the right-of-centre Democrats 66, the Christian Union and the conservative SGP, another small Christian party.

"D66 will want to make it easier to fire people," said Andre Krouwel, a political scientist at Amsterdam's VU University. Such a move would be unpopular with Dijsselbloem's Labour party, whose membership is already restive about the cuts agenda it has agreed with Rutte's austerity-minded Liberals.

With D66 the only major party left in the negotiations, Dijsselbloem would no longer be able to play interests off against each other, leaving D66 in a more powerful position, Krouwel said.

The three parties remaining in the talks would also be unlikely to pass a proposed increase in the pension age and would be in a position to extract spending promises from the government that could slow the pace of cuts, he added.

The Dutch government needs the cuts to meet the European Union's 3 percent budget deficit target in 2014, but does not have enough backing in the Senate.

The Netherlands is the only core euro zone country still in recession and is suffering from a property crisis, rising unemployment and sluggish consumer spending.

(Reporting By Anthony Deutsch; Editing by David Brunnstrom and Ruth Pitchford)