The Dutch government's budget deficit will bust European Union targets imposed to keep the region's economy under control, a government think tank said Thursday, setting the stage for make-or-break negotiations between parties in the ruling coalition on how to cut government spending further.
According to draft Central Plan Bureau calculations, the deficit is currently at 4.5 percent of gross domestic product _ the broadest measure of a country's economic output _ and will remain there next year if the government does not further rein in spending.
The leaders of coalition parties will meet next week at Prime Minister Mark Rutte's official mansion to hammer out a package of extra budget cuts to bring down the deficit to the EU-mandated level of 3 per cent of GDP.
"These are tough numbers, but this is the new reality," Rutte said in a statement.
Rutte, leader of the free-market VVD party, came to power in 2011 pledging to slash spending by euro18 billion ($24.2 billion) and now has to cut at least euro9 billion ($12.1 billion) more to reduce the deficit to the 3 percent target.
His administration has been one of the fiercest critics of other EU nations, including Greece, for allowing their deficits to balloon.
Rutte faces tough negotiations with coalition partner the Christian Democrats and anti-Islam lawmaker Geert Wilders, whose Freedom Party supports the minority right wing government on key votes but is not a formal member of the two-party coalition.
"We must not be blinded by the numbers," Wilders told Dutch national broadcaster NOS. "We have to do what is good for the Netherlands, good for Dutch citizens and good for the economy. We'll start negotiating Monday and we'll see how far we get."
Wilders is expected to call for slashing overseas aid and further cutting the budget for immigration and integration of new migrants _ moves that would likely be unpalatable for Christian Democrats.
The Dutch economy is currently in recession, but the Central Plan Bureau forecast that it will grow by 1.25 percent in 2013.
The AAA-rated Dutch economy has long been considered one of Europe's strongest, but as a trading nation with a large banking sector, the Netherlands has been hit hard by the financial crises in recent years.
The head of the plan bureau, Coen Teulings, this week warned that insisting on EU nations meeting the 3 percent deficit target next year could only deepen the region's financial crisis.
"Immediate austerity measures would aggravate the recession," Teulings wrote in an opinion piece for the Financial Times co-authored with Jean Pisani-Ferry, director of the European economic think tank Breugel.
In the past when Wilders has refused to support the government, Rutte has managed to shore up his majority with the help of opposition parties. But the opposition is now calling on Rutte to kick start the recession-hit Dutch economy and promote economic growth instead of slashing spending.
"This Cabinet's economic policy is bankrupt," said Jeroen Dijsselbloem of the main opposition Labor Party. "Tough austerity measures damage the economy. The Cabinet has hit a dead end. Things have to change."