By Sara Webb
MAASTRICHT, The Netherlands (Reuters) - For the 12.5 million Dutch who go to the polls on September 12, the national election really boils down to one issue: Europe.
The election is taking place at a time of rapid decline in support for the EU in a country once known as one of the most euro-enthusiastic. Many Dutch now wonder whether EU membership and the single currency are worth the pain of austerity measures at home and the price of huge bailouts elsewhere in Europe.
In a highly fragmented political landscape it could take months to form a government. The Netherlands could even end up with a coalition that opposes the cuts needed to meet EU deficit targets at home and rejects future bailouts to troubled euro zone countries abroad.
That would be a remarkable outcome in a country that has long been at the core of the single currency zone, and could potentially paralyze the entire bloc as it faces the need for new action to fight its debt crisis.
A TNS Nipo poll published on June 22 found that just 58 percent of Dutch voters were in favor of EU membership - a stunning drop from 76 percent in May 2010.
Just as worrying, in a Maurice de Hond poll published on Sunday, 48 percent said the economy would suffer too much if the Netherlands took the steps needed to meet the EU's 3 percent deficit target.
"We are worried about paying all these subsidies to southern Europe while at the same time we are having to cut back at home," said Marcel Boogers, a political scientist at Tilburg University.
If the Netherlands tilts to the left with a Socialist-led coalition, its parliament would be far less likely to approve future bailouts, should Greece or Spain need further aid or Italy need relief.
And even if pro-European parties eke out a victory, there could be a long period of uncertainty and paralysis.
"Europe will be the major issue," said Andre Krouwel, a political scientist at VU University Amsterdam.
"The way it looks now, we won't have a new government before the New Year: it will take a long time to form a coalition, and it is very likely to be unstable."
Predicting the outcome of the election and the ensuing coalition negotiations is tricky in a country with a dozen or so political parties. Mainstream parties vie with populist, religion-based and special-interest groups that represent, say, animal rights activists or people over the age of 50.
The mainstream parties, including caretaker Prime Minister Mark Rutte's Liberal Party and his Christian Democrat coalition partners, are strongly committed to Europe's fiscal targets, if less enthusiastic about giving more power to Brussels.
The Netherlands has been almost synonymous with the European single currency since the southern Dutch city of Maastricht gave birth to the euro in the 1992 treaty that bears its name. Today, the Netherlands is still a core euro zone member and one of the few that has kept its triple-A credit rating.
Opinion polls show Rutte's Liberals vying for top place with the hard-left Socialists - who have opposed euro zone bailouts in the past. Both parties are forecast to win slightly more than a fifth of votes.
Rutte's former ally in parliament, the anti-immigrant Freedom Party, could also lure votes with a pledge to ditch the euro and return to the old Dutch currency, the guilder.
Under Rutte, a Liberal in power since October 2010, and Finance Minister Jan Kees de Jager from the Christian Democrat Party, the Netherlands has been one of the closest allies of Germany in advocating fiscal discipline in Europe.
But the governing coalition collapsed in April when the Freedom Party refused to support yet another round of cuts to meet EU targets.
Within days, Rutte's caretaker government had put together a 12 billion euro package of budget measures with the support of three opposition parties, helping the Netherlands cling on to its coveted triple-A credit rating and lower borrowing costs.
While the Dutch initially supported those emergency budget measures, more recent opinion polls suggest that voters are divided on Europe and the need for budgetary discipline.
The budget cuts chipped away at prized welfare benefits and generous perks, while many Dutch were upset to see European periphery countries that mismanaged their economies and finances receive huge bailouts.
"I'm really sick of this government giving away our taxes to those corrupt Greeks," said the owner of a pet shop in Amsterdam who asked not to be identified by name because he does not declare all his income to the authorities.
"That's why I only take cash here. I don't want all my money going to pay for that, especially when they are cutting back on pensions and healthcare."
The famously thrifty Dutch have endured round after round of austerity measures in recent years to bring the budget deficit down below 3 percent of GDP by 2013 - in line with EU targets set out in the treaty named after their own city, Maastricht.
The cuts have taken place across the board, in education, welfare, defense, and subsidies for the arts. The retirement age will be gradually raised from next year, while pension benefits have been cut.
"We wanted these rules ourselves. You have to stick to international agreements. Therefore we need stricter rules to prevent a debt crisis as seen in the past years," Finance Minister De Jager said last week when a storm erupted over the Netherlands' commitment to EU budget rules.
But the Socialists are tapping into public resentment. Their leader Emile Roemer told Dutch media he "wouldn't be intimidated by a bunch of people in Brussels."
His party, which favors stimulating growth over austerity measures, signaled it would demand a referendum on the EU's fiscal compact, which imposes fines on countries that fail to keep deficits down. Roemer said the Netherlands would pay such a penalty "over my dead body".
The government's economic forecaster, CPB, expects the deficit to be 3.8 percent of GDP in 2012, but the government has promised it will fall to 2.9 percent, below the EU target, by a deadline of 2013.
The next government will probably have to tackle the issue of whether to dismantle a generous and popular system of tax breaks on home loans. Economists have long argued that the system distorts the housing market, but scrapping the subsidy would deal another blow to already depressed property prices.
The export-led Dutch economy is weak and barely growing. Unemployment topped half a million, or 6.5 percent, in July. But the Netherlands is nowhere near as badly off as Spain or Greece, and has prospered from its EU membership and the euro.
A study from the Dutch cabinet's economic analysis bureau CPB showed that the EU's internal market provides benefits worth around 1,500 to 2,200 euros per Dutch citizen per year, and the euro itself bestows a benefit of around 500 euros.
The city of Maastricht has turned its euro-fame to advantage: its university attracts students from across the continent to study European issues, while its luxury boutiques, hotels and fine-dining restaurants are packed with well-heeled German, Belgian and French tourists.
The European leaders who drafted the Maastricht Treaty dined at Chateau Neercanne on the outskirts of the city and left a permanent mark - their signatures scribbled on the walls of its wine cellar for posterity.
The signatures are a minor tourist draw. Diners can also eat in one of the chateau's towers, nostalgically named "De Gulden", or guilder, after the old Dutch currency.
"Personally I don't think we will be returning to that," said one of the staff at the restaurant.
(Reporting by Sara Webb; Editing by Peter Graff)