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Dutch government quits after austerity talks fail

The Dutch government, one of the most vocal critics of European countries failing to rein in their budgets, quit Monday after failing to agree on a plan to bring its own deficit in line with EU rules.

The government information service announced Queen Beatrix had accepted the resignation of Prime Minister Mark Rutte and his Cabinet after a meeting in which Rutte told her talks on a new austerity package had failed over the weekend.

Rutte is to address parliament Tuesday to discuss interim measures to keep public finances in order and schedule new elections. No date for elections was immediately announced, but opposition lawmakers called for a vote as soon as possible.

The Dutch government collapse came a day after the first round election victory of France's soft-on-austerity socialist candidate Francois Hollande. It calls into question whether austerity policies that are causing trauma in countries such as Greece, Spain and Portugal can be enforced even in "core" European countries such as France — or the Netherlands, one of the few along with Germany to maintain an AAA credit rating.

Rutte's hopes to clinch a deal to cut the target below the EU's 3 percent target evaporated on Saturday, when his most important political ally, populist euroskeptic Geert Wilders walked out of the talks, saying a slavish adherence to European rules was foolish and would harm the Dutch economy.

That view is shared by some, such as the government's own Central Plan Bureau, and opposed by others, such as Dutch Central Bank President Klaas Knot.

"We don't want our pensioners to suffer for the sake of the dictators in Brussels," Wilders said.

European Commissioner Neelie Kroes called Wilders a hypocrite, since the Netherlands itself, along with Germany, had been one of the loudest in demanding Brussels adopt 3 percent deficit limit in the first place.

"Pointing to Brussels now is dumb, it's untrue, it's distracting, and it doesn't solve anything," said Kroes, who is a member of Rutte's free-market VVD party.

A spokesman for the German finance ministry said that despite developments over the weekend, approval for Europe's plan to tackle government debt by cutting spending is actually "increasing." He didn't give evidence backing that assertion.

"We should not now simply let ourselves be thrown off track by daily developments," Martin Kotthaus told reporters in Berlin.

He said Europe's recent reforms had been well-received at a weekend meeting of the International Monetary Fund. "The road is right; Europe has done its homework," he said.

Finance Minister Jan Kees de Jager insisted he still plans to submit an outline budget to Brussels by April 30, as mandated by European rules.

He said he was optimistic about prospects for agreeing some cuts with opposition parties in Parliament.

"We'll show the financial markets, in consultation with Parliament, that the Netherlands' decades-long budgetary discipline will remain," he told reporters after a brief Cabinet meeting ahead of the resignation.

Opposition lawmakers say they are prepared to work with Rutte to draw up a 2013 budget.

However, Diederik Samsom, leader of the opposition Labor Party, signaled he would not insist on bringing the Dutch deficit back in line with EU norms next year.

"As far as we are concerned, you don't have to reach 3 percent by 2013," he said.

Although the Netherlands has relatively low levels of national debt, its economy is in recession and it is expected to post a deficit of 4.6 percent in 2012.

The package Rutte had been negotiating with Wilders would have slashed foreign aid and hastened a planned increase in the retirement age to 66 from 65.

Wilders, who is publishing a book in the U.S. next week about his struggle against Islam, said abruptly Saturday he could not support the package because it was unfriendly to the elderly.

Yields on Dutch bonds were up 0.11 of a percent higher than they were before the weekend. Netherlands government bonds are trading around 2.35 percent for 10-year debt, about 0.6 percentage points more than Germany.

Ratings agency Fitch last week warned the Netherlands stands to lose its AAA credit rating depending on the outcome of the budget talks that failed Saturday.

Central Bank President Knot has predicted Dutch interest rates will increase by around 1 percent if the country's rating is cut, making budget reform vital.

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Sterling reported from Amsterdam.

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