The far-right Freedom Party (PVV) led by Geert Wilders is likely to become the largest faction in the lower house after parliamentary elections on March 15, whereas established parties from the governing will likely see their support dwindle.
We do not think the PVV will be able to form a government, since other parties have ruled out forming a governing coalition with it. Instead, a lengthy coalition building process will start with the new government likely consisting of a coalition of at least five centre-right and centre-left parties.
Even if the PVV were somehow able to gain sufficient seats to form a government, it would still be very difficult to hold a referendum on EU membership. Referenda in the Netherlands are only advisory and without changes to current legislation - which require a constitutional change approved by a two-thirds majority both in the upper and lower house - a binding referendum on an EU exit cannot be held.
Although the probability of a PVV government is low in our view, investor sentiment is unlikely to remain complacent as some risk premium should be included when the election date draws nearer.
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