Wednesday Wasn’t Wilders’ Day

It's fair to say Europe's year of falling uncertainty took a step forward on Wednesday. Dutch voters went to the polls in a widely watched election we previewed here and here. For most of the year, polls showed anti-euro populist Geert Wilders and his Party for Freedom (PVV) leading, spurring fears his victory meant the Netherlands could leave the euro-a disastrous "Nexit." But when the dust settled, Prime Minister Mark Rutte's Party for Freedom and Democracy (VVD) took the plurality of the vote and 33 of Parliament's 150 seats. This should quell Nexit fears, and is the first of several elections this year that should reduce uncertainty.

Wilders' PVV did improve its position in Parliament-winning 20 seats, a five-seat increase over the last election. But this was far lower than the 30+ seats polls initially suggested, and is a distant second. Actually, PVV edged two other mainstream parties by only one seat.

While Wilders is the most noteworthy loser for markets, his failure to become PM was all but assured, given the fact Dutch governments are almost always coalitions. During the campaign, the other major political parties rejected joining a coalition with PVV. A more interesting loser is Labour, Rutte's coalition partner from the last government. They lost a whopping 29 seats yesterday-going from being Parliament's second-largest party, three seats behind VVD, to its seventh-largest. If they play a role in the coalition that winds up running the Netherlands, it will be a bit part.

Which brings us to what's next: Rutte's government will try to form a coalition. In his victory speech, Rutte congratulated D66, the Christian Democrats and the Green Left-parties controlling 19, 19 and 14 seats, respectively. Some take this as a hint at possible coalition partners. If this comes to pass, the coalition would have 85 seats, a 20-seat edge in Parliament. History suggests finalizing a coalition may take time, but whether it does or not isn't all that consequential for markets.

Either way, the election result adds a touch of clarity on the strength of euroskepticism in the eurozone core. The Netherlands is one of the EU's six founding members, and it seems voters decided they should remain that way. With Nexit fears proven null, uncertainty has fallen some. Next up is France in April and May, and we expect a similarly benign outcome from the vote. You can read our preview of the French election here, and we will likely have additional commentary as the vote nears.

Exhibit 1: Dutch Parliament - Party Composition

Sources: BBC, The Wall Street Journal, as of 3/16/2017.