Last month, the far-right Dutch politician Geert Wilders made waves by publishing a study from the consultancy Lombard Street Research. The report made the case for the Netherlands leaving the euro.
Now Wilders has plunged Dutch politics into chaos. How? By refusing to agree to budget cuts that are needed to comply with the new European fiscal treaty, which is meant to enforce budget discipline.
As his party was a key part of the current governing coalition, this killed the deal. In turn, the prime minister has resigned. While there are hopes that an interim government could be formed, fresh elections will be needed. This means that the country that first pushed the idea of new fiscal rules will end up breaking them.
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Combined with the likely change of government in France, this is another blow for eurozone stability. But how serious is it?
Voters are angry
It is easy to dismiss the failure of the Dutch budget as a political stunt. Indeed, Wilders has supported spending cuts in the past. His Party For Freedom (PVV) also believes in a much smaller state.
However, the cuts are unpopular in the Netherlands. Indeed, the latest polls suggest that 57% of Dutch think that the European Union is demanding too much. And other surveys suggest that the coming elections will produce another coalition in which the anti-EU Socialist party is also likely to do well.
This means that a new government will find it equally hard to comply with the fiscal rules. And that should set off warning lights in Brussels. The Netherlands is a country with a history of consensus, and an unemployment rate of only 5.9%. If it is balking at austerity then how can Greece, Spain or Ireland be kept on board?
The answer to the above question is already clear they can't.
Up to 40% of Irish voters still don't know which way they are going to vote in the referendum on the fiscal treaty at the end of May. Past history suggests that undecided voters tend to vote "no".
In Greece, protests continue. The two pro-bailout parties may get as little as 35% of the vote, and no more than 40% in upcoming elections. This means that another fragile coalition is all but certain.
Spain is also seething with anger. Indeed, the government is planning new anti-protest laws and internet restrictions.
There are no good solutions left
The logical idea would be for Europe to loosen the fiscal rules. This would allow cuts to be phased in more gradually. In turn, this would reduce opposition and help growth.
However, neither Brussels nor Berlin likes this plan. As we've pointed out before, without austerity, the debt levels of the peripheral countries would quickly spiral out of control leading to capital flight, default, bailouts and finally exit.
So it seems the eurozone is caught in a bind: countries won't (and in some cases can't) accept austerity. But without these rules there'll quickly be a fiscal crisis.
So what will happen? Germany might be increasingly tempted to pull the plug on the lot. They have already vetoed the idea of the ECB bulk-buying bonds, due to fears about inflation. Jonathan Loynes of Capital Economics suggests that a wide range of countries are now "on a collision course with Germany".
For the past few months the markets have hoped that the cuts would work. With cheap money from the ECB, banks piled into bonds, pushing yields down. The cost of insuring five-year Spanish and Italian debt (via credit default swaps CDS) fell to lows of 356bps in March and 369bps in February respectively.
However, with the process now starting to come apart, the price of CDS has surged again. Italian CDS are 469bps, while Spanish swaps are 509bps. In short, market confidence in the euro is ebbing away.
What does this mean for the Dutch stock market?
So, it looks like Wilders might get his wish in the near future. But as we've said before, the Netherlands may still be forced to keep paying aid to the peripheral countries even if the euro breaks up.
This means you should give the iShares Amsterdam Stock Exchange ETF (LSE: IAEX) a miss. It may only be trading at aprice/earnings (PE) ratioof ten, but banks and financial institutions account for 20% of its value. If there's a series of defaults as and when the euro breaks up, they will be forced to take losses on their external debts, which would hit their share prices hard.
