Dutch centre-right Prime Minister Mark Rutte fought off the challenge of anti-Islam and anti-EU rival Geert Wilders to score an election victory that was hailed across Europe on Thursday by governments facing a rising wave of nationalism.
The euro EUR= gained as the results of Wednesday's vote showed a clear win for Rutte, albeit with fewer seats than in the last parliament.
He declared it an "evening in which the Netherlands, after Brexit, after the American elections, said 'stop' to the wrong kind of populism."
The result was a disappointment for Wilders, who had led in opinion polls until late in the campaign and had hoped to pull off an anti-establishment triumph in the first of three keyelections in the European Union this year.
Political analysts said Rutte won on a mix of factors, not all of which may apply to France, where far-right National Front leader Marine Le Pen is expected to make it through to a second-round runoff in a presidential election in May.
Rutte received congratulations from European leaders including German Chancellor Angela Merkel, who faces a strong Social Democrat challenge in a September election and has shed some support to an anti-immigration party, Alternative for Germany, which is set to enter the federal parliament for the first time.
Merkel told Rutte: "I look forward to continuing our good cooperation as friends, neighbours, Europeans," her spokesman said.
Gift from Turkey
A number of parties including Rutte's VVD and the third-placed Christian Democrats (CDA) have already adopted most of Wilders' anti-immigration platform, if not his fiery anti-Islam rhetoric.
But with a strong second-place finish, Wilders warned Rutte that he had not seen the last of his Party for Freedom, which has dominated the debate on immigration. Wilders said he wanted to participate in coalition talks, even though mainstream parties have ruled out working with him.
"We were the 3rd largest party of the Netherlands.
Now we are the 2nd largest party. Next time we will be number 1," he said.
Wilders promised to offer tough opposition. "I would rather have been the largest party.... but we are not a party that has lost. We gained seats. That's a result to be proud of," he said.
With more than 95 percent of votes counted, Rutte's VVD Party had won 33 of parliament's 150 seats, down from 41 at the last vote in 2012. Wilders was second with 20, and the CDA and centrist Democrats 66 tied for third with 19 each, data provided by the ANP news agency showed.
"Rutte profited from moving to the right, but also from Wilders having radicalised a lot over the last years and being invisible in the campaign," said Cas Muddle, associate professor at the University of Georgia, referring to Wilders' decision to forego election debates until the final week.
"On top of that, Turkish President (Tayyip) Erdogan gave (Rutte) a beautiful gift."
Rutte got a last-minute boost from a diplomatic row with Turkey, which allowed him to take a tough line on a majority Muslim country during an election campaign in which immigration and integration have been key issues.
At 78 percent, turnout was the highest in a decade in an election that was a test of whether the Dutch wanted to end decades of liberalism and choose a nationalist, anti-immigrant path by voting for Wilders and his promise to "de-Islamicise" the Netherlands and quit the EU.
Focus next on Le Pen
The result was a relief to mainstream parties across Europe, particularly in France and Germany, where right-wing nationalists hope to make a big impact in this year's elections, potentially posing an existential threat to the EU.
France's Foreign Minister Jean-Marc Ayrault tweeted: "Congratulations to the Dutch for stemming the rise of the far-right."
But Mabel Berezin, professor of sociology at Cornell University in the United States, said defeat for Wilders, who has been in parliament for nearly two decades, should not be considered a sign that European populism is waning.
"He does not represent a populist wave. Rather, he is part of the political landscape and how his party fares does not tell us much about European populism," she said.
"The real bellwether election will be Marine Le Pen's quest for the French presidency, starting April 23 – that is where the populist action is and that is what we should be focusing upon."
The spat did not hurt the chances of Denk, a party supported by Dutch Turks, which looked set to win three seats, becoming the first ever ethnic minority party in parliament, in a possible sign of deepening ethnic division.
But, while Rutte averted what in the early stages of the campaign looked like a possible victory for Wilders, years of austerity pushed down his share of the vote. His junior partner in the outgoing coalition, Labour, suffered its worst ever result, winning just nine seats, down from 38 last time.
That means it will likely take months for Rutte to negotiate a ruling coalition, with at least three other parties needed to reach a majority in parliament.
Wilders' PVV will have a third more seats in parliament than before, but is still well below a 2010 high of 24 seats. Support for the two most pro-EU parties, the progressive D66 and GreenLeft, was way up.
(This version of the story corrects Merkel quote in 7th paragraph to include word 'neighbours')
(Additional reporting by Stephanie van den Berg, Phil Blenkinsop, Thomas Escritt and Madeline Chambers; Editing by Mark Trevelyan)