The collapse yesterday of the Netherlands government is being spun mainly as a story about differences on how to deal with Europe’s economic troubles.

While of course it is that, it also illustrates the problematic role of the far right in European politics.

In the Netherlands parliament, elected almost two years ago, prime minister Mark Rutte’s centre-right government has just 52 of the 150 seats. Half a dozen generally centre-left opposition parties have 72 seats between them. The government’s survival depended on the 24 members from the far-right Party for Freedom (PVV), and it was the PVV’s refusal at the weekend to support his austerity package that led to Rutte’s resignation.

The PVV is a fanatically xenophobic and anti-Islamic party, led by Geert Wilders, who is friends with Australia’s own Cory Bernardi. Its rapid rise has been a manifestation of the country’s recent angst about its Muslim community, particularly following the 2004 murder of filmmaker Theo van Gogh. Rutte refused to have Wilders in his ministry, but negotiated an agreement under which the PVV would support the government from the crossbenches.

Centre-right parties in much of the continent face similar dilemmas.

They want to avoid co-operating with the far right — if not from their own scruples, at least for fear of electoral consequences — but sometimes the temptations of office are too strong. Rather than pretend the extremist MPs are not there, centre-right governments in Austria, Poland, Norway and others have relied, tacitly or explicitly, on far-right support. (Social democratic parties sometimes have the same sort of issues with the far left.)

France’s Nicolas Sarkozy has a similar problem: although there are no National Front MPs (because France has an electoral system like ours, designed to lock out extremists), Marine Le Pen’s strong vote in the presidential election showed the need to appeal to far-right voters.

It’s a difficult game to play. Which is the greater danger: to ignore the concerns of a significant number of voters, or to give legitimacy to bigotry? Even leaving aside the moral dimension, tacking right to marginalise the extremists risks alienating votes in the centre.

Moreover, keeping the extremists out may not be the best strategy to deal with them. Sometimes bringing them within the tent can be the best way to draw their sting: François Mitterand virtually destroyed the French Communist Party by taking its members into government in 1981.

But sometimes such a strategy fails miserably (Germany in 1933 is the leading example).

Although Le Pen had a good day on Sunday, the far-right parties of northern Europe (which have a somewhat different lineage from the National Front) seem to have been in decline for the past year or so — a trend possibly connected with Anders Breivik and the threat of right-wing terrorism. It’s possible that fresh elections in the Netherlands now would weaken the influence of the PVV.

But it’s also likely that the biggest gains would go to the centre-left, since it seems that European voters are starting to lose patience with austerity measures.

Whatever the intrinsic merits of austerity, the political priority is for the mainstream parties to re-establish a consensus on economic policy that is acceptable to the electorate, for fear of giving more traction to the extremists. In the Netherlands, that probably means that some of the hard edges of Rutte’s package will need to be softened. (And anyone who’s been involved in government knows there are plenty of ways to cut spending without impacting on the poor.)

But in the meantime, the Netherlands looks like heading back to the polls, and the voters may yet throw up some surprises.