Dutch debt and the future of Germany’s little brother

Ambrose Pritchard-Evans discusses the state of the Dutch economy here. As usual, other people with more experience are able to write about the same issues much more concisely than I can. But there are the same issues nonetheless: wobbly banks, with too much real estate on their portfolio; extremely high private indebtedness and a stuck housing market where real estate prices decline rapidly. As I mentioned here, the trajectory of housing prices is very much like Spain’s, and I have seen a long-term graph of Dutch housing prices which really shows that a slow bubble had been developing since the 1990s.

After the collapse of SNS Reaal due to ‘bad real estate’ portfolios, it is a matter of time when the next banks start to become very shaky, as per Pritchard-Evans Dutch banks are

up to their necks in mortgage portfolios. They face a huge “funding gap”. The loan-deposit ratio (LTD) is 183pc, compared with roughly 70pc in the US and Japan, 100pc in Germany or 120pc in Britain.

This means that Dutch lenders – like Northern Rock before them – must rely on the capital markets to roll over debts. This is courting fate. “The persistently high LTD ratio makes Dutch banks particularly vulnerable to a scenario in which market confidence evaporates,” said the Nederlandsche Bank (DNB) in its latest stability report.

With unemployment rising, scrutiny of Dutch (and Luxembourgian) tax constructions, and weakening of the Dutch neighbour countries (on which it relies with export and throughport), things are not looking so well.

And as Pritchard-Evans says: ‘It is a case of misaligned monetary policy. The Netherlands offers a salutary lesson of what can happen to a rich sophisticated economy caught in a post-bubble crunch once it has lost control of its currency, central bank and monetary levers.’ In other words, the existence of the EMU.

Nobody is safe anymore.

 

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5 responses to “Dutch debt and the future of Germany’s little brother

  1. Pingback: It’s Domestic Demand, Stupid! | Arjen polku

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