Now It's The Netherlands's Turn
By Staff News & Analysis - April 04, 2013

Economic Crisis Hits the Netherlands … The Netherlands, Berlin's most important ally in pushing for greater budgetary discipline in Europe, has fallen into an economic crisis itself. The once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs. – Der Spiegel

Dominant Social Theme: Northern Europe is doing really well because they are … better.

Free-Market Analysis: Gradually, the nonsense about North and South Europe will fall away. It is true the cultures are different and no one would accuse Greeks, in aggregate, as valuing the kind of efficiencies and detailed order apparently dear to many German hearts (or so we are told).

In any event, ironically enough, the Netherlands has been diagnosed with the "Greek disease." Too much sovereign debt and not enough revenue. Yes, it's true. Sovereign insolvency is not the exclusive property of the South after all. Not when the Netherlands, a virtual paragon of Germanic efficiency, is threatening a Greek-style meltdown.

Of course, this was not supposed to happen because the reason for Southern fiscal dysfunction revolves around character issues: The Greeks are lazy, the Spanish are disorganized, the Portuguese feckless, etc. We always had issues with this.

The Greeks, after all, got along just fine in their own way before the advent of the euro, a ruinous currency that the average Greek allowed its elites to adopt on their behalf. Could it be the system was at fault rather than the "national character"?

It bears repeating that those at the top were likely bribed by massive bank loans to promote both the EU and the euro, and that those loans were recklessly spent on unnecessary infrastructure, etc. Those who received the loans are no longer in charge and perhaps not even in the country. And it is citizens themselves who are paying them off, or trying to.

What should come into clearer focus over time is that it is not laziness that has caused Southern European economies to collapse but systemic flaws in the euro (and the European economy) itself.

The paradigm of top-heavy governments inefficiently providing everything from health care to roads to a broad ambit of social services and education is simply unsupportable. And now it is Netherlands turn to pay. Here's more from the article excerpted above:

"Underwater" is a good description of the crisis in a country where large parts of the territory are below sea level. Ironically, the Netherlands, once a model economy, now faces the kind of real estate crisis that has only affected the United States and Spain until now. Banks in the Netherlands have also pumped billions upon billions in loans into the private and commercial real estate market since the 1990s, without ensuring that borrowers had sufficient collateral.

Private homebuyers, for example, could easily find banks to finance more than 100 percent of a property's price. "You could readily obtain a loan for five times your annual salary," says Scheepens, "and all that without a cent of equity." This was only possible because property owners were able to fully deduct mortgage interest from their taxes.

Instead of paying off the loans, borrowers normally put some of the money into an investment fund, month after month, hoping for a profit. The money was to be used eventually to pay off the loan, at least in part. But it quickly became customary to expect the value of a given property to increase substantially. Many Dutch savers expected that the resale of their homes would generate enough money to pay off the loans, along with a healthy profit.

More than a decade ago, the Dutch central bank recognized the dangers of this euphoria, but its warnings went unheeded. Only last year did the new government, under conservative-liberal Prime Minister Mark Rutte, amend the generous tax loopholes, which gradually began to expire in January. But now it's almost too late. No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books …

Even €46 billion in austerity measures are apparently not enough to remain within the EU debt limit. Although Dijsselbloem has announced another €4.3 billion in cuts in public service and healthcare, they will only take effect in 2014."Sticking the knife in even more deeply" would be "very, very unreasonable," Social Democrat Dijsselbloem told German daily Frankfurter Allgemeine Zeitung, in an attempt to justify the delay. It's the kind of rhetoric normally heard from Europe's stricken southern countries.

There are several themes to note in the above reporting, the first being that the central bank of the Netherlands supposedly tried to sound a warning about negative financial trends. This would be an appropriate statement except that the purpose of central banking is to print money and act as a lender of last resort.

Neither of these roles is especially conducive to "austerity" and, in fact, to conceive of a central bank in that way is simply to misconstrue reality. If officials at The Netherlands's central bank did sound a warning it was likely to ensure that bankers were safely on record before the crisis took hold (one they helped to create, no doubt). We cannot conceive of the idea that such a central bank was not itself part of the problem.

The second notable point is that austerity is being applied to the Netherlands just as it has been to Greece, Spain, etc. and similar rhetoric is being used to resist its useless and provocative application. Both the solution and the reaction are eerily similar to that of the PIGS's.

Ultimately, two conclusions will be overturned as the European crisis continues to spread. The first is that Southern Europe got what it deserved economically and the second is that austerity is the proper regime to adopt when faced with current economic difficulties.

Yet raising taxes and adding regulations is simply not an efficient remedy. It does nothing but plunge economies into further difficulties, though as we have mentioned elsewhere, that may actually be the point. In any event, what is really necessary is to jettison both central banking and the regulatory state that surrounds it. Then Europe's crisis will begin to ease.

After Thoughts

In the meantime, Europe's most "responsible" and "diligent" citizens will be the unfortunate recipients of a difficult educational process.