Dutch Confront Euro’s Just Desserts as EU Appetite Ebbs

The story starts with three protesters, two pies, and a Dutch finance minister.

The agitators lobbed the banana-cream projectiles at the official, Gerrit Zalm, on Jan. 4, 1999, to denounce the newly arrived euro currency, a tool they warned would lead to the dismantling of the welfare state and the dominance of bankers.

“I don’t regret it at all,” Jelle Goezinnen, a pie thrower then and currently a refugee counselor in Utrecht, says today. “I still stand behind all those actions.”

Fifteen years and one existential euro crisis later, his pie brigade, known as TAART, has successors questioning what the policy makers of that era wrought for what was once a model euro nation. Now the 16.8 million Dutch are caught in a trap much like the one that has caught their bailed-out neighbors: not enough economic growth, too much debt, and a shortage of policy options fueling doubts about the benefit of union.

For Frits Bolkestein, a former center-right Dutch political leader and member of the European Commission, the lesson is simple. “The monetary union has failed,” says Bolkestein, 80, himself once a target of pie-wielding assailants. “I have considerable difficulty in imagining us continuing like this for very much longer. Let us say 10 years ahead: will we then have the same sort of mess?”

From the start, the Netherlands has been intimately bound up with the euro. One of the six founders of the group that grew into the 28-nation European Union, it hosted the 1991 summit in Maastricht that laid out the roadmap to the currency and sent Wim Duisenberg to Frankfurt as the first president of the European Central Bank. The Dutch made a fetish of the euro’s deficit rules, only to run afoul of them when the crisis struck.

‘Going Dutch’

Austerity is no longer the national pastime of a country that pioneered global capitalism and made “going Dutch” a synonym for thrift. Even the purveyors of marijuana who dot the city carved by the canals that made Amsterdam a latter-day tourist destination complain of hard times made harder by government rules.

“Look what I got since we opened at nine this morning -- not even 10 euros,” Mohamed Ouchene, 38, co-owner of the “Blue Lagoon,” says around midday, pointing to his nearly empty cash register and the two customers in the shop. “We wanted to refurbish and upgrade the place but we postponed.”

The Dutch economy is set to be the third-worst performer in the 18-member euro area this year, with growth of 0.2 percent, according to the commission. Ireland, Portugal, Spain, even Greece -- four countries saved from financial ruin partly by Dutch aid, grudgingly granted -- will do better.

‘Balance-Sheet Recession’

What the International Monetary Fund calls a “balance-sheet recession” is the hangover from an un-Dutch borrowing binge that saddled the Netherlands with the euro zone’s second-biggest household debts, equal to 127.9 percent of gross domestic product in 2012. Only the citizens of Cyprus, another bailout case, were more profligate.

The Dutch government incubated this quieter financial crisis in its own backyard just as it was joining Germany in prodding debt-addicted countries like Greece to make radical cuts in spending. Skewed incentives and clumsy regulation led to reckless consumer borrowing, sinking homeowners’ finances and leaving six banks and insurers as wards of the state.

“When the party is going on, you don’t want to take away the fun,” says Arnoud Boot, a professor of corporate finance and financial markets at the University of Amsterdam. “As long as house prices were going up, there was no problem. The political process was not good at dealing with these things.”

Bailout Costs

Emergency injections in banks helped drive the Dutch national debt to an estimated 74.8 percent of GDP in 2013 from 58.5 percent in 2008. ING Groep NV, the Dutch market leader, led the roster of state-rescued banks. When the government bought ABN Amro Group NV in 2008, it hired Zalm, a private citizen at the time, to run it. Zalm, the 1999 pie-in-the-face recipient, declined to be interviewed for this article.

Casualties abounded. Small shareholders and bondholders were wiped out in the final act of the banking saga, last February’s seizure of SNS Reaal NV, swamped by real-estate losses. SNS Reaal had been in trouble in 2008, when the government granted a 750 million-euro ($1 billion) lifeline. Then the Finance Ministry stepped back. It failed to make a “clean sweep,” missing chances to sell parts of the bank, a government-appointed committee found on Jan. 23. The Dutch central bank, as chief regulator, was also to blame for being “insufficiently alert” to the risks at SNS Reaal, the committee said.


For southern Europeans chafing at the austerity demands from the north, the timing of the self-inflicted Dutch malaise was apt. In a Jan. 17 opinion piece for the Italianieuropei think tank, Stefano Fassina, an Italian lawmaker and former deputy finance minister, mocked how the Netherlands as “the schoolteacher of rigor for the bumpkins of the continent” lost its top credit rating -- a blow administered by Standard & Poor’s in November.

Just as the EU was getting serious about policing economic imbalances such as runaway housing markets, the Dutch were building up theirs. The main culprit was a tax subsidy that enabled homeowners to deduct mortgage and interest payments that, in some cases, they hadn’t made.

The arc of the crisis ran through Eva de Groot’s Amsterdam neighborhood. When the going was good, the three- and four-story pre-war houses would sell within a month of going on the market. When De Groot moved to a seaside suburb last June, it took her seven months to sell her house, and she lost around 25,000 euros on the deal.

Crisis Impact

“I used part of my savings to make up for the difference as we were not able to include this in the new mortgage -- that really hit home,” says De Groot, 35, a corporate consultant at Rabobank Groep. “The crisis was quite real for us as there were a lot of houses up for sale in our neighborhood.”

Housing is now showing signs of stabilizing. Some 36,300 dwellings were sold in the fourth quarter of 2013, the most since 2008, the NVM realtors association said Jan. 9. While prices edged up 1.5 percent, they are still down 16.9 percent from the 2008 peak -- and unlikely to get back to that level for 10 to 20 years, the association said.

Each year from 2009 to 2013, consumers had an average 7 percent less in their pockets to spend, says Klaas Knot, head of the Dutch central bank. This year will bring a “slight increase,” Knot said in a Jan. 24 interview at the World Economic Forum in Davos, Switzerland. “That explains why I think we’ve had the worst behind us. The forecasts are still modest but this time I also see some room for surprises on the upside.”

Path Questioned

The Dutch victims weren’t only economic. The national hubris has a wider resonance, tainting the Netherlands’ prescriptions for the still-ailing euro zone and fracturing the German-led bloc of like-minded northern countries that has steered the crisis response.

Bolkestein, the retired politician, doubts whether “anything revolutionary” will be done to fix the euro. To be sure, his proposed solution -- acknowledge the bankruptcy of the monetary union and break it up -- doesn’t resonate within the Dutch political and business establishment. The focus is on making the currency zone work, though at most by tweaking the current decision-making setup. An American- or Swiss-style economic federation isn’t on the agenda.


The European policymaking jumble was on display at last month’s summit in Brussels, with Dutch Prime Minister Mark Rutte in a leading role. Once German Chancellor Angela Merkel’s trusted ally in crisis management, Rutte broke with Berlin over the best way to prevent future economic mishaps.

Rutte wasn’t alone in objecting to German calls for legally binding economic reforms. Virtually every other EU leader piled in, either unwilling to cede more power over taxing and spending or too fatigued by the save-the-euro struggle to contemplate a further overhaul of the currency’s rulebook.

Fears of a backlash at the ballot box animate the do-nothing consensus. Rutte, a Liberal, and his Labor coalition partners are girding for a vote in March in around 400 local governments, many of which were bruised by the property bust. Then come European Parliament elections in May, a continent-wide affair that threatens to be a breakout moment for parties that want to dismantle the euro or EU. In the Dutch case, the Freedom Party, which has haunted national politics for a decade with its anti-immigration message, ranks as the second-most popular party, with 16 percent in a Jan. 23 Ipsos SA poll.

Declining Confidence

“What the Dutch want is a Europe which doesn’t burden them,” says James Kennedy, a history professor at the University of Amsterdam. “The Dutch are still pragmatically tied to Europe. The whole idea that you would somehow opt out is something that most Dutch aren’t willing to take very seriously, but their confidence in Europe as a project has certainly declined.”

The sense of resignation was captured in an EU poll last November showing that only 47 percent of the Dutch trust the Brussels-based commission, the EU’s executive arm, down from 62 percent at the dawn of the economic crisis in 2008. Still, the Dutch don’t share the anti-EU reflexes of the U.K. Only 18 percent in Britain, now debating an exit from the bloc, trust the commission.

National Muddles

The euro-zone muddle is rooted in 18 national muddles. How much debt is too much? Can a country save its way to prosperity? How much central control does the euro economy need and who should exercise it? All these questions remain unanswered as the urgency over the currency’s survival fades.

The Dutch government’s minimalist European ambitions are reflected in plans for when it next holds the EU’s rotating presidency, in 2016. Conducting all meetings at just one site, a former naval storehouse in Amsterdam, isn’t the only money-saving expedient. The government will also recycle the logo from its last EU stint, in 2004.

As consumers work off their private debt, the Dutch are rethinking an ages-old aversion to public debt, which has kept government bond yields among the lowest in the developed world. Ten-year notes yielded 1.94 percent yesterday; only five nations had lower yields.

The latest deficit-reduction package squeaked through the Senate by a single vote. Last year, the current, less doctrinaire generation of Dutch leaders took advantage of a European offer of more time to bring the deficit below the limit of 3 percent of gross domestic product. In doing so, the Netherlands, with a shortfall the EU forecasts at 3.3 percent this year, ended up in the same league as France and Slovenia, along with aid recipients Portugal and Spain.

Mood Swing

Early 2013 brought a remarkable mood swing: for a brief spendthrift moment, the Dutch were Europe’s leading opponents of austerity. Only 55 percent felt that debt and deficit cuts “cannot be delayed,” down from 77 percent six months earlier, according to an EU poll. Everyone else, from the Germans to the Greeks, were more eager to save first, spend later.

Dutch policy backflips have gotten less attention only because the Netherlands entered the global financial crisis triggered by the 2008 collapse of Lehman Brothers Holdings Inc. in better shape than the less productive southern European economies. What saved the Netherlands from the fate of Spain and Ireland, also victims of burst real-estate and banking bubbles, was worldwide demand for Dutch products that generated export earnings.

For observers like Ad Scheepbouwer, that luck will eventually run out. Scheepbouwer, 69, ran Royal KPN NV, the largest Dutch phone company, for a decade, steering it back to financial health after the ravages of the tech bubble. Now public policy needs a similar makeover, he says.

“There is no restructuring plan right now which will lead us to a better situation in the next few years, no deep revision of the big dossiers: labor, housing, health care,” Scheepbouwer says. “What I would like to have is a vision for the Netherlands for the next five to 10 years.”

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