Holland - "Housing Bubble - US Model Bursts": Economic Crisis Hits the Netherlands - by Christoph Schult and Anne Seith

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.

Michel Scheepens is familiar with risk. The 41-year-old oversees the energy market for the Dutch bank ING, and it's his job to determine whether his employer should finance such projects as a wind farm in Cyprus or a gas-fired power plant in Turkey. Until now, it was always other people's money that was involved.

For some time, however, Scheepens has been experiencing what a poor investment feels like on a personal level. Six years ago, the father of three bought half of a duplex for his family in the commuter town of Nieuw-Vennep, near the North Sea coast. The red brick building cost €430,000 ($552,000), but the bank generously offered him a loan of €500,000, so that there was enough money left over for renovations, along with notary and community fees.

Scheepens had intended to resell the house after a few years, as is common in the Netherlands. But then prices tumbled following the Lehman bankruptcy. If the family were to sell the house today, it would have to pay the lender €60,000. His house is "onder water," as Scheepens says.

"Underwater" is a good description of the crisis in a country where large parts of the territory are below sea level. Ironically, the Netherlands, widely viewed as a model economy, is facing 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.

The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill. Despite tough austerity measures, this year the government in The Hague will violate the EU deficit criterion, which forbid new borrowing of more than 3 percent of gross domestic product (GDP).

It's a heavy burden, especially for Dutch Finance Minister Jeroen Dijsselbloem, who is also the new head of the Euro Group, and now finds himself in the unexpected role of being both a watchdog for the monetary union and a crisis candidate.

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.
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