Archive for the ‘Economics’ Category

The Party of Freedom benefits from Dutch austerity fatigue

The price of recession

GEERT WILDERS, a far-right populist politician, has been stirring up Dutch politics for nearly a decade, but he has never lured many people onto the streets. Unlike more mainstream Dutch parties, Mr Wilders’s Party for Freedom (PVV) has no dues-paying members and propagates its anti-Islamic, anti-immigrant, Eurosceptic message largely through the media. But on September 21st, the PVV adopted a new tactic, staging a rally in The Hague to demand a halt to the Dutch government’s latest austerity measures.

According to the police, only a thousand demonstrators turned up. But the low turnout belies Mr Wilders’s popularity. With the Dutch public turning against EU-imposed austerity, the coalition government is paralysed. Polls suggest that if elections were held today the PVV, which calls for the Netherlands to block immigration and to withdraw from the euro and the EU, would come first.

This ideological vision has received mixed reviews. But the more pressing problem for Mr Rutte is that it is not clear he can get his budget approved. The increasingly queasy Liberal-Labour coalition has a narrow majority in the Dutch lower house, but not in the Senate. That leaves the government scrambling for the votes of opposition parties, none of which are eager to help. The leaders of two centrist parties have criticised the government’s budget fiercely for raising taxes and failing to invest in education. If it fails in the Senate, that may mean a cabinet reshuffle. Equally, budget defeat could lead to an early election for the third time in four years.

That option should terrify both the Liberals and Labour. After over a year of recession and austerity, polls show confidence in Mr Rutte’s government at a miserable 12%. On the right, small-business owners feel betrayed by a Liberal-led cabinet that has raised value-added tax and imposed a surtax on high incomes. On the left, union members are abandoning a Labour Party that has accepted lay-offs and pay freezes in the public sector.

The big winners of a tough year have been the parties that have consistently opposed austerity, above all the PVV. As the recession drags on, Mr Wilders, a master of political rhetoric, has capitalised on the crisis and austerity fatigue by savaging the EU, which demanded the extra €6 billion effort. Opinion polls now show the PVV getting over 20% of the vote.

The Dutch are a famously thrifty people and their government has been among Europe’s strongest advocates of austerity. But two years of cuts and recession have made a dent in these Calvinist attitudes: fully 80% of the public now thinks austerity is doing more harm than good. Mr Rutte’s unpopularity stems from his attempt to bring the government’s budget into line with the European Commission’s rules. But in order to get the budget passed, he will need to offer big concessions to centrist opposition parties. Should they flinch, the prospect of Mr Wilders winning the next elections ought to focus minds.

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Nigel Cassidy in Rotterdam, BBC News

The once-model Dutch economy is “now underwater economically”

Maureen Wachtels is trying to relax by making a Victoria sponge in her small but pristine central Rotterdam flat.

For a few moments, the whole process of sifting, mixing and baking helps take her mind off her personal plight.

Not only has she lost a well-paid and enjoyable job because of a life-threatening illness, she is also one of about a million Dutch people who suddenly find themselves in negative equity.

Maureen needs to move to sheltered accommodation as soon as possible. Yet she has only had one offer for her flat, way short of the 200,000 euros that she paid just two years ago.

But this is not just a story of over-optimistic lenders who tempted the Dutch to pile into property in the mistaken assumption that it would continue to rise in value.

The housing dam has broken. Holland is sitting on some 650bn euros in mortgage loans, with many properties worth 25% less than they were before the financial crisis.

No other EU consumers are as deeply in debt. The bursting of the Netherlands real estate bubble is now on a scale only previously seen in the United States and Spain.

‘We can’t sell’

Worst of all, it is endangering banks and jobs – stalling the longed-for recovery that is starting to emerge in neighbouring north European countries.

And all this in a country that until recently was seen as an exemplary economy – one that was quick to criticise others in Europe for not living within their means. The irony is not lost on Dutch citizens.

Maureen Wachtels in her kitchen in her Rotterdam apartment
Maureen says her flat is now worth much less than she paid for it

What remains one of the most open and competitive countries in the eurozone finds itself busting EU deficit limits and having to rapidly impose painful state austerity measures on its people against the clock.

For Maureen Wachtels, it is a surprising turn of events because she thought she was being frugal.

When she was in the market to buy, she borrowed some 200,000 euros, but was told she could borrow almost 500,000 euros – and many did just that.

“We were all forced to buy because at the time there didn’t seem to be any property to rent. Now we are stuck with houses we can’t sell,” she says.

“I never expected that in just two years my asking price would come down from over 200,000 euros to 179,000.

“All I have is an offer for 153,000 euros which I have sent to the bank – but they have not responded.”

She has advised her children to decline their inheritance on her death – because otherwise they could be stuck with her unexpected debts which will total some 35,000 euros.

Tax breaks

The estate agent handling the sale, Dennis Stellio, principal of Match Makelaars in Rotterdam, says the price falls are a good thing – not least because a return to affordability has revived the previously moribund rental market.

Despite this, he feels desperately sorry for clients like Maureen Wachtels who have been caught up in financial events. Mr Stellio believes the origins of the crisis lie in botched economic policy of the previous government.

For instance, until recently tax breaks for mortgage borrowers in the Netherlands were so generous that they inflated the market to the point where most people could no longer afford to buy.

He suggests the fault lies with politicians looking for votes who failed to act on warnings and correct the state’s unsustainable generosity; the mortgage tax breaks were costing taxpayers an estimated 14bn euros a year.

Finally, the system was changed but by then the market was falling.

“The price drop began in 2008 and it won’t stop. In my opinion prices will keep coming down 2 or 3% a year until they end up around half of what they were,” says Mr Stellio.

“They could fall even more as and when the European Central Bank raises interest rates.”

‘You can’t move’

For some, the Dutch experience provides an economic lesson of the risks for a prosperous economy caught up in a post-bubble crunch when it has ceded control of its monetary policy, interest rates and currency.

One man who has closely followed the Dutch housing market is Maarten van Wijk, an economic specialist for the Algemeen Dagblad newspaper.

“If you have a house worth 150,000 euros, but it has a mortgage of 200,000 this has a large psychological effect. You can’t move, you just have to struggle to pay down the mortgage as fast as possible.

“That is money you can’t spend in the economy. It has also come as a surprise to most people.

“If you went to a dinner party before the crisis and told people you were renting a house, people would probably consider you financially backward.

“It was received wisdom that house prices would always go up.”

Escape route

So far forced sales are relatively low – estimated at only 3,000 or so since the crisis began.

Dutch estate agent Dennis Stellio
Over-generous tax breaks distorted the market, says estate agent Dennis Stellio

Banks are offering various relief measures to try and keep people in their homes – not least because the lenders themselves want to avoid writing down their home loans.

One possible future escape route for some stressed homebuyers might be tapping into their accrued personal pension funds – if they have any.

It is an idea under active consideration in a country now exploring any possible avenue to escape a debt crisis of its own making.

Original article found here.