Skip to main content
Part of complete coverage on

The Netherlands: A nation under water

By Nina dos Santos, CNN
August 30, 2013 -- Updated 1133 GMT (1933 HKT)
Houses are reflected on January 10, 2013 on the Herengracht, one of the city of Amsterdam's three main canals. 2013 will mark the 400th anniversary since construction began on Amsterdam's world renowned Canal Ring that was added to the UNESCO World Heritage list.
Houses are reflected on January 10, 2013 on the Herengracht, one of the city of Amsterdam's three main canals. 2013 will mark the 400th anniversary since construction began on Amsterdam's world renowned Canal Ring that was added to the UNESCO World Heritage list.
STORY HIGHLIGHTS
  • The Netherlands is suffering a housing crash that has left many in negative equity spiral
  • The country is the eurozone's fifth largest economy and made up of prudent savers
  • But the housing boom has left the Dutch the most indebted people in Europe
  • The Netherlands' predicament is an example of the pitfalls of "slump-then-save" mentality

Editor's note: Nina dos Santos is a London-based news anchor and correspondent. She is the host of CNN International's twice-daily global business show World Business Today. Follow her on Twitter.

(CNN) -- You don't have to know the Netherlands well to be familiar with the story of Hans Brinker, the little Dutch boy who saved a nation from the sea in Mary Mapes Dodge's novel by plugging a leaking dyke with his finger.

The tale may be fictional but it is symbolic of one tiny country's struggle against erstwhile indomitable elements and it is told the world over as an example of how the smallest of deeds -- or fingers in this case -- can have a huge impact on the lives of many.

The low countries may have won their battle against the tide centuries ago but these days they face another fickle enemy: a housing crash so sharp it has left millions of homes financially high and dry with mortgages, as they would say in Dutch "onder water."

WATCH MORE: German minister says 'I don't see' further bailouts

Schaeuble: Germany wants a strong Europe

And now, just as Europe's southern states appear to have overcome the worst, a recession in one of the region's "core" countries could jeopardize a fragile recovery still very much in its infancy.

German FM: Greece needs until 2022

As the eurozone's fifth largest economy, Holland and its surrounding provinces are hardly the bloc's economic engine but they are a key ally for Berlin in its push for stricter spending across the region.

Former mining company masters reinvention

Through their finance minister Jeroen Dijsselbloem, the Dutch sit at the helm of the Eurogroup, the very body charged with steering member states' fiscal policy, exerting influence over larger neighbors like France and Italy.

True, austerity has already cost the Dutch dear in the form of one collapsed government but this is a country which is under pressure to set an example.

Going Dutch

As we all know, the Netherlands isn't just famous for its clogs and windmills. Its inhabitants have always been astute financiers and careful with costs.

The expression to "go Dutch" is employed the world over when splitting a bill.

And indeed it may seem ironic that a nation famous for its monetary prudence should find itself at the center of a debt storm.

It may seem ironic that a nation famous for its monetary prudence should find itself at the center of a debt storm
Nina dos Santos

So how did this happen?

READ OPINION: Eurozone recession over but it's too soon to celebrate

Sadly, like Brinker's story it's a familiar -- if predictable -- tale: An overheated housing market, inflated by readily available 100% mortgage offers, loans at five times salary and, worst of all, generous tax deductions on repayments, combined to create an incentive to buy, buy, buy.

With property prices now plunging around 10% a year, a growing number of Dutchmen and women have become trapped in a negative equity spiral, littering their banks' books with bad loans.

The country's financial institutions have already had 95 billion euros worth of aid since the 2008 crisis, but it's estimated they still hold 650 billion euros worth of property financing on their balance sheets. That's bigger than the Netherlands' GDP.

If that doesn't raise eyebrows it may surprise you to learn that the Dutch have now won the dubious accolade of being the most indebted people in Europe, with outstanding consumer borrowings amounting 250% of available income. At 125%, Spain's figures pale in comparison-- ditto for other housing bingers like Ireland and Portugal.

So much for the Dutch image of being Europe's great savers.

Pottery firm's modern recipe for success

Yet, as we have seen so often throughout this eurozone crisis, the act of saving when applied too late can often exacerbate an economy's decline.

Harvesting rubber from dandelions

COMPLETE COVERAGE: Eurozone in crisis

As such, the Netherlands' current predicament offers a textbook example of the pitfalls of the "slump-then-save" mentality.

With households tightening their belts to service mortgages, consumers' spending has plunged, prompting businesses to scale back on investments and shed staff.

In just a few years the Netherlands has seen its jobless rate soar from an enviably low 5.5% at the start of last year to almost 9% in June. With unemployment rising month after month, the famously generous benefits system has become a luxury the country can ill-afford.

Memories of a tulip bubble

Now a year into its recession, economists aren't forecasting a recovery for the Netherlands until 2014 at the earliest, and even then predictions are of a measly 0.4% growth.

But don't be fooled: the Netherlands' economic landscape may be flat but it's not entirely bleak. Besides, the Dutch have been here before.

While private sector debt may have been the country's undoing, sovereign bond investors have largely shrugged off the Netherlands' domestic woes -- giving the government breathing room on its borrowing costs.

Dutch industry is competitive and flexible. The workforce is highly educated and polyglot, with the entrepreneurial streak reminiscent of a nation of merchant traders.

READ MORE: Netherlands true blue pottery makers

In fact Holland and its neighboring counties have seen their fair share of boom and bust cycles.

Its bubble in the tulip trade is a lesson taught in business schools across the globe as an example of how to spot an overvalued asset class.

Just like those once precious bulbs, the Dutch economy will bloom again one day, though its flowers will appear later this cycle.

Mind you, they will last longer if the lessons have been learned.

ADVERTISEMENT
Part of complete coverage on
December 24, 2014 -- Updated 0254 GMT (1054 HKT)
A decade on from devastating 2004 Indian Ocean tsunami, the Red Cross' Matthias Schmale says that the lessons learned have made us safer.
December 24, 2014 -- Updated 0024 GMT (0824 HKT)
As soon as word broke that "The Interview" will hit some theaters, celebrations erupted across social media -- including from the stars of the film.
December 23, 2014 -- Updated 1844 GMT (0244 HKT)
Did a rogue hacker -- or the U.S. government -- cut the cord for the regime's Internet?
December 24, 2014 -- Updated 0106 GMT (0906 HKT)
Monaco's newborn royals, Princess Gabriella and Crown Prince Jacques Honore Rainier, posed for their first official photos with their parents.
December 23, 2014 -- Updated 1706 GMT (0106 HKT)
Tim Berners-Lee, the man credited with inventing the world wide web, gives a speech on April 18, 2012 in Lyon, central France, during the World Wide Web 2012 international conference on April 18, 2012 in Lyon.
What's next for the Internet? Acclaimed scientist Sir Tim Berners-Lee shares his insights.
December 23, 2014 -- Updated 0822 GMT (1622 HKT)
The United States and North Korea have long been locked in a bitter cycle of escalating and deescalating tensions. But the current cyber conflict may be especially hard to predict.
December 22, 2014 -- Updated 2100 GMT (0500 HKT)
A chilling video shows Boko Haram executing dozens of non-Muslims.
December 22, 2014 -- Updated 1134 GMT (1934 HKT)
New planes, new flight tests ... but will we get cheaper airfares?
December 21, 2014 -- Updated 1746 GMT (0146 HKT)
The killing of two cops could not have happened at a worse time for a city embroiled in a public battle over police-community relations, Errol Louis says.
December 22, 2014 -- Updated 0251 GMT (1051 HKT)
The gateway to Japan's capital, Tokyo Station, is celebrating its centennial this month -- and it has never looked better.
December 20, 2014 -- Updated 1621 GMT (0021 HKT)
Unicef has warned that more than 1.7 million children in conflict-torn areas of eastern Ukraine face an "extremely serious" situation.
December 22, 2014 -- Updated 1701 GMT (0101 HKT)
Each day, CNN brings you an image capturing a moment to remember, defining the present in our changing world.
Browse through images from CNN teams around the world that you don't always see on news reports.
ADVERTISEMENT