99 Problems and the Dutch Banks are one

The Dutch Don’t Look So Frugal – Businessweek.

This is a chart from ZeroHedge.:

The two top Dutch banks have combined assets that are over triple the entire GDP of the Netherlands. These asset levels are so high because the Dutch have traditionally been a trading nation with large overseas interests, but the country has also run up a mortgage tally of 107% of their GDP.

The Netherlands has generous tax breaks to encourage property ownership that rival those of the United States. Just like in the U.S. and Spain, house prices stopped rising causing the real estate bubble to stop inflating.

The crisis is in its earliest stages, but using other housing bubbles as a guide we can guess what will happen in the Netherlands. The Dutch will have to bailout their banks and then suffer through a nasty recession.

The Dutch and their northern tier allies are delaying the proposed banking union as long as possible, because they do not wish to be on the hook for all of the shady banks in the periphery.

Another reason for their reluctance to join is that they do not wish to have their own banks under the scrutiny of a regulator that they do not control. ING and Rabobank would be required to deleverage as part of any sensible banking regulation plan. The size of their balance sheets makes this a daunting, if not impossible task.

When the Dutch housing bubble does burst, let’s hope that Germany and the Northern tier treat their Dutch partners better than their Spanish friends. Germany will certainly need all of the friends it can get.

The rich core of Europe is beginning not to look so rich. Overleveraged banks, off-balance-sheet guarantees and legacy payments to pensioners mean that the eurocrisis will come to a head. Tomorrow? Next month? Next year? No one knows when the endgame will begin to unfold, only that it will.


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