The Netherlands is one of the FANG countries that are calling the shots in bailout ridden Europe. Together with the Finns, Austrians and Germans, these countries have triple AAA ratings and low debt to GDP ratios.
All is not well in the FANG. European banks have scary amounts of leverage, and the Netherlands is one of the worst offenders. I analyzed the Dutch banking situation in October in this post https://dareconomics.wordpress.com/2012/10/22/99-problems-and-the-dutch-banks-are-one/
with this chart:
Three of the largest banks as compared to their home countries GDPs are domiciled in the Netherlands. If you thought that American banks are too big to fail, compare them in red with the three largest Dutch banks in yellow.
The Dutch government has spent €3bn in cash, written down €700mm in the SNS loan portfolio and extended an additional €6.1bn in loans and guarantees in this bailout, which began in 2008. The government was forced to act after a bank run began two weeks ago with SNS losing over €2.5bn from its reported €30bn depository base.
Taxpayers are once again paying for bank losses. While shareholders and junior bondholders will be wiped out, holders of senior debt will maintain their positions.
Hiding behind the market rallies, happy talk and “shows of strength” is a mortally wounded banking system. European banks must continue to deleverage to enhance their weak capital positions. The reduction in lending will sap growth for years.
Commentators like to make a distinction between the weak periphery of the Eurozone, the PIIGS, and the strong core, the FANG. Is the core really that strong? Here are some facts that you probably did not know about the Netherlands:
- The Netherlands now owns two of its largest banks, ABN Amro and SNS.
- The Dutch banking sector carries assets 400% of GDP on its balance sheet.
- The property bubble in the Netherlands, which burst in the wake of the GFC, was second only to the Spanish bubble:
Of course, the Netherlands has many advantages over its former Spanish rulers. The country maintains a large current account balance and high savings rates, but problems loom.
The Dutch economy shrunk 0.9% in the 3rd quarter and probably shrank in the 4th fulfilling the technical definition of a recession. Unemployment has risen a full percentage point to 7.2% since the summer, the highest level since 2005. Both of these factors portend a further decline in the Dutch property market. As they do, the cost of the ABN Amro and SNS bailouts will increase, and other institutions will be forced to request government assistance.