Fall of the Dutch

[kandrathe]

I'm wondering today if the fall of the Dutch government signals the beginning of a new decline in the EU. Will the EU be able to keep a hard line on spending if stalwart Netherlands balks? It will be hard on the people whether its pensions, or a failed financial system crushed by defaults and debt. For the US, where things are beginning to heal, this might just be the tug that tears open the recession wound again.

[eppie]

I'm wondering today if the fall of the Dutch government signals the beginning of a new decline in the EU. Will the EU be able to keep a hard line on spending if stalwart Netherlands balks? It will be hard on the people whether its pensions, or a failed financial system crushed by defaults and debt. For the US, where things are beginning to heal, this might just be the tug that tears open the recession wound again.

*in occhi voice* 'you stupid american, why are writing about things that are going on in the netherlands'

Seriously: just some information for people who are interested.
Yesterday the dutch government fell because they couldn't agree on measure to get the government budget deficit back to 3%. One of the coalition parties (the populistic PVV from Geert Wilders) didn't longer want to cut in pensions so he stopped the discussions.
Of course he could have also known that 2 months ago.

The big thing here is that the Netherlands has always been the most strict in telling other countries to get their budgets straight, and now, because we will have new elections probably we wont be able to get under the 3% deficit in 2013.

Some of the parties now say they don't want to keep with this strict 3% rule and say to take it easy and reach the 3% a few years later and other parties want to do everything they can to get the deficit back to 3% already next year. Elections will be September 12th.

Personally I don't think there is a huge problem and the proposed heavy budget cuts might have actually been worse for the economy than a bit more lenient method but having no government in this time is of course a bad thing.
Another thing that is bad in the Netherlands that people here also have relatively high personal debts (mortgages mainly) which of course is one of those things that can make things tip over to the wrong side when there is a financial crisis.

[Crusader]

The financial markets aren't worried. We Dutchies have always been amongst the best boys in class where it comes to following the teacher's (EU's) rules. Even though we may not have a budget for 2013 in time, we won't do drastically strange things. Our economy is amongst the most stable (AAA-stable, better then the USA!) and while we may drop to AA (which is our biggest concern at the moment), we're still nowhere near a default. In fact, we're so far removed from a default the idea is laughable at this time. No, the EU isn't worried in the slightest about what goes on in our country, and neither should the IMF or USA. And they aren't really. In fact, the government is still going to try to draft a 2013 budget together, all parties combined, rather then just the coalition. whether they can work out their differences or not, but they should be able to agree on some points at least, softening the damage to our economy.

As for 'hard on the people'... all things are relative. I believe the hardest hit people (pensioners?) would be hit for 1.5% and a billion was set aside to soften that.

My personal biggest concern is the mortage discussion. I have a mortage and the Dutch government promotes people buying houses by paying a percentage of the interest on the mortage. If they stop that, my monthly cost might increase with a few hundred euros. That's pretty bad. this would be implemented slowly, but it would hit me bad in the wallet eventually. that's why I put my hope in the liberals who have the largest party at the moment who seem to be opposed for now.

[kandrathe]

I wasn't as much worried about Netherlanders, as I was the message rippling through the EU. Sort of like, if you aren't willing to live by the rules you promote then why should "we" bust our backs attempting to get to 3% either? Would this signal the beginning of the erosion of will? France appears to be going back to renegotiate the EU (Merkel led) deal anyway.

In the US, we're not even talking about reigning in deficit spending. Our government applauds themselves when they reign in the growth of deficit spending. During WWII, the US ran deficits of up to 110% of GDP. Currently we are around 115% of GDP. The main program that our government has to promote home ownership is that we are able to deduct a portion of our mortgage interest from our gross income when calculating taxes. There are also housing programs for selected groups (veterans, first time buyers, etc).

[Lissa]

The main program that our government has to promote home ownership is that we are able to deduct a portion of our mortgage interest from our gross income when calculating taxes.

Nit: we're allowed to deduct all of our mortgage interest along with PMI (insurance the bank has against defaults), and property taxes. Unless your interest per year is extremely low (below the personal deduction), you'll easily be able to deduct all of the mortgage interest (including PMI and property taxes) from your effective gross income (what the US government figures your taxes based on).

[eppie]

The main program that our government has to promote home ownership is that we are able to deduct a portion of our mortgage interest from our gross income when calculating taxes.

Hi Kandrathe,
yes that is how it is in the Netherlands as well. But as opposed to crusader I am 100 % against this thing. I also have a house and profit from this rule but it gives a completely wrong incentive to people.

A few years ago I just thought it was a good idea to quite the mortgage interest deduction because it favours people that buy very expensive houses (we don't call it villa-subsidy for nothing). So if you buy a house of a million euros with an 1M euro mortgage you might get back (say there is a 5% interest rate) 25000 euro per year if you have a high salary.....and this is not what this law was meant for.


Now since the crisis (1st) I am all in favour of completely abolishing the law, because it tells people it is good to loan money, and we have seen that that is not a good thing. Of course this measure has to be cancelled very slowly (a few% or with decreasing maximum at a time) because if you do this all at once it will damage the housing market and economy. A smart person should make sure he can pay for his mortgage even if the deduction is stopped or even if for example interest rate go up 4 %, because if you can't you are just too vunerable.

Of course as crusader says it will cost you, but house prices will start being more normal.

[kandrathe]

Nit: we're allowed to deduct all of our mortgage interest along with PMI (insurance the bank has against defaults), and property taxes. Unless your interest per year is extremely low (below the personal deduction), you'll easily be able to deduct all of the mortgage interest (including PMI and property taxes) from your effective gross income (what the US government figures your taxes based on).

I seemed to recall a cap ($1M on loans) in there. Not that I'd know personally. I'm wasn't sure how they handle 2nd mortgage either (at the same rate). I think it also applies to the $1M cap. :-)

I like the cap, but the big problem with a one size fits all cap is that land value often dictates the bulk of the cost. In and around silicon valley, an unremarkable city lot with a very small single story home may fetch over $1M, where in a rural area it may constitute thousands of acres with a palatial multistory mansion, and dozens of barns and other outbuildings. In order to drive some fairness into the system these figures need to be indexed to local costs of living. But, say we did this... The expensive east and west coast areas of the US would garner even more of the Federal Home Mortgage Deduction dollars at the expense of all tax payers. So, I think it would be best if these programs were handled more at a local level where the variations in lifestyles and costs can be factored in for those that benefit and pay for them. Maybe if the Feds want to help they should focus on creating affordability by subsidizing interest rates for those people with relatively lower incomes. But again, like what has happened with our Student Loans and College costs, more subsidies can mean more demand and higher prices.

Now since the crisis (1st) I am all in favour of completely abolishing the law...

I agree. I think often people who may be better off leasing or renting are persuaded to buy a home before they are ready. People may prefer a higher density living arrangement if there were equality in how owning versus leasing were treated. I think due to the governments promotions of subsidizing home ownership it seems better to move laterally into investing into a home with the same payment amount per month, however people discount the costs of maintenance (lawns, roofs, appliances, etc.) I enjoy having my own place, but there are days when I'd prefer the upkeep to be done for me.

Also, I think if the government extracted itself from promoting home ownership, the market (both home costs and renting) would stabilize around the actual cost of that particular living arrangement.

[Crusader]

The main program that our government has to promote home ownership is that we are able to deduct a portion of our mortgage interest from our gross income when calculating taxes.

Hi Kandrathe,
yes that is how it is in the Netherlands as well. But as opposed to crusader I am 100 % against this thing. I also have a house and profit from this rule but it gives a completely wrong incentive to people.

A few years ago I just thought it was a good idea to quite the mortgage interest deduction because it favours people that buy very expensive houses (we don't call it villa-subsidy for nothing). So if you buy a house of a million euros with an 1M euro mortgage you might get back (say there is a 5% interest rate) 25000 euro per year if you have a high salary.....and this is not what this law was meant for.


Now since the crisis (1st) I am all in favour of completely abolishing the law, because it tells people it is good to loan money, and we have seen that that is not a good thing. Of course this measure has to be cancelled very slowly (a few% or with decreasing maximum at a time) because if you do this all at once it will damage the housing market and economy. A smart person should make sure he can pay for his mortgage even if the deduction is stopped or even if for example interest rate go up 4 %, because if you can't you are just too vunerable.

Of course as crusader says it will cost you, but house prices will start being more normal.

A bit shortsighted I am afraid Eppie. The effects may be quite bad indeed. First of all, it will force some people out of their houses. Banks will not give out mortages any more to the poorer segment; pensioners, starters (like myself), low-pay workers, etc simply because they can't afford it any more. This will cause the housing market to crash; A good segment of the population will want to rent instead of buy, giving an overwhelming amount of houses that can't be sold. This also causes a shift in wealth from the general house buying population to the people who rent out houses; the wealthy and corporations.

Yes, the villa tax benefits the wealthy. The solution should not be to absolve it completely, but to simply put a cap on it, a maximum per person.

Lending money is indeed a problem (look at the USA now). But the alternative is far, far worse; hiring. As my father once told me; every penny you use to hire a house, is thrown away, whilst buying a house with a mortgage is an investment.

[Lissa]

The main program that our government has to promote home ownership is that we are able to deduct a portion of our mortgage interest from our gross income when calculating taxes.

Hi Kandrathe,
yes that is how it is in the Netherlands as well. But as opposed to crusader I am 100 % against this thing. I also have a house and profit from this rule but it gives a completely wrong incentive to people.

A few years ago I just thought it was a good idea to quite the mortgage interest deduction because it favours people that buy very expensive houses (we don't call it villa-subsidy for nothing). So if you buy a house of a million euros with an 1M euro mortgage you might get back (say there is a 5% interest rate) 25000 euro per year if you have a high salary.....and this is not what this law was meant for.


Now since the crisis (1st) I am all in favour of completely abolishing the law, because it tells people it is good to loan money, and we have seen that that is not a good thing. Of course this measure has to be cancelled very slowly (a few% or with decreasing maximum at a time) because if you do this all at once it will damage the housing market and economy. A smart person should make sure he can pay for his mortgage even if the deduction is stopped or even if for example interest rate go up 4 %, because if you can't you are just too vunerable.

Of course as crusader says it will cost you, but house prices will start being more normal.

A bit shortsighted I am afraid Eppie. The effects may be quite bad indeed. First of all, it will force some people out of their houses. Banks will not give out mortages any more to the poorer segment; pensioners, starters (like myself), low-pay workers, etc simply because they can't afford it any more. This will cause the housing market to crash; A good segment of the population will want to rent instead of buy, giving an overwhelming amount of houses that can't be sold. This also causes a shift in wealth from the general house buying population to the people who rent out houses; the wealthy and corporations.

Yes, the villa tax benefits the wealthy. The solution should not be to absolve it completely, but to simply put a cap on it, a maximum per person.

Lending money is indeed a problem (look at the USA now). But the alternative is far, far worse; hiring. As my father once told me; every penny you use to hire a house, is thrown away, whilst buying a house with a mortgage is an investment.

Simplest and most elegant is to cap it at a reasonable amount per year per taxable person that live at the same legal residence. This way with a family, they can afford a large house, but the rich aren't getting mansions and then getting the government to foot most of the bill. This helps the people that need it the most without allowing those that need it the least to take advantage of it.

[DeeBye]

*in occhi voice* 'you stupid american, why are writing about things that are going on in the netherlands'

I was born in Canada, but both my parents are from Holland. Am I allowed to add anything to this discussion*? As proof of my heritage, I am proud to say that I enjoy dropjes and consider them a rare treat.

*I have nothing to add to this discussion.

[eppie]

Lending money is indeed a problem (look at the USA now). But the alternative is far, far worse; hiring. As my father once told me; every penny you use to hire a house, is thrown away, whilst buying a house with a mortgage is an investment.

That is what my father also used to tell me but this only works for a housing market with steadily increasing prices. Our fathers generation was able to obtain wealth just by living somewhere because they were lucky enough to buy at the right time at the right place. Mortgage interest deduction did the rest (an over the top price for a house, not based on its actual value but based on the fatc that more people could afford it because they would get back a load of money every month).

I wonder how many people realise how stupid thet were when the bought an expensive house 5 years ago because their father told them that buying is better than renting and they didn't question him.

As I said before when the mortgage interest deduction gets (gradually) cancelled, the biggest price changes will happen in the highest segment, not in the starter homes. So the costs for you to start will be lower.

Anyway, the new rules could easily be implemented gradually over a period of 20 years, making sure no crash will happen.

---

*in occhi voice* 'you stupid american, why are writing about things that are going on in the netherlands'

I was born in Canada, but both my parents are from Holland. Am I allowed to add anything to this discussion*? As proof of my heritage, I am proud to say that I enjoy dropjes and consider them a rare treat.

*I have nothing to add to this discussion.

WHAT!!! I 'know' you digitally here on the lounge since 2003 or so and only now you tell me that you are one of us?

Know I understand why I always thought you were the smartest and funniest guy here....it is because you are dutch!!

[LennyLen]

Know I understand why I always thought you were the smartest and funniest guy here....it is because you are dutch!!

You're not much if you're not Dutch! Try and guess where my family originated from.

[kandrathe]

...it is because you are dutch!!

Correlation <> Causality Maybe he HAS to be funny because he is dutch???

Anyway... Some of my best friends are Boers.

[Crusader]

Aaaaand the demissionary government has reached an agreement. In 2 days. See Europe/World? Best boys in class. Carry on.

[kandrathe]

Aaaaand the demissionary government has reached an agreement. In 2 days. See Europe/World? Best boys in class. Carry on.

It would be nice if our lawmakers would resign if they failed to reach an agreement on the budget by their deadline. I don't think we've had a deal for a couple years.

[Kevin]

Aaaaand the demissionary government has reached an agreement. In 2 days. See Europe/World? Best boys in class. Carry on.

That is good and it's also impressive. I do just have to put things like that in context though. The population of the Netherlands is estimated at just under 17 million and a land area of 41.5 thousand square kilometers. So it's small. New York City is 8.4 million people (crammed into 790 square kilometers) and the greater New Your Metropolitan area is about 19 million people in 17.4 thousand square kilometers.

I've seen state governments in the US do similar things as far as reaction times and resolution to deadlocks, and I fully agree that our political system is pretty broken even on local levels. So again, I am impressed by how the Dutch government handled this, and the governance of the country in general, and still score it very highly even when size is considered, it needs to be remember that size and diversity of population does matter when it comes to things like this and those barriers are smaller for the Dutch than many other countries.

But again high marks for actually getting the job done, it's still nice to see.

[Crusader]

Yea, it's funny in a way. The USA only has two parties, so it should be oh so simple in comparison. Here, 5 different political parties (of vastly different backgrounds, from left to right) who together hold a majority came to an agreement in 2 days.

The fractured nature of our politics can be both a curse and a blessing. Although I get the distinct impression that in the usa, the two parties will simply say "no" to spite the other, effects for the country be damned. That almost happened here, so I'm happy the political parties here 'stepped over their own shadows' as they called it, and came to an agreement in the interest of the country, rather then focusing on the elections, going completely anal about anything that doesn't fit in their street and let the country rot while everyone polishes their campaign posters.

[Jester]

I'm wondering today if the fall of the Dutch government signals the beginning of a new decline in the EU. Will the EU be able to keep a hard line on spending if stalwart Netherlands balks? It will be hard on the people whether its pensions, or a failed financial system crushed by defaults and debt. For the US, where things are beginning to heal, this might just be the tug that tears open the recession wound again.

This doesn't make any sense to me. Even you have admitted that this is not the right time for austerity. If the Dutch start spending more (the only possible implication of breaking the "hard line"), then surely this can only help boost economic growth everywhere else in Europe? The "wounds" are not beginning to heal in Europe. To the contrary, economies are beginning to shrink, because every government is pursuing insane "contraction during a contraction" policies. Since nobody can devalue, the only way out of the trap is for rich (Netherlands, Germany) Eurozone countries to run deficits. In this context, a hard line is precisely the opposite of what needs to be done.

-Jester

[kandrathe]

This doesn't make any sense to me. Even you have admitted that this is not the right time for austerity. If the Dutch start spending more (the only possible implication of breaking the "hard line"), then surely this can only help boost economic growth everywhere else in Europe? The "wounds" are not beginning to heal in Europe. To the contrary, economies are beginning to shrink, because every government is pursuing insane "contraction during a contraction" policies. Since nobody can devalue, the only way out of the trap is for rich (Netherlands, Germany) Eurozone countries to run deficits. In this context, a hard line is precisely the opposite of what needs to be done.

I've said that the right kind of spending is what will elevate them out of the recession. But, yes, it is the wrong time for hard line austerity, except in diverting unproductive spending into things that will help build economic growth. Unlike our government who spends their money on hookers, and lavish costume parties while Rome is burning.

[eppie]

Know I understand why I always thought you were the smartest and funniest guy here....it is because you are dutch!!

You're not much if you're not Dutch! Try and guess where my family originated from.

I love that saying!

It seems we are few but loud here on the lounge.

ps whenever i see your nickname I have to think of the Simpsons

---

...it is because you are dutch!!

Correlation <> Causality Maybe he HAS to be funny because he is dutch???

Anyway... Some of my best friends are Boers.

Descendents of Boers? They were not all dutch by the way.

---

Aaaaand the demissionary government has reached an agreement. In 2 days. See Europe/World? Best boys in class. Carry on.

You'r awfully positive about this crusader.
Anyway I was hoping for a good day on the market, but now the spanish downgrade is messing things up again.


I read a nice opinion article in a dutch newspaper questioning the fact that our government is just listening to the big banks hen making decissions.....the same banks as we bailed out a few years ago.