Macroeconomic imbalances, Netherlands 2013.
Date: 2019-04-24
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: Netherlands, debt, economic forecasting, economic indicator, indebtedness, macroeconomics, public finance

ISSN 1725-3209

EUROPEAN 
ECONOMY

Occasional Papers 140 | April 2013

                        Macroeconomic Imbalances 
Netherlands 2013

Economic and 
Financial Aﬀ airs

Occasional Papers are written by the Staff of the Directorate-General for Economic and 
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European Commission 

Directorate-General for Economic and Financial Affairs 

Macroeconomic Imbalances –  

Netherlands 2013 

EUROPEAN ECONOMY 

Occasional Papers 140 

 
 
 
 
 
 
 
 
 
 
 
 
 
ACKNOWLEDGEMENTS 

This  report  was  prepared  in  the  Directorate  General  for  Economic  and  Financial  Affairs  under  the 
direction of Servaas Deroose, deputy director-general, Jürgen Kröger and Anne Bucher, directors. 

The  main  contributors  were  Mary  McCarthy,  Ronald  Albers  and  Windy  Vandevyvere.  Additional 
contributions were made by Carlos Cuerpo Caballero.  

Comments on the report would be gratefully received and should be sent, by mail or e-mail to: 

Elena Reitano 
European Commission 
Unit F3  
CHAR 12/004 
B-1049 Brussels 
e-mail: Elena.Reitano@ec.europa.eu 

The cut-off date for this report was 12 March 2013. 

ii 

 
 
 
 
 
EXECUTIVE SUMMARY AND CONCLUSIONS 

This  In-Depth  Review  (IDR)  takes  a  broad  view  of  the  Dutch  economy  in  line  with  the  scope  of  the 
surveillance under the Macroeconomic Imbalance Procedure (MIP). The main observations and findings 
of this analysis are:  

•  The  Netherlands'  current  account  has  been  persistently  in  surplus  for  over  three  decades. 
Rigidities and policy incentives have built up over time to shape house financing and sectoral savings 
patterns. Households leveraged up against housing wealth and reduced the pool of domestic savings 
not earmarked for pension savings. In parallel, from the mid-1990s, nonfinancial corporations moved 
into a structural savings surplus. This has contributed to the emergence of a substantial and persistent 
current account surplus going hand in hand with a high level of both gross household debt and gross 
household assets.  

•  Although it increased rapidly after the turn of the century, the Dutch current account surplus 
position  does  not  seem  to  point  to  emerging  risks.  It  reflects  rather  a  combination  of  strong 
competitiveness, structural determinants of savings-investment balances, cyclical factors, and possibly 
some  statistical  discrepancies  related  to  the  measurement  of  cross-border  flows.  Recently,  valuation 
effects in the wake of the crisis helped improve the net international investment position. 

•  The  competitiveness  and  export  performance  of  the  Dutch  economy  appears  to  be  benign 
overall. The loss of  global  market share  for exports of  goods and services is limited in comparison 
with most other mature Western European economies. The loss in market share does not appear to be 
rooted  in  unfavourable  domestic  price  and  cost  developments,  as  the  indicators  for  these  have  been 
growing broadly in line with the country's main trading partners and the real effective exchange rate 
has not shown any particular trend. 

•  Structural  funding  patterns  of  Dutch  assets  and  liabilities  have  made  the  Dutch  economy 
dependent on swings in international capital markets. At the aggregate level, financial flows show 
simultaneous  capital  outflows  and  net  borrowing  from  abroad,  with  an  uneven  distribution  across 
sectors. This increases  the  sensitivity of balance sheets of  some  sectors of the economy to portfolio 
shifts, flight-to-quality, and write-downs on foreign investments.  

•  Notwithstanding  mitigating  circumstances,  the  high  level  of  private-sector  debt,  in  particular 
household  indebtedness,  warrants  attention.  Long-standing  tax  incentives  and  financial  sector 
developments  have  encouraged  households  to  become  highly  indebted  in  mortgage  debt,  even 
allowing for the different composition of balance sheets, and also had a particularly stark impact on 
housing prices. The increase in gross household debt is a source of vulnerability, though mitigated by 
broadly  commensurate  increases  in  net  household  assets.  Substantial  financial  buffers  with 
corporations provide further cushion.  

•  The  leveraging  of  household  balance  sheets  implies  risks  for  both  mortgage  borrowers  and 
lenders.  Financing  trends  have  heightened  the  sensitivity  of  the  Dutch  economy,  and  especially  of 
leveraged households, to negative shocks, such as a fall in house prices, weak economic growth or a 
real  interest  rate  shock.  Financial  institutions  are  still  readjusting  to  altered  market  conditions  and 
changes in regulations; the global economic and financial crisis hampered the ability of Dutch banks 
to borrow in wholesale markets. Given the importance of securitised funding, this pushed up domestic 
lending rates especially for housing finance. Basel III banking regulations underscore the importance 
of larger buffers to absorb losses and to restore confidence and secure market access.  

•  In  addition,  current  housing  policies  have  implications  for  public  finances,  notably  in  terms  of 

foregone tax revenues and of the implicit liabilities stemming from housing-related guarantees.  

3 

 
•  The IDR also discusses the policy challenges stemming from these developments and what could be 

possible ways forward. A number of elements can be considered:  

•  The imminent policy challenge will be to contain balance sheet adjustments, restore confidence, 
and  harness  growth  while  simultaneously  stabilising  public  finances.  Profitable  segments  of  the 
economy with a strong competitive edge can help to underpin domestic purchasing power. Aggregate 
profitability  of  firms  has  remained  high,  albeit  with  marked  differences  across  firms  and  industries. 
Exploiting  the  space  in  the  institutional  framework  for  pursuing  wage  differentiation  and  lower 
pension contributions, particularly in the second pillar, may help vulnerable households restore their 
balance sheets, while also cushioning domestic demand.  

•  Recent  sluggish  productivity  increases  and  the  low  value  added  of  re-exports  underline  the 
importance of focusing on fostering innovation and competitiveness. Sufficient public spending on 
fundamental  research,  knowledge  and  education  is  important  to  support  the  long-term  growth 
potential of the Dutch economy. Cyclical effects, finance bottlenecks, unusually high uncertainty and 
the  impact  of  (expected)  balance  sheet  adjustments  all  seem  to  play  a  role  in  the  relatively  low 
domestic  rate  of  capital  formation,  yet  there  may  also  be  a  structural  element  at  play.  For  firms, 
rethinking  the  balance  between  home  and  foreign  investments  seems  advisable.  A  balanced 
adjustment  should  have  a  beneficial  effect  on  the  domestic  investment  climate,  hence,  on  economic 
prospects in the long term.  

•  As regards private debt, comprehensive and appropriately timed and sequenced reforms in the 
housing  market  would  reduce  vulnerabilities  of  households,  financial  institutions  and  the 
government.  Such  reforms  would  also  improve  the  allocation  of  capital,  thus  supporting  the  long-
term growth potential of the Dutch economy. With respect to housing, initiatives that eliminate fiscal 
incentives  for  taking  on  debt  and/or  encourage  mortgage  loan  repayments  are  warranted.  Long-run 
gains  could  even  be  larger  if,  after  successful  fiscal  stabilisation,  a  part  of  budgetary  savings  were 
channeled  back  into  the  economy.  Recently  announced  measures  by  the  government  in  this  area 
appear  to  go  in  the  right  direction,  but  will  need  to  be  assessed  in  detail.  In  the  current  situation, 
smaller asset buffers on the part of households also amplify the feedbacks from the housing market to 
the real economy, through  negative  wealth and confidence effects. Moreover, loan conditions in the 
financial  sector  have  tightened  in  the  wake  of  the  crisis,  furthering  adjustment.  This  implies  any 
measures would have to be phased in gradually and predictably over a prolonged but not too extended 
time  horizon.  In  this  way,  both  households  and  lenders  will  have  time  to  adapt  and  substantial  and 
abrupt adjustments in the housing market and in finance can be avoided.  

•  Moreover,  measures  are  required  to  correct  rigidities  in  the  housing  market,  including  those 
that have prevented the emergence  of a functioning private rental market of appropriate size. 
Measures to advance the operation of the housing market by improving the functioning of the private 
rental market and reducing the inefficiencies and dead-weight losses associated with the operations of 
social housing corporations may help to get the market afloat. However, this will take time and should 
be done while duly protecting the segment of dwellers in need of social housing. Any measures taken 
in this area will also have to be assessed in detail. 

4 

 
 
 
1. 

Introduction 

2.  Macroeconomic Situation and Potential Imbalances 

2.1.  Macroeconomic scene setter 

2.2.  External position 

2.3.  Market share 

2.4.  Private sector indebtedness 

2.5.  House price developments 

3. 

In-Depth Analysis of Selected Topics 

3.1. 

The current account surplus 

3.1.1.  Market share analysis 

3.1.2.  Cost, price and other competitiveness indicators 

3.1.3.  Sectoral contribution to the current account balance 

3.1.4.  The net international investment position 

3.2.  Household indebtedness 

3.2.1.  Factors underlying the build-up in household debt 

3.2.1.1.  Housing market policy framework 

3.2.1.2.  Housing finance arrangements 

3.2.2.  Risks related to high household indebtedness 

3.2.2.1.  Wealth effects 

3.2.2.2. 

Income and interest rate shocks 

3.2.2.3. 

Financial sector balance sheet adjustments 

3.2.2.4.  Household sector balance sheet adjustment 

4. 

Policy Challenges 

References 

LIST OF GRAPHS 

2.1a.  Current account decomposition 

2.1b.  Financial account decomposition 

2.2a.  Income balance decomposition 

2.2b.  Cumulative changes in income, services and current account balances since 2005 

2.3a.  Export-market-share (EMS) growth 

2.3b.  Trade Balance contributions by Broad Economic Category (% of GDP) 

2.4a.  Decomposition of debt, consolitated 

2.4b.  Indebtedness of EU27 countries, 2011, Householdss 

9 

11 

11 

11 

14 

15 

17 

19 

19 

19 

20 

23 

26 

29 

29 

30 

34 

35 

35 

37 

38 

39 

43 

45 

12 

12 

13 

13 

14 

14 

15 

15 

5 

 
 
 
2.6.  Nominal house price developments and transactions, 1971-2011 

2.5. 

Leverage ratios, non-financial corporations 

2.7a.  House price developments around turning points (quaterly data) 

2.7b.  House price cycles across countries 

3.1.  Market share gains in product markets and geographical destinations 

3.2a.  Decomposition of ULC developments 

3.2b.  Decomposition of developments in REER 

3.3a.  Deflator: Nominal ULC 

3.3b.  Deflator: Nominal ULC Manufacturing 

3.3c.  Deflator: HICP 

3.3d.  Deflator: Prices of Exported Goods & Services 

3.4.  Distribution of exports by size class, 2010 

3.5a.  Net lending and borrowing by sector 

3.5b.  Savings and investment of non-financial corporations 

3.6.  Profit margins of non-financial corporations 

3.7a.  Cumulative sum of current account balances vs. NIIP 

3.7b.  NIIP by instrument 

3.8a.  Valuation effects 

3.8b.  Sectoral contribution to the Dutch external net lending or borrowing 

3.9a.  Residential investment 

3.9b.  Structural housing features (average2008-2011) 

3.10a. Type of outstanding mortgage amounts 2010 Q2 (% of total) 

3.10b. Average LTV-ratio of Dutch home purchase 2000-2010 

3.11a. Household assets (including insurance companies and pension fund savings) and liabilities 

3.11b. Household assets and liabilities, housing wealth and net financial assets 

3.12a. Ratio of risky to non-risky households assets 

3.12b. Financial assets of households (in % of GDP, year-end 2010) 

3.13a. Cumulative distribution of fixed interest rate period and remaining fixed interest rate term in 

years 

3.13b. Interest Burden, households 

3.14a. Interest charges by age category 

3.14b. Dutch bank's deposit funding gap (EUR billion) 

3.15a. International comparison of deposit funding gap 

3.15b. Development of the deposit funding gap 

3.16a. Savings, mortgage debt and securisation of mortgages since 1970 

3.16b. Tier 1 ratio, leverage and risk-weighted assets of European banks 

3.17a. Credit demand conditions 

3.17b. Credit supply conditions 

16 

16 

17 

17 

19 

20 

20 

22 

22 

22 

22 

23 

24 

24 

25 

26 

26 

29 

29 

30 

30 

34 

34 

35 

35 

36 

36 

37 

37 

38 

38 

39 

39 

39 

39 

40 

40 

6 

 
 
 
LIST OF BOXES 

3.1.  Valuation effects 

3.2. 

The 1901 Housing Act and the 1994 grossing and balancing operation 

3.3.  Policy measures in the housing market 

3.4.  Household debt sustainability 

27 

31 

33 

41 

7 

 
 
 
 
 
 Results  of  in-depth  reviews  under  Regulation  (EU)  No  1176/2011  on  the  prevention  and  correction  of 
macroeconomic imbalances 

THE  NETHERLANDS  are  experiencing  macroeconomic  imbalances,  which  deserve  monitoring  and  policy 
action.  In  particular,  macroeconomic  developments  regarding  private  sector  debt  and  deleveraging  pressures, 
also coupled with remaining inefficiencies in the  housing market deserve attention. Although the large current 
account surplus does not raise risks similar to large deficits, the Commission will also continue monitoring the 
developments of the current account in the Netherlands. 

More specifically, rigidities and distortive  incentives  have  built  up over decades to shape house financing and 
sectorial  savings  patterns.  Balance  sheets  of  financial  institutions  became  heavily  geared  towards  housing 
finance,  as  households  leveraged  up  against  housing  wealth.  In  parallel,  since  the  mid-1990s  non-financial 
corporations  moved  into  a  structural  savings  surplus.  This  has  resulted  in  a  substantial  and  persistent  current 
account surplus going handin- hand with a high level of both gross household debt and household assets. At the 
current juncture, feedbacks from the housing market to the real economy, notably through negative wealth and 
confidence effects, are weighing on economic activity. 

Excerpt of country-specific findings on The Netherlands, COM(2013) 199 final, 10.4.2013. 

8 

 
 
 
 
 
 
1. 

INTRODUCTION 

On 28 November 2012, the European Commission presented its second Alert Mechanism Report (AMR), 
prepared  in  accordance  with  Article  3  of  Regulation  (EU)  No.  1176/2011  on  the  prevention  and 
correction of macroeconomic imbalances. The AMR serves as an initial screening device, which helps to 
identify Member States that  warrant  further in depth analysis to determine  whether imbalances exist or 
risk  emerging.  According  to  Article  5  of  Regulation  No.  1176/2011,  these  country-specific  “in-depth 
reviews”  (IDR)  should  examine  the  nature,  origin  and  severity  of  macroeconomic  developments  in  the 
Member State concerned, which constitute, or could lead to, imbalances. On the basis of this analysis, the 
Commission will establish whether it considers that an imbalance exists and what type of follow-up it will 
recommend to the Council. 

For the Netherlands, the AMR suggested a need to look more closely at whether the country is exhibiting 
macroeconomic imbalances of an external and internal nature. On the external side, the AMR highlighted 
a long series of large current  account surpluses,  which coincided  with a loss in  market  shares in recent 
years.  On  the  internal  side,  the  high  level  of  private  debt  was  identified  as  a  potential  concern,  mainly 
since household indebtedness had built up in the context of past increases in house prices. Recent years 
have  witnessed  falling  house  prices,  with  an  impact  on  the  real  economy  through  negative  wealth  and 
confidence  effects.  Despite  signs  of  stabilisation,  household  indebtedness  remains  very  high.  This  IDR 
takes a broad view of the Dutch economy in line with the scope of surveillance under the Macroeconomic 
Imbalance Procedure (MIP). 

Against this background, Section 2 of this in-depth review looks into developments covering the external 
and internal dimensions. Section 3 focuses specifically on the current account balance and on household 
debt developments. Section 4 discusses policy considerations. 

9 

 
 
2.  MACROECONOMIC SITUATION AND POTENTIAL 

IMBALANCES 

2.1.  MACROECONOMIC SCENE SETTER 

The Dutch economy was deeply affected by the 
global financial and economic crises, leading to 
a  severe  contraction  in  2009.  Since  then,  the 
recovery  has  been  gradual  at  best.  Economic 
growth  fell  back  sharply  into  negative  territory  at 
the  end  of  2011, 
reflecting  a  pronounced 
weakening of both internal demand,  whilst on the 
external  side  Dutch  exports  were  adversely 
affected  by  the  slowdown  in  global  trade.  Whilst 
gross  domestic  product  (GDP)  in  2011  still  grew 
by  1.2%  over  the  year  as  a  whole,  in  2012  it  is 
estimated to have shrunk by 0.9%, despite a short-
lived recovery in the first half of the year. Looking 
forward,  prospects  for  2013  and  2014  remain 
uncertain and the recovery sluggish. 

Several factors account for the slow pace of the 
recovery. However, the most important factor is 
weak  domestic  demand.  The  weakness 
in 
household  consumption  has  been  driven  by 
negative  wealth  effects  arising  from  declining 
house  prices  and  falling  share  prices;  the  pro-
cyclical  behaviour  of  pension  premiums;  a 
deteriorating  labour  market  situation;  confidence 
indicators  near  historic  lows;  uncertainty  about 
domestic 
fiscal 
plans 
consolidation  and  the  housing  market.  While 
exports have fared better, they are being held back 
by the loss of  momentum in  relevant  world trade. 
Despite  overall 
rates,  domestic 
investment remains weak on the back of depressed 
construction  activity  and  the  uncertain  outlook  as 
regards the recovery and global demand prospects. 

regarding 

interest 

policy 

low 

The general government deficit is expected to have 
improved  from  4.5%  of  GDP  in  2011  to  4.1%  in 
2012,  in  light  of  consolidation  measures  that 
mainly increased revenues (notably a 2-pp increase 
in the standard VAT as of October 2012). Against 
a  background  of  weak  economic  activity,  the 
deficit  is  expected  to  improve  only  gradually  to 
3.6% of GDP in 2013 despite substantial additional 
consolidation  measures,  once  again  mainly  on  the 
revenue side. The debt ratio is expected to increase 
steadily from 70.8% of GDP in 2012 to 73.8% in 
2013.  On  unchanged  policies,  the  situation  of 

public  finances  in  the  Netherlands  in  the  years 
remains challenging.  

2.2. 

EXTERNAL POSITION 

for  over 

The  Netherlands  has  persistently  recorded 
current  account  surpluses 
three 
decades  and  currently  has  one  of  the  highest 
current  account  surpluses  as  a  percentage  of 
GDP  in  the  euro  area (1).  The  surplus  on  the 
current account, which had averaged around 5% of 
GDP  during  the  1990s,  increased  to  some  6%  of 
GDP  during  the  2000s,  reaching  9.4%  of  GDP  in 
2006.  The  surplus  declined  thereafter  but  has 
shown  a  renewed  upswing  in  the  wake  of  the 
economic and financial crisis. In 2010, in line with 
growing trade volumes, the Dutch current account 
balance  increased  to  EUR  45  billion  (7.7%  of 
GDP)  and  reached  a  record  in  2011  of  EUR  58 
billion  or  9.7%  of  GDP  (Graph  2.1a).  The 
Commission 
services  Winter  2013  Forecast 
indicates  a  broad  stabilisation  of  the  current 
account  surplus  on  the  basis  of  rising  household 
savings and a continuously high savings balance of 
the  non-financial  corporate  sector.  Apart  from  a 
component  stemming  from  natural  gas  (about  0.5 
to  2%),  the  positive  current  account  balance  has 
increasingly  mirrored 
the  contribution  of  re-
exports  (currently  another  2%).  Moreover,  the 
profit and pay-out policy of  Dutch  multinationals, 
although  counterbalanced  by  pension 
funds 
receiving  dividends,  have  created  an  upward  bias 
on the current account ( 2). 

(1)  According to the MIP Scoreboard Headline indicators, the 
3  year  average  of  current  account  balances  over  2010  – 
2012  was  7.5%  for  both  the  Netherlands  and  Luxemburg 
and 6.9% for Sweden in 2011. 

(2)  De  Nederlandsche  Bank  estimates  the  net  effect  of  both 
directions at approximately  2%  of  GDP  in the  years  2006 
to 2008, afterwards reversing to -0.5% of GDP. 

11 

 
                                                           
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 2.1a:Current account decomposition

Graph 2.1b:Financial account decomposition

P
D
G

f
o
%

14
12
10
8
6
4
2
0
-2
-4
-6

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

P
D
G

f
o
%

25

20

15

10

5

0

-5

-10

-15

Capital account (KA)
Current transfers
Income balance
  Trade balance - services
  Trade balance - goods
Trade balance
Current account balance (CA)
Net lending/borrowing (CA+KA)

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112*

Net errors and omissions
Official reserves (net)
Other investment (net)
Portfolio investment (net)
Direct investment (net)
Current account balance
Net lending/borrowing (CA+KA)

Source: Commission services (Eurostat). 
Note: * indicates estimated figure using quarterly data; Balance of Payments definitions

imported and leave the country again after no -or 
virtually  no-  further  processing  and  hence  with 
relatively  low  added  value (4).  Re-exports  now 
account  for  roughly  one  half  of  the  Dutch  goods 
balance  compared  to  one  third  in  1995.  This 
increase  is  a  result  of  on-going  globalisation, 
accentuated  by  the  specific  geographical  position 
of  the  Netherlands  (with  the  port  of  Rotterdam 
being  the  effective  trade  gateway  primarily  to 
Germany  but  also  to  other  EU  economies)  and  a 
competitive transport and logistics sector.    

some  processing.  Other  important  re-exporting  countries 
include Singapore, Belgium and Germany. 
(4)  8% versus 54% for domestic output produced. 

About  four-fifths  of  the  total  current  account 
balance  is  accounted  for  by  the  trade  balance, 
in  particular  on  goods.  The  trade  surplus  of 
natural gas averages around 1% of GDP, although 
this is only the lower bound of the overall effect of 
natural gas provisions. Because part of natural gas 
production  is  domestically  consumed,  domestic 
gas  reserves  reduce  imports  of  energy  products. 
The  overall  effect  can  be  approximated  with 
reference  to  the  value  added  of  natural  gas 
production,  which  has  been  around  2.5%  of  GDP 
in recent years. This suggests that the trade surplus 
would be around 2.5 percentage-points lower when 
natural  gas  reserves  are  depleted,  which 
is 
expected to happen in around 30 to 40 years. Since 
the  net  effect  of  the  gas  balance  captures  both 
changes  in  production  and  consumption  patterns, 
as well as changes in prices, energy prices (which 
have more than doubled over the last decade) have 
also  played  a  role  in  pushing  upwards  the  surplus 
on the goods balance.   

Apart from the structural component stemming 
from  the  country's  natural  gas  resources,  the 
positive goods balance is increasingly driven by 
re-exports  (3), 
that  have  been 

i.e.  goods 

(3)  According  to  the  definition,  to  count  as  re-exports  the 
goods  in  question  also  have  to  be  owned  by  a  Dutch 
resident at some point and subsequently by a foreign based 
person or company.  If there is no transfer of ownership at 
any stage, the goods are deemed to be in transit. Goods are 
counted  as  domestically-produced  exports  if  they  undergo 

12 

 
                                                           
                                                                                   
 
 
 
 
 
2. Macroeconomic Situation and Potential Imbalances 

Graph 2.2a:Income balance decomposition 

Graph 2.2b:Cumulative changes in income, 
services and current account balances since 
2005 

P
D
G

f

o
%

6

5

4

3

2

1

0

-1

-2

-3

-4

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Income on other investment
Income on portfolio investment
Income on direct investment
Compensation of employees
Balance on income

Source: Commission services (Eurostat)

The  import  content  of  Dutch  exports  has 
increased  over  time,  illustrating  the  growing 
importance  of  'global  production  chains'  in 
which  the  Dutch  economy  is  closely  integrated. 
This notwithstanding, in 2009, the average import 
content  of  Dutch  exports  (34.8%)  stood  only 
somewhat  above 
the  EU  average  of  32%, 
indicating a relatively high share of domestic value 
added,  despite  the  country's  strong  intermediary 
function in trade.  

The balance on services had been negative for a 
few  years  before  turning  positive  in  2004,  thus 
adding  to  the  trade  surplus.  This  positive  trend 
can  be  attributed  to  the  on-going  growth  of 
business  service  provision  in  some  industries, 
notably in air and sea transportation, but also to a 
tax  climate  for  multinational 
very  attractive 
companies,  which  channel  royalties  and  license 
fees  charged  by  parent  companies  to  their  foreign 
affiliates  in  exchange  for  intermediate  services. 
Also,  other  business  services  were  buoyant. (5) 
Other services displaying strong  growth dynamics 
in  this  field  include  IT,  legal,  accountancy  and 
intra-company  services  driven  by  an  intensifying 
international  division  of  labour  by  multinational 
companies. 

(5)  Including 

services"  between 

related 
"miscellaneous 
that  cannot  be 
resident  and  not-resident  enterprises 
specifically  classified  as  services  elsewhere;  although  on 
net  these  services  do  not  weigh  extremely  heavily,  they 
accounted for about 14% of total exports and 15% of total 
imports in 2010 (CBS: Statistics Netherlands).  

4

3

2

1

0

-1

-2

-3

-4

P
D
G

f

o
%

04

05

06

07

08

09

10

11

12

Services balance
Income balance
Balance on current account

At  the  same  time,  investment  income  has 
become  an  increasingly  important  contributor 
to  the  current  account  surplus  due  to  improved 
(though very volatile) profits repatriated by foreign 
subsidiaries  of  Dutch  enterprises  (increasing  from 
1.1%  in  2004  to  4.7%  of  GDP  in  2011)  (Graph 
2.2a). A large share of total cross-border profits are 
earned  by  Dutch  listed  multinational  companies. 
Dividend payments by these companies to foreign 
investors, which reduce the balance on the income 
account,  have  remained  broadly  constant  since 
2007  (around  0.8%  of  GDP).  Graph  2.2b  shows 
that,  since  2004,  the  income  account  balance, 
together  with the services balance, to a very large 
extent have driven the current account balance. 

Current  transfers  show  a  stable  negative 
balance reflecting the Netherlands' position as a 
net  contributor  to  the  EU  budget  and  an  aid 
donor  at  global  level.  The  Dutch  capital  account 
typically records small outflows of about 0.1% of 
GDP  and  therefore  does  not  have  any  significant 
impact on the external balance of the country.  

As  a  mirror  image  of  the  current  account 
surplus,  the  financial  account  has  recorded  net 
outflows since 1995. The analysis of the financial 
account  is  complicated  by  the  high  volatility  of 
gross  cross-border  flows.  As  Graph  2.1b  shows, 
since  2005,  financial  flows  from  the  Netherlands 
have  typically  been  channelled  through  foreign 
direct  investment,  in  the  form  of  either  direct 
acquisitions  of  companies  abroad  or  lending  to 

13 

 
                                                           
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 2.3a:Export-market-share (EMS) growth 

Graph 2.3b:Trade Balance contributions by 
Broad Economic Category (% of GDP) 

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

8

6

4

2

0

-2

-4

-6

-8

-10

Total goods

Intermediate goods

Fuel

Consumer goods

Capital goods

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Contribution to EMS: goods
Contribution to EMS: services
Export market share growth yoy

Balance of  trade in goods, % GDP

2000-2001

2010-2011

Source: For Graph 2.3a, Commission services (Eurostat); For Graph 2.3b, COMTRADE, Commission services

foreign  subsidiaries. (6)  Owing  to  its  geographical 
location,  historical  ties  and  a  sound  and  credible 
institutional setting,  with a  favourable tax  system, 
the Netherlands has become a hub for international 
capital flows. Via entities in the Netherlands, non-
(mostly  multinationals) 
financial  corporations 
channel  FDI  and  "route"  income  flows  between  a 
company  in  one  country  and  subsidiaries  or 
affiliates  in  other  countries.  Portfolio  investment 
has likewise expanded since the end of the 1990s. 
Apart  from  high  private  investments  associated 
with  the  open  nature  of  the  Dutch  economy, 
savings  channelled  through  the  mandatory  second 
pillar  occupational  pension  scheme  account  for 
this. 

In the near to medium run several factors might 
lead  to  a  further  increase  of  the  high  Dutch 
current  account  surplus.  Dynamics  initiated  in 
the  wake  of  the  crisis,  such  as  changes  in  risk 
attitudes,  the  on-going  deleveraging  in  the  global 
banking  sector,  the  adoption  of  more  careful 
funding  strategies  by  non-financial  corporations, 
and,  finally,  a  risk  of  a  persistent  downward  shift 
in  the  economy's  growth  path,  may  all  reinforce 
accumulation  of  corporate  savings. (7)  As  these 
developments  coincide  with  sluggish  productivity 
increases  and  given  the  low  value  added  of  re-

(6)  Only in 2007 did the Netherlands record a net FDI inflow, 
which  can  be  explained  by  the  take-over  of  ABN-AMRO 
by  a  consortium  of  Spanish,  British  and  Belgian  banks. 
Due to the subsequent nationalisation in 2008, the total net 
FDI turned positive once again. 

(7)  Ruscher and Wolff, 2012. 

exports, current efforts at fostering innovation and 
competitiveness  seem  to  go  in  the  right  direction. 
Profitable segments of the economy  with a  strong 
to  underpin 
competitive  edge  can  still  help 
domestic  purchasing  power,  but  with 
the 
Netherlands  going  through  what  is  likely  to  be  a 
prolonged spell of balance sheet adjustments in the 
wake  of  the  global  crisis,  economic  dynamics  is 
likely  to  be  sluggish  in  years  to  come.  All  this 
suggests that a rapid decrease in the overall current 
account  surplus  is  unlikely.  On  the  other  hand,  as 
the  Dutch  population  matures  and  the  baby-boom 
generation  moves  into  retirement,  the  country  is 
expected 
to 
dissaving, pushing down the  surplus in  the longer 
run. 

to  gradually  move  from  saving 

2.3.  MARKET SHARE 

The  Netherlands  is  one  of  the  most  open 
economies  in  the  euro  area.  Its  trade  openness 
(measured  as  the  sum  of  imports  and  exports 
relative  to  GDP)  increased  steadily  from  74%  of 
GDP  in  1980  to  161%  in  2008  (compared  to  the 
euro-area average of 89% recorded in 2008).  

The  overall  share  of  Dutch  exports  of  goods  in 
world  trade  fell  from  about  3.9%  in  1995  to 
3.1%  in  2011  (Graph  2.3a).  The  Dutch  share  of 
world  exports  of  services  fell  more  rapidly  from 
3.7%  in  1995  to  2.5%  in  2011,  but  remains 
relatively  high.  Losses  occurred  mainly  in  the 
transportation;  by  contrast,  "other 
share  of 

14 

 
                                                           
 
 
 
 
 
 
2. Macroeconomic Situation and Potential Imbalances 

Graph 2.4a:Decomposition of debt, 
consolitated 

Graph 2.4b:Indebtedness of EU27 countries, 
2011, Householdss 

500

450

400

350

300

250

200

150

100

50

0

P
D
G

f
o
%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Financial corporations
Household
Private sector EA17

Government
Non financial corporations
Private sector

e
m
o
c
n

i

i

l

e
b
a
s
o
p
s
d
s
s
o
r
g
f
o
%

Household's debt

300

250

200

150

100

50

0

SK IT DE EL BE ES LU IE MT LT CZ HU UK DK

euro area

non-euro area

Source: Commission services (Eurostat). 
Note: non-consolidated figures. Debt includes loans and securities other than shares. Data for BG are available only up 
to 2010. For LU, only 2009 data are available. No data are available for MT.

services" gained share (see above). On balance, the 
share of the Netherlands in global exports of both 
goods  and  services  has  fallen  since  1995  from 
3.9%  to  around  3.0%  in  2011.  The  corresponding 
five-year  average  indicator  in  the  scoreboard 
indicates  that  this  loss  occurred  over  the  2005-
2010  period.  The  gradual  loss  in  global  market 
share  for  exports  of  goods  and  services  is  not 
worse  than  for  the  majority  of  other  mature 
western  European  economies  and  reflects  mainly 
the  integration  of  fast-growing  export-oriented 
economies,  notably 
the  world 
economy.  

in  Asia, 

into 

2.4. 

PRIVATE SECTOR INDEBTEDNESS 

Gross private debt levels increased appreciably 
over the last decade (from 186.5% to 223.7% of 
GDP between 2000 and 2011).  This increase is 
entirely  accounted  for  by  households  (Graph 
2.4a).  The  share  of  the  non-financial  corporate 
sector  in  total  gross  private  debt  fell  considerably 
over  the  last  15  years.  To  complete  the  picture, 
financial corporations also contribute  significantly 
to  the  country's  outstanding  gross  debt.  The 
doubling  of  financial  corporate  debt  from  2002 
onwards was matched to a large extent by growing 

assets,  reflecting  mainly  the  expansion  of  the 
activities of Dutch banks abroad (8). 

in 

incentives 

to  other  euro-area  members, 

The  strong  rise  in  gross  household  debt  has 
levelled off. Household debt reached an all-time 
high of 128.5% of GDP (or 266% of disposable 
income)  in  2010,  mainly  driven  by  the  rapid 
expansion  of  mortgage  debt  (Graph  2.4b). 
Compared 
the 
Netherlands has relatively high levels of leveraged 
the 
reflecting 
housing  wealth, 
institutional  set-up  of  the  Dutch  housing  market. 
Notably, the tax deductibility of mortgage interest 
payments  for  primary  residences  encouraged 
mortgage  borrowing  and  discouraged  repayments 
for  many  years.  Also,  financial  innovations  gave 
households  easier  access  to  credit  as  financial 
institutions  developed  mortgage  instruments,  such 
as 
allowed 
the 
to  benefit  maximally 
households 
mortgage interest deductibility scheme. The easier 
availability of credit has led to distorted pricing in 
the  housing  market, 
increased  vulnerabilities 
among  homeowners,  mismatches  in  the  funding 

interest-only  mortgages,  which 

from 

(8)  Dutch  public  debt  remained  relatively  constant  over  the 
years  2000  around  50%  of  GDP  on  average,  until  2008, 
when, due to the crisis, gross public debt started increasing 
to  68.8%  of  GDP  in  2012.  This  increase  mainly  reflects 
persistent  deficits,  bilateral  loans  to  programme  countries, 
EFSF  and  ESM  disbursements  and  a  modest  economic 
outlook. 

15 

 
                                                           
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

model  of  banks  and  concurrent  refinancing  risks, 
and a risk exposure for the Dutch government via 
the National Mortgage Guarantee scheme that runs 
to more than 20% of GDP (see also 3.2).  

and 

vast  majority 

Until  now,  mortgage  servicing  costs  seem 
manageable 
of 
the 
households  should  be  able  to  honour  their 
obligations  to  the  banks.  Nevertheless,  a  high 
gross debt burden and some increased frequency of 
interest rate resets have increased the sensitivity of 
households  to  income  and  interest  rate  shocks. 
This  is  mitigated  by  the  stacking  of  interest  rate 
resets,  the  linking  of  mortgage  interest  rates  to 
maturity  benchmarks  extending  over  the  yield 
curve, and the overall low credit spreads to which 
the Netherlands is exposed. 

Moreover,  the  build-up  in  household  debt  has 
been  matched  by  a  similar  accumulation  of 
assets,  meaning  that  the  net  worth  of  households 
has not deteriorated. However, as the largest share 
of  household  assets  consist  of  housing  wealth 
(with a share increasing from 31% in 1993 to 39% 
in 2010), a fall in house prices would have a larger 
impact  on  household  balance  sheets  than  similar 
fluctuations  in  the  stock  market.  This  means  that 
households could start reining in their spending to 
rebuild  their  balance  sheets,  with  negative  wealth 
effects  on  GDP  growth  and  employment.  In  view 
of that risk, a closer look at private-sector debt as 
well  as  housing  market  developments  seems 
warranted (see section 3.2). 

Graph 2.5:Leverage ratios, non-financial 
corporations

120

100

80

60

40

20

0

d
n
a
P
D
G

,
y
t
i
u
q
e
o
t

t
b
e
d

f
o
s
o
i
t
a
R

)

%

(
s
t
e
s
s
a

l

a
t
o
t

5
9

6
9

7
9

8
9

9
9

0
0

1
0

2
0

3
0

4
0

5
0

6
0

7
0

8
0

9
0

0
1

1
1

Debt / GDP

Debt / assets

Debt / equity

Debt / assets, consolidated

Source: Commission services (Eurostat) 

As  regards  the  non-financial  corporate  sector, 
various  indicators  of  the  financial  wealth  of 
Dutch  corporations  do  not  point  to  any 
significant  sustainability  risks  (Graph  2.5).  The 
debt-to-equity  ratio  has  declined  from  90.7%  to 
71.7%  between  1995  and  2011  and  is  currently 
below  the  average  for  the  euro  area  (77.9%).  It 
should  also  be  noted  that  there  has  been  a 
significant  downward  adjustment  in  the  corporate 
debt level over the past three years, with the debt-
to-equity  ratio  correcting  by  some  18  percentage 
points,  due  to  contracting  credit  to  non-financial 
corporations.  The 
ratio  was 
(substantially)  below  the  euro-area  average  for 
both  consolidated  (47.9%)  and  non-consolidated 
data  (45.6%)  in  2011,  having  almost  halved  for 
both measures over the last 15 years. The debt-to-

debt-to-asset 

Graph 2.6:Nominal house price developments and transactions, 1971-2011

40

30

20

10

0

-10

-20

-30

71

76

81

86

91

96

01

06

11

Households and NPISH, long term loans, y-o-y

y-o-y change of house prices

average y-o-y change of house price (1971-2011)

y-o-y change of number of transactions

Source: Commission services (Eurostat), OECD 

16 

 
 
 
 
 
 
 
 
 
 
 
 
2. Macroeconomic Situation and Potential Imbalances 

Graph 2.7a:House price developments around 
turning points (quaterly data)

Graph 2.7b:House price cycles across 
countries 

100

90

80

70

60

50

40

120

110

100

90

80

70

60

50

40

t-16

t-12

t-8

t-4

t=0

t+4

t+8

t+12

t+16

-32 -28 -24 -20 -16 -12 -8 -4

0

4

8

12 16 20

10 - 90 percentile

25 - 75 percentile

2008 - 2012

1978 - 1983

Quarters around the peak

NL (2008=100)
IE (2007=100)
DK (2007=100)

FI (2010=100)
ES (2007=100)
SE (2007=100)

Source: For Graph 2.7a, De Nederlansche Bank; For Graph 2.7b, Commission services

GDP  ratio  of  Dutch  corporations  has  gradually 
declined from 102.5% in 2000 to 96.9% in 2011.  

2.5.  HOUSE PRICE DEVELOPMENTS 

House  price  developments  in  the  Netherlands 
over the last decades have been moderate, both 
by historical and international standards (Graph 
2.6).  House  price  increases  in  the  long  expansion 
that  started  in  the  mid-1980s  were  not  nearly  as 
strong  as  in  the  build-up  phase  of  the  previous 
major  house  price  cycle  in  the  late  1970s  (Graph 
2.7a),  and  not  as  strong  as  in  some  other  EU 
countries that experienced a sustained boost ahead 
of the financial crisis (Graph 2.7b).  

and 

environment 

House  price  developments  over  the  past  three 
decades  have  been  driven  by  a  combination  of 
macroeconomic factors on both demand and the 
supply  side,  as  well  as  by  fiscal  incentives,  the 
financial 
regulatory 
innovations (see section 3.2.1 below). Following a 
strong slump in the late 1970s, Dutch house prices 
started a very long expansionary phase in the mid-
together  with 
1980s.  House  prices  peaked 
shortages  on  the  labour  market  in  the  second  half 
of  the  1990s.  The  labour  participation  rate  of 
(from  around  40%  in 
women  steadily  increased
to 
1983 
expectations (and realisations) of higher household 
income over the life cycle. This was reinforced by 

to  over  70%  currently), 

leading 

the  (expected)  rise  in  the  value  of  their  assets. 
Other  supportive  factors  included  demographic 
trends, lower and less  volatile inflation, economic 
growth,  and,  most  importantly,  the  rapid  trend  in 
financial  innovations  giving  households  much 
easier  access  to  credit.  The  downward  trend  in 
rates,  coinciding  with  a  phase  of 
interest 
heightened 
and  EU  market 
integration  boosted  by  monetary  union,  supported 
the  trend  towards  higher  household  financial 
leverage.  

globalisation 

and 

institutional 

difficulties.  For 

the  period  of  sustained 

It is very difficult to assess if and to what extent 
prices  in  the  Netherlands  were  misaligned 
during 
increases. 
Estimates  of  equilibrium  house  prices  are  fraught 
the 
with  methodological 
geographical 
Netherlands, 
limitations of supply elasticity are important in this 
respect.  Most  studies  that  did  attempt  an  estimate 
provided  evidence  of  no  or  only 
limited 
overvaluation and suggest that Dutch house prices 
have  developed  in  line  with  fundamentals.  The 
Netherlands' Bureau of Economic Policy  Analysis 
(CPB, 2005) reported an overvaluation of 10 % in 
2003. (9)  Using  data  up  to  2004,  an  IMF  country 
report  (2005)  concluded 
there  was  no 
significant  deviation  from  fundamentals. (10)  The 
OECD  (2006)  arrived  at  a  similar  conclusion, 
arguing that the probability of Dutch house prices 

that 

(9)  CPB (2005) Document No. 81. 
(10)  IMF (2005) Country Recommendation No. 05/225. 

17 

 
 
                                                           
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

reaching a peak and starting to decline in 2006 was 
low. (11) 

in 

reflects 

the 
The  modest-yet-accelerating  slump 
housing  market  since  the  outbreak  of  the 
financial  crisis,  is  evidenced  both  by  the  fall  in 
prices  and,  even  more  clearly,  by  the  much 
sharper  drop  in  the  number  of  transactions. 
Transactions  have  fallen  by  approximately  45% 
since  its  2006  pre-crisis  peak.  The  slump  in  the 
housing  market 
economic 
prospects  amidst  a  fall  in  disposable  income,  the 
anticipation of a progressive tightening of interest-
rate-deductibility  rules  and  of  banks'  mortgage 
lending 
in 
unemployment and consumer confidence hovering 
around historic lows. By the end of 2012, nominal 
house  prices  had  fallen  from  their  peak  at  end-
2008  by  16.6%,  which  corresponds  to  a  decrease 
of  4.1%  per  year  on  average,  however  slightly 
accelerating in the last year (-8% in 2012). 

standards,  a  moderate 

increase 

clouded 

While the slump was triggered by the crisis and 
the related falls in activity and confidence, it is 
also  a  result  of  the  gradual  yet  progressive 
build-up of vulnerabilities in the Dutch housing 
market  (see  3.2.1  below).  The  slump  in  house 
prices is therefore likely to be protracted. Even in 
the  presence  of  a  policy  response  targeted  at  the 
tax deductibility of  mortgage  interest payments, it 
will  take  time  to  unwind  the  rigidities  in  the 
housing  market  and  the  extension  of  household 
balance  sheets,  which  have  built  up  over  many 
years.  This  can  explain  the  relatively  moderate 
pace  of  recent  house  price  declines  compared  to 
other  European  countries  that  experienced  sharp 
house price increases in the run up to the crisis. 

(11)  OECD (2006) Working Paper No. 488. 

18 

 
 
 
 
 
 
 
 
                                                           
3. 

IN-DEPTH ANALYSIS OF SELECTED TOPICS 

oriented  towards  the  rest  of  the  EU (12),  which 
illustrates  the  role  of  the  Netherlands  as  a  major 
transit country for global trade and supply chains.  

Graph 3.1:Market share gains in product 
markets and geographical destinations

7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

Pre-crisis

Post-crisis

Netherlands

Market share gains in product markets
Market share gains in geographical destinations
Initial product specialisation
Intial geographical specialisation

Source: COMTRADE, Commission services (Eurostat) 

The  Netherlands  increased  its  export  market 
share  in  goods  before  the  crisis,  but  lost  some 
ground  since  then  (Graph  3.1).  Although  the 
country still benefits from a small positive effect of 
the  product  structure  of  its  exports  on  its  market 
share,  the  geographical  composition,  which  had  a 
positive effect before the crisis, started to act as a 
drag  on  the  export  market  share  as  the  cycle 
entered  a  downward  leg.  However,  relatively 
strong  competitiveness  effects  have  had  a 
significant  cushioning  effect,  and  redirection 
towards  more  dynamic  geographical  destinations 
has mitigated the loss. 

(12)  The  markets  for  domestically-produced  exports  and  re-

exports are broadly the same. 

3.1. 

THE CURRENT ACCOUNT SURPLUS 

The  merchandise  trade  balance  traditionally 
has  been  the  main  driving  factor  behind  the 
large  current  account  surplus.  As  illustrated  in 
section  2.2,  the  relative  importance  of  exports  of 
goods  has  even  increased  considerably  over  the 
last decade. It is therefore essential to examine the 
trade balance, in order to understand the persistent 
character of the current account surplus.  

Apart  from  the  product  and  geographical 
structure,  the  relatively  stable  performance  of 
Dutch  exports  is  largely  explained  by  the 
country's strong overall competitiveness. This is 
illustrated by the market share analysis in the next 
section  (3.1.1).  To  complement 
this  analysis 
section  3.1.2  provides  an  assessment  of  Dutch 
competitiveness through an examination of relative 
competitiveness  (or  real  effective  exchange  rate) 
indicators  whereas  sections  3.1.3  and  3.1.4  focus 
on the sectoral composition of the current account 
balance and the Dutch NIIP. 

3.1.1.  Market share analysis 

Exports  of  goods  are  concentrated  in  a  few 
categories  notably  "machinery  and  transport 
equipment"  (30.2%),  "chemicals  and  related 
products"  (17.8%),  and  "crude  materials" 
(13.3%).  The  high  share  of  crude  materials 
(largely food and oil and gas) can be explained by 
the  fact  that  the  Netherlands  is  a  producer  and  an 
exporter  of  gas,  an  importer  of  crude  oil  and  an 
exporter of refined oil products.  

Unsurprisingly,  the  total  share  of  exported 
goods going to the EU is high, reaching 80% in 
2011 (of which almost 60% went to the rest of the 
euro  area,  notably  Germany  24.3%).  The  gross 
trade balance is significantly  in surplus and rising 
with respect to the rest of the EU (16% of GDP), 
while  it  is  in  deficit  with  respect  to  non-EU 
countries  (-10%  of  GDP),  mainly  China.  The 
largest  share  of  total  Dutch  imports  comes  from 
the  EU  (61.8%,  of  which  some  40%  originated 
from  euro-area  countries  in  2010).  As  for  the  re-
exported  goods,  most  originate  in  the  USA  and 
in  particular  China,  and  are  primarily 
Asia, 

19 

 
 
 
                                                           
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 3.2a:Decomposition of ULC 
developments 

Graph 3.2b:Decomposition of developments in 
REER 

6

5

4

3

2

1

0

-1

-2

-3

-4

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Inflation (GDP deflator growth)
Real Compensation per Employee
Productivity Contribution (negative sign)
Nominal unit labour cost
ULC in Euro Area

Source: Commission services

the 

that  of 

products, 

foodstuffs, 

In  contrast  to  the  improvement  of  the  relative 
export  performance  of  re-exports,  the  recent 
performance  of  domestically-produced  exports 
of manufactures has been decreasing in the last 
few  decades.(13)  An  important  explanatory  factor 
for 
relative  underperformance  of  Dutch 
domestically produced exports can be found in the 
very  different  product  mix  of  domestically-
re-exports. 
produced  exports  versus 
Domestically-produced  exports  are  dominated  by 
agricultural 
chemical 
products,  rubber  and  plastics,  machinery  and 
transport  equipment.  By  contrast,  computers  and 
electronic equipment account for nearly half of re-
exports  and  re-exports  account  for  around  two 
thirds  of  the  total  exports  of  machinery  and 
transport  equipment.  Since  global  demand  for 
agricultural products and foodstuffs tends to grow 
less  rapidly  than  the  world  markets  for  electronic 
equipment  and  telecommunications,  the  overall 
percentage  share  of  Dutch  domestically-produced 
exports in world trade is falling. Second, and even 
more  importantly,  many  of  the  Dutch  exports 
markets  are  saturated,  especially 
for  some 
products, such as foodstuffs; increasing profits can 
only  come  from  an  increase  in  market  share,  not 
into  new 
from  growing  demand.  Venturing 

(13)  Market  performance  correlates 

trend  of 
domestically-produced  exports  to  that  of  domestically-
produced  exports  in  other  countries  or  to  export  market 
growth for Dutch manufactures (CPB). 

the  volume 

20 

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

6

5

4

3

2

1

0

-1

-2

-3

-4

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

NEER

REER (HICP)

relative HICP (-)

REER (ULC)

markets is necessary if global export market shares 
are to be maintained.  

3.1.2.  Cost,  price  and  other  competitiveness 

indicators 

productivity 

Subsequently, 

Developments  in  unit  labour  costs  follow  a 
cyclical  pattern  and  do  not  pose  a  significant 
problem.  Low  or  negative  productivity  growth 
pushed up nominal unit labour costs in the 2007-09 
period. 
growth 
rebounded and unit labour costs fell in the 2010-11 
period. This is the same pattern as observed in the 
previous cycle,  where unit labour costs shot up in 
2001-02,  as  productivity  slowed  while  costs  and 
inflation  increased,  only  to  fall  back  to  virtually 
zero in 2004 as the labour market cooled down and 
companies  rationalised  their  operations  (Graph 
3.2).  Exporters'  profit  margins  (approximated  by 
the relative development of export prices and unit 
labour  costs)  decreased  slightly  over  the  2000-
2010 period (due to a pricing-to-market strategy).  

competitiveness 

Measured against cost developments in trading 
partner  economies,  Dutch  price  and  cost 
competitiveness  indicators  do  not  point  to  any 
serious 
challenge.  Broad 
competitiveness  indicators  based  on  various  price 
and cost measures, such as consumer prices, export 
prices and  unit labour costs do not point to  major 
divergences  between  the  Netherlands  vis-à-vis  a 
group  of  36  industrialised  countries  or  the  euro 
area. Overall, most cost and price competitiveness 

 
                                                           
 
 
 
 
 
 
 
 
 
indicators appreciated from 1997 to 2002, pointing 
to decreasing competitiveness, and have stabilised 
since then (Graph 3.3). 

in  unit 

Observed  differences 
labour  costs 
measured  against  cost  developments  in  trading 
partner  economies  appear  to  have  resulted 
mainly from differential trends in compensation 
of  employees  rather  than  from  differences  in 
productivity.  Since  it  is  difficult  to  increase 
productivity  through  the  implementation  of  new 
policy  measures,  at  least  in  the  short  run,  policy 
makers  tend  to  plea  for  wage  moderation  when 
competitiveness  needs  to  be  improved.  In  the 
Netherlands  they  have  done  so  during  the  1980s, 
following  the  Wassenaar  agreement (14),  and,  to  a 
lesser extent, at the beginning of the 1990s. From 
the  mid-1990s  on, 
the  growth  of  nominal 
compensation per employee in the Netherlands has 
been  relatively  high  compared  to  its  main  trading 
partners;  over  the  period  from  2000  to  2010,  unit 
labour  costs 
the 
Netherlands, which is somewhat above the 22.5 % 
increases  in  France  and  Belgium,  but  markedly 
above the 4% increase in Germany over the  same 
period.  However,  on 
the  whole,  labour  cost 
dynamics do not appear to have been causing very 
strong  losses  in  Dutch  external  competitiveness 
when  measured  over  a  longer  period  given  the 
preceding period of relative wage moderation since 
the early 1980s. 

rose  by  around  24% 

in 

While  wage  moderation  may  have  favourable 
effects on employment in the tradable sectors, it 
may well result in some downward pressure on 
real  disposable  income,  which  is  the  main 
driver  behind  private  consumption.  Given  its 
potentially dampening effect on domestic demand, 
wage  moderation  alone  may  not  be  a  promising 
long-term  strategy,  all  the  more  so  if  sectoral 
specialisation and possibly adverse effects, such as 
induced  innovation,  are  taken  into  account. (15) 
This  has  given  rise  to  a  longstanding  debate  on 
in 
whether  or  not  wage  moderation 
the 
Netherlands 
negative 
consequences  for  total  factor  productivity  growth. 
Arguably,  even  if  the  impact  of  wage  moderation 

long-term 

had 

has 

(14)  The  agreement  reached  in  1982  between  employers' 
organizations  and  trade  unions  implied  restrained  wage 
growth  in  return  for  the  adoption  of  policies  to  combat 
unemployment and inflation, such as reductions in working 
hours and the expansion of part-time employment.  

(15)  Kleinknecht, 1994. 

3. In-Depth Analysis of Selected Topics 

on  productivity  or  innovation  was  not  damaging, 
one may still surmise that the induced skewness in 
the  distribution  of  national  income  (with  a  higher 
profit  share  falling  to  enterprises)  may  have 
brought  about  dynamic  inefficiencies  in  terms  of 
the  returns  on  profits  generated  (see  below). 
Indeed,  as  a  result  of  relatively  subdued  wage 
developments, wage shares have had a tendency to 
decline,  while  corporate  margins  and  savings 
increased.  

a 

broader 

Economic 

perspective 

Taking 
on 
competitiveness, other factors may have played 
a  role 
in  explaining  the  relatively  stable 
performance  of  Dutch  exports  in  spite  of  the 
deterioration  of  the  real  effective  exchange  rate 
vis-à-vis  a  group  of  35  industrialised  countries. 
The  World 
Forum's  Global 
Competitiveness report ranks the Netherlands very 
high, coming in fifth in the 2012-13 edition (out of 
more than 140 countries). Among the Netherlands' 
strengths  are:  the  quality  of  its  institutions  and 
infrastructure,  its  health  and  education  level,  the 
goods  market  efficiency  and  its  technological 
readiness  (all  ranked  5  to  9),  whereas  it  scores 
lower  on  macroeconomic  stability,  financial  and 
labour  market  efficiency,  market  size  and  also 
financial market development (all ranked in the 17 
– 41 bracket).  

Geographical conditions and trade frictions, i.e. 
how  accessible  the  country  is  to  international 
competition,  and  at  the  same  time,  how 
accessible  foreign  markets  are  for  domestic 
producers and exporters, are also an important 
determinant  of  non-price  competitiveness. 
Regarding  the  latter,  the  Netherlands  has  made 
significant  investment  in  key  destinations  and 
shifted production facilities abroad. Depending on 
the  purpose  of  the  engagement  in  FDI  and  the 
stage of the investment, this  can lead to higher or 
lower exports.  

be 

not 

due 

Losses  or  gains  in  export  market  share  may 
therefore 
to 
necessarily 
in  price  competitiveness,  but 
developments 
rather to the internationalisation of production. 
Using  FDI  destination  countries  as  export  bases 
would  lower  home  production  and  thus  Dutch 
exports. The opposite holds if unfinished products 
are  imported  back  and  exported  after  only  minor 

21 

 
                                                           
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

115

Graph 3.3a:Deflator: Nominal ULC

vs rest of EA17

vs rest of EU27

vs rest of IC36

94

98

02

06

10

Graph 3.3c:Deflator: HICP

110

105

100

95

90

115

110

105

100

95

90

Graph 3.3b:Deflator: Nominal ULC 
Manufacturing

94

98

02

06

10

Graph 3.3d:Deflator: Prices of Exported Goods 
& Services

115

110

105

100

95

90

115

110

105

100

95

90

94

98

02

06

10

94

98

02

06

10

Source: Commission services

processing. (16)  

In  this  respect,  the  good  trade  performance  of  the 
Netherlands  can  partly  be  explained  by 
the 
relatively  large  share  of  exports  accounted  for  by 
medium-sized  firms  (50-249 employees),  contrary 
to many other countries. Medium-sized firms seem 
to account for a similar share of exports to closer-
to-home destinations (EU27), although larger firms 
(+250 employees) still weigh stronger in exports to 
distant extra-EU markets (Graph 3.4). 

Against  this  background, 
it  appears  that, 
despite  declining  export-market  shares  for 
domestically-produced exports, the Netherlands 
does not exhibit serious problems regarding its 

(16)  Di Mauro et al., 2008. 

22 

competitiveness  or  export  performance.  The 
positive trade balance reflects the increasing links 
of  the  Dutch  economy  into  global  production 
chains and the benefits from locational factors, but 
also a competitive edge from adding even a small 
percentage  of  value  added  to  the  large  flows  of 
goods  channelled  through  the  Dutch  territory.  By 
contrast,  relative  market  shares  for  domestically 
produced exports, originating notably in industries 
such  as  foodstuffs  and  chemicals,  have  developed 
less  favourably,  pointing  to  a  possible  challenge 
with 
of 
the 
domestically-produced exports.  

competitiveness 

respect 

to 

 
                                                           
 
 
 
3. In-Depth Analysis of Selected Topics 

Graph 3.4:Distribution of exports by size class, 
2010

EU-27

Extra EU-27

l

a
t
o
t

f
o
%

45

40

35

30

25

20

15

10

5

0

0 - 9

10 - 49

50 - 249

250+

Source: Commission services (Eurostat) 

Number 
of employees

3.1.3.  Sectoral  contribution 
account balance 

to 

the  current 

The current account not only provides information 
about  a  country's  net  exports  and  its  remittances. 
As  part  of  the  general  balance  of  payments 
equation, it is also the counterpart of the financial 
account (and the capital account which is of much 
smaller size). Moreover, in national account terms, 
a  current  account  surplus  implies  an  excess  of 
savings  over 
investment  aggregated  across 
institutional sectors. Therefore, this section takes a 
closer look at the sectoral savings balances in order 
to examine to  what extent savings and investment 
decisions of households, firms and the government 
have been driving the current account surplus.  

The  most  striking  development  in  the  sectoral 
breakdown of the Dutch current account is the 
switch  from  a  significant  savings'  surplus 
emanating  from  households  towards  a  savings' 
surplus  of  non-financial  corporations  from 
approximately  1999  onwards  (as  illustrated  in 
Graph 3.5a). For many decades Dutch households 
have recorded a sizeable saving  surplus. This  was 
mainly  due  to  significant  occupational  pension 
savings,  which,  although  managed  by  pension 
funds, are part of households' savings, leading to a 
near-term savings bias that will fade out as ageing 
progresses. The importance of the second pension 
pillar  is  much  higher  in  the  Netherlands  than  in 
other  countries  with  pension  funds  of  which  the 
total 
assets  constitute  an  ever-larger  part  of 

the 

accumulated savings in the country ( 17); they have 
grown from approximately 70% of GDP in 1990 to 
136% of GDP in 2010. However, since 2002, even 
the  mandatory  second  pillar  occupational 
if 
pension  contributions  and 
third  pillar 
contributions  are  taken  into  account,  total  savings 
of  Dutch  households  have  been  below  the  euro 
area  average (18).  Therefore, 
the  often  heard 
reasoning  that  the  national  savings  surplus  is  due 
to the high households' pension savings, may have 
held  until  the  mid-1990s  but  no  longer  applies. 
From  2005  onwards,  the  household  net  lending 
position  turned  into  a  trend  deficit  (allowing  for 
cyclical  influences).  One  important  explanatory 
factor  for  this  shift  is  the  increase  in  financial 
leverage of households, largely reflecting trends in 
housing and mortgage markets (see below).  

aggregate 

The  positive  saving-to-investment  balance  of 
non-financial  corporations  can  be  mainly 
corporate 
explained  by  high 
profitability  going  hand 
in  hand  with 
substantive  capital  exports.  Corporate  net 
lending  has  been  around  8%  of  GDP  on  average 
over  the  last  decade  (Graph  3.5a).  The  excess  of 
gross  corporate  saving  over  fixed  investment 
amplified  between  1998  and  2004,  mirroring  a 
roughly equivalent rise in  gross saving and fall in 
gross  fixed  capital  formation  starting  around  the 
turn of the century (Graph 3.5b). A trend fall in the 
domestic investment ratio seems to  have occurred 
also  across  other  euro-area  countries,  possibly 
partly  related  to  capital-saving  biases  in  new 
technologies. Moreover, residential investment has 
dropped  to  particularly  low  levels,  especially  in 
light of the strong increase in housing demand and 
mortgages in the decade prior to 2008.  

(17)  The  Netherlands  has  a  long-standing  funded  second 
pension pillar (dating back to the 1950s), on top of a public 
first  pillar  for  every  Dutch  citizen  of  65  years  or  older 
organized  as  a  PAYG  system.  The  second  pillar,  the 
supplementary  pension,  which  is  also  mandatory,  and  in 
which in principle every employee has to participate, is the 
most important part of the system. The third pension pillar, 
which  is  relatively  modest  in  size,  consists  of  additional 
private savings, for instance, through tax-preferred pension 
accounts.   

(18)  In 2011 households gross savings rates were 11.6 % in the 
Netherlands  vs.  16.5  %  in  Germany,  13.1  %  for  the  euro 
area  and  11  %  for  EU27  (Eurostat  National  Accounts). 

23 

 
 
                                                           
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 3.5a:Net lending and borrowing by 
sector 

Graph 3.5b:Savings and investment of non-
financial corporations 

14

12

10

8

6

4

2

0

-2

-4

-6

-8

P
D
G

f
o
%

20

18

16

14

12

10

8

6

4

2

0

d
e
d
d
a

e
u
a
v

l

f
o
%

35

30

25

20

15

10

5

0

d
e
d
d
a

e
u
a
v

l

f
o
%

99 00 01 02 03 04 05 06 07 08 09 10 11

95

97

99

01

03

05

07

09

11

Households
Financial corporations
Total Economy

General government
Non-Financial corporations

Net lending/borrowing, Non-financial Corporations
Gross savings (right axis)
Gross capital formation (right axis)

Source: Commission services

To  an  important  extent,  the  emergence  of  a 
persistent  savings'  surplus  in  the  non-financial 
corporate  sector  is  a  result  of  the  increasing 
importance  of  globalisation  and 
financial 
integration  in  shaping  corporate  balance  sheet 
adjustments.  The  increase  in  corporate  savings 
has  been  accentuated  since  the  crisis  by  cyclical 
weakness in domestic investment and the slump in 
the  housing  market  weighing  on  housing 
investment. The mirror image of sluggish domestic 
capital  formation  has  been  the  increase  in  foreign 
direct  and  portfolio  investments  since  2000.  Non-
financial corporations have used direct investments 
to  penetrate  new  markets  or  to  achieve  efficiency 
gains  through  splitting  the  value  chain  of  the 
production (19).  FDI 
inflows  also  expanded, 
seemingly attracted by the favourable geographical 
location and historical ties of the Netherlands, but 
also  due  to  its  reliable  institutional  setting  and 
legal framework. It is not clear to what extent these 
capital  flows  are  genuine  investment  from  one 
country  to  another  or  whether  they  represent 
“round-tripping”  of  capital.  In  this  sense,  part  of 
inflows  and  outflows  could  be 
gross  FDI 

(19)  Financial  flows  are  classified  as direct  investment  when a 
foreign  investor  possesses  at  least  10%  of  the  total  equity 
capital or voting rights or the equivalent thereof. Therefore, 
portfolio investment data and FDI data are closely related. 
FDI  can  be  categorized  into  three  components:  equity 
capital (for example, mergers and acquisitions), reinvested 
earnings  (i.e.  undistributed  profits  imputed  to  the  direct 
investor)  and  intra-company  loans.  What  is  important  is 
that  the  investor  acquires  a  permanent  interest  in  the 
company  and  can  exert  a  substantial  influence  in  the 
companies' management board 

considered  merely  as  a  statistical  discrepancy  and 
may  to  a  large  extent  be  attributed  to  the  strong 
presence  of  multinational  companies  residing  in 
the  Netherlands,  channelling  FDI  and  redirecting 
income flows to and from subsidiaries or affiliates 
through  so-called  Special 
in  other  countries 
Financial  Institutions  (SFIs).(20)  Since  SFIs  do 
little else than channel funds, their external claims 
and obligations nearly cancel each other out. This 
is  why  they  are  of  little  significance  to  the  net 
external  asset  position  of  the  Netherlands  and  to 
the measured flow of the current account balance.  

As  FDI  outflows  have  increased,  investment 
earnings  in  the  form  of  profit  remittances (21) 

(20)  An  SFI  is  a  subsidiary  -  sometimes  little  more  than  a 
letterbox  or  an  anonymous  office  -  of  a  foreign  parent 
company  that  receives  or  borrows  funds  from  abroad  and 
transfers  them  to  the  parent  or  to  other  group  companies, 
often  to  reduce  global  tax  exposure.  SFIs  are  particularly 
active  in  the  field  of  direct  investment  (participating 
interests  and  intercompany  financing).  SFI's  are  generally 
set  up  with  foreign  capital  only,  which  is  usually  also 
brought  back  in  there  again  under  the  semblance  of 
'foreign'  investment.  The  aggregate  balance  sheet  of  all 
SFIs  was over EUR 2300 billion (in 2009), almost half of 
the  total  Dutch  external  claims  (EUR  4700  billion,  more 
than nine times GDP). More than four-fifths of their assets 
(EUR  1900  billion  at  the  end  of  2009)  are  in  external 
investments.  On  the  liabilities  side  of  the  'Dutch  SFI 
balance sheet' the share of investments is smaller. Because 
the  amount  that  SFIs  transfer  is  so  huge  they  are  not 
included in the 'overall' balance of payments statistics and, 
since  2003,  they  are  registered  on  a  separate  sheet.  SFI's 
FDI  positions  account  for  no  less  than  three  quarters  of 
total FDI from the Netherlands.  

(21)  An  SFI  is  a  subsidiary  -  sometimes  little  more  than  a 
letterbox  or  an  anonymous  office  -  of  a  foreign  parent 

24 

 
                                                           
                                                           
 
 
 
 
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

the  favourable 

substantially,  clearly  affecting 

received  from  foreign  operations  have  also 
grown 
the 
balance  of  payments. (22)  This  trend  appears  to 
tax 
have  been  supported  by 
treatment  of  repatriated  foreign  income  in  the 
Netherlands.  One  of  the  factors  that  make  the 
Netherlands  fiscally  attractive  is  the  so-called 
‘participation  exemption’  that  exempts  business 
profits  (dividends  as  well  as  capital  gains)  from 
subsidiary  companies  abroad 
from  corporate 
income  tax  levied  in  the  Netherlands. (23)  A 
second  factor  is  the  large  Dutch  Double  Taxation 
Treaty  (DTT)  network  that  substantially  reduces 
withholding  taxes  on  dividends,  interests  and 
royalty payments between Treaty countries and the 
Netherlands.  A  third  factor  is  the  "advance  tax 
ruling"  system  whereby,  contrary  to  many  other 
countries,  the  Netherlands  offer  the  possibility  to 
discuss tax positions in advance with the Dutch tax 
authorities. These discussions can be formalized in 
agreements  binding  both  the  taxpayer  and  the  tax 
authorities.  Something  that  should  be  duly  taken 
into account when interpreting FDI data is the fact 

that  to  avail  of  such  tax  treatment,  transactions 
generally  take  place  via  intra-company  channels. 
These 
reflect 
shifting  profits  between  countries  (notably  in 
multinational companies). 

transfers  often 

intra-company 

Graph 3.6:Profit margins of non-financial 
corporations

35

30

25

20

15

10

5

0

d
e
d
d
a

e
u
a
v

l

f
o
%

60

50

40

30

20

10

0

d
e
d
d
a

e
u
a
v

l

f
o
%

95

97

99

01

03

05

07

09

11

Gross entrepreneurial income
Gross operating surplus
Retained earnings (right axis)
Retained earnings, EA17 (right axis)

Source: Commission services (Eurostat) 

company  that  receives  or  borrows  funds  from  abroad  and 
transfers  them  to  the  parent  or  to  other  group  companies, 
often  to  reduce  global  tax  exposure.  SFIs  are  particularly 
active  in  the  field  of  direct  investment  (participating 
interests  and  intercompany  financing).  SFI's  are  generally 
set  up  with  foreign  capital  only,  which  is  usually  also 
brought  back  in  there  again  under  the  semblance  of 
'foreign'  investment.  The  aggregate  balance  sheet  of  all 
SFIs  was over EUR 2300 billion (in 2009), almost half of 
the  total  Dutch  external  claims  (EUR  4700  billion,  more 
than nine times GDP). More than four-fifths of their assets 
(EUR  1900  billion  at  the  end  of  2009)  are  in  external 
investments.  On  the  liabilities  side  of  the  'Dutch  SFI 
balance sheet' the share of investments is smaller. Because 
the  amount  that  SFIs  transfer  is  so  huge  they  are  not 
included in the 'overall' balance of payments statistics and, 
since  2003,  they  are  registered  on  a  separate  sheet.  SFI's 
FDI  positions  account  for  no  less  than  three  quarters  of 
total FDI from the Netherlands.  

(22)  The net impact on the balance of payments of outward FDI 
results  from  subtracting  the  FDI  outflow  from  all  the 
the  outflow,  mainly 
positive  flows  associated  with 
repatriated  profits,  dividends  and  interest  (on  the  income 
account), and net receipts of royalties and license payments 
(on the services account). 

(23)  Traditionally, this participation exemption on cross-border 
intra-firm dividend payments has been a major attractor of 
companies  to  the  Netherlands.  It  implies  that  when 
transnational  companies  repatriate  affiliate  income,  or  in 
other words, pay themselves dividends from abroad, the tax 
treatment of this income is not subject to domestic taxation. 
Although this system is applied in most EU countries, with 
the  exception  of  Greece,  Ireland,  Spain  and  the  United 
Kingdom,  the  extent  to  which  income  is  fully  or  partially 
exempted  varies  across  countries  and  is  affected  by  the 
provisions of bilateral tax treaties. 

Dutch  multinational  companies  make  a  large 
contribution  to  the  Dutch  current  account 
surplus as registered in the official data because 
a  large  part  of  their  earnings  are  retained  and 
reinvested,  rather  than  being  paid  out  as 
income  to  foreign  portfolio  investors,  thus 
driving  measured  corporate  savings  (Graph 
3.6a).  The  Netherlands  is  relatively  sensitive  to 
this  effect  because  the  presence  of  multinationals 
in  the  country  attracts  many  foreign  investors 
(Dutch  shares  in  foreign  hands  amounted  to  55% 
of GDP in 2011 versus only 20% in Germany and 
15% in the United States). All of their profits (both 
distributed 
or 
reinvested  earnings) 
through 
foreign subsidiaries are counted entirely as income 
for  the  Netherlands.  As  a  result,  the  more  profits 
Dutch multinationals make and the less is paid out, 
the higher the effect on the current account.  

realised  abroad 

non-distributed 

profits 

and 

Dutch  pension  funds,  by  far  taking  the  lion's 
share of Dutch shareholders' interests in foreign 
companies,  counterbalance  this  upward  effect 
on  the  current  account,  since  only  the  profits 
(generated  by  the  foreign  company)  that  are 
distributed  as  dividends  to  the  Dutch  shareholder 
are  counted  as  revenue  in  the  Netherlands  (given 
the investors' interest of below 10%).  

25 

 
                                                                                   
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

600

500

400

300

P
D
G

200

f
o
%

100

0

-100

-200

Graph 3.7b:NIIP by instrument 

Graph 3.7a:Cumulative sum of current 
account balances vs. NIIP 

Cumulative Current Account Balance

Net IIP

100

50

0

P
D
G

f
o
%

-50

-100

86

90

94

98

02

06

10

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112*

Net portfolio investment
Changes in reserves (net)
Other investment (net)
Net direct investment
Net financial derivatives
Net external debt (neg. sign)
Net int'l investment position (NIIP)
Marketable debt (portfolio debt instr. and other investment, net)

Source: For Graph 3.7a, De Nederlansche Bank; For Graph 3.7b, Commission services

GDP)  compared  to  other  countries.  These  figures 
might  give a  somewhat distorted picture, since an 
important  part  of  direct  investments  takes  place 
because  of 
strategies  of 
tax  optimisation 
multinational  companies  through  so-called  special 
purpose  vehicles  (SPVs).  This  is  also  apparent  in 
the  very  high  stocks  of  inward  and  outward 
investment,  which  are 
largely  composed  of 
loans  and/or  undistributed  (and 
intercompany 
reinvested) profits. This role of the Netherlands as 
an  international  financial  intermediary  is  also 
highlighted by the geographical composition of the 
NIIP  (mainly  outside  the  euro  area  and  EU-27) 
(see above).  

In contrast, the Netherlands has had a negative 
net  stock  of  portfolio  investment.  This  means 
that  the  stocks  of  domestic  portfolio  debt  and 
equity owned by foreign investors exceed the gross 
holdings  of  foreign  portfolio  assets  by  residents. 
This can be explained by the relative attractiveness 
of  Dutch  corporate  and  government  bonds  for 
foreign  investors,  in  particular  those  from  outside 
the EU, as safe investment instruments, but also to 
a lesser extent of private equity. Other investment 
mainly  consists  of  cross-border  loans  (to  a  large 
part  inter-bank  and  intra-bank  loans)  but  also 
comprise  official 
intra-Eurosystem 
loans  and 
balances. 

3.1.4.  The net international investment position 

According  to  official  statistics,  the  Netherlands 
has  had  a  poor  track  record  in  terms  of 
building up a solid net international investment 
position  (NIIP),  despite  generating  persistent 
and large current account surpluses. Graph 3.6a 
shows  that  the  external  assets  and  liabilities 
position  of  the  Netherlands  has  been  subject  to 
persistent  significant  negative  valuation  effects 
which have contributed to dampening the effect of 
the  current  account  surpluses  on  the  NIIP.  Over 
decades, the Dutch net savings surplus initially did 
translate  into  a  small  positive  NIIP.  In  1998,  for 
the first time, the country became a net debtor. In 
2002,  finally,  the  NIIP  reached  a  low  of  minus 
EUR 113 billion (24.4% of GDP) despite a history 
of  persistent  current  account  surpluses.  The  net 
external  position  only  turned  positive  again  in 
2004 and 2006 by a mere EUR 2 billion (less than 
1% of GDP). In recent years, sharp swings in asset 
the  economic  and 
valuation 
financial crisis in 2008-2010 have clouded longer-
standing  trends:  paradoxically,  the  Dutch  NIIP 
improved markedly during these crisis years.  

in  response 

to 

The  Netherlands  relied  on  FDI  as  a  vehicle  to 
invest its excess savings abroad (Graph 3.7). The 
stocks of FDI abroad have clearly exceeded direct 
investment  by  foreign  investors  in  the  home 
economy. At the end of 2011, the net positions in 
FDI  were  very  high  in  the  Netherlands  (51%  of 

26 

 
 
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

Box 3.1: Valuation effects

The discrepancy between the cumulative sum of current account balances and the NIIP can 
be explained by a number of economic factors and accounting methods used to value various 
categories  of  assets.  Apart  from  the  recorded  volume  of  transactions  in  the  current  account,  a 
change  in  the  NIIP  also  includes  capital  gains  (or  losses)  due  to  exchange  rate  fluctuations 
occurring  during  the  year,  shifts  between  financial  instruments,  and  revaluations  of  cross-border 
external  assets  and  liabilities.  The  fact  that  Dutch  assets  abroad  are  less  marked  to  market  than 
foreign assets in the Netherlands also plays a role. The changes in the outstanding amounts also 
include  other  adjustments  (e.g.  sectoral  reclassifications,  or  exceptional  events).  Since  these 
valuation  changes  do  not  concern  transactions,  they  are  neither  recorded,  nor  observable  in  the 
flow statistics of the balance of payments. 

The  Dutch  net  losses  are  the  result  of  a  combination  of  these  factors.  First,  the  steady 
appreciation of the guilder and, subsequently, the euro, has reduced the value of foreign-currency 
denominated  assets  and  liabilities. (1)  Boonstra  (2008)  and  Lane  and  Milesi-Ferretti  (2004) 
estimate  a  negative  exchange  rate  effect  of  some  0.4%  per  year  in  the  period  1987-2006 (2). 
Second, foreign direct investments in the Netherlands have outperformed Dutch direct investments 
abroad  in  terms  of  return,  causing  foreign  holdings  in  the  Netherlands  to  rise  more  sharply  in 
value. Also, Dutch foreign assets have tended to be largely in FDI, whereas Dutch liabilities vis-à-
vis  foreigners  have  been  more  heavily  directed  towards  portfolio  equities,  which  tend  to  have 
higher returns. These 'performance' and 'composition' effects presumably played an important role 
in the 1990s. In addition, apart from exchange rate and asset price effects, one of the main other 
economic factors that influence the net external position of the Netherlands concerns write-offs on 
paid  goodwill  (reflecting  lower  than  expected  future  profits  of  the  company  that  has  been  taken 
over),  leading  to  a  lower  value  of  direct  investment.  Finally,  accounting  methods  used  to  value 
various  categories  of  assets  play  an  important  role  in  explaining  the  discrepancy  between  the 
cumulative  sum  of  the  current  account  balances  and  the  NIIP.  For  example,  foreign  subsidiaries 
are recorded at book value (the value entered in the books of the Dutch parent company), whereas 
the  stocks  that  foreign  investors  hold  in  Dutch  stock-market-listed  companies  are  rated  against 
market value (the value recorded at the end of the year). Accordingly, an increase in stock prices 
will lead to an increase of foreign liabilities, whereas the book value of foreign participations does 
not  change,  even  if  their  market  value  increases,  and,  consequently,  the  net  external  position  is 
underestimated.  A  similar  story  holds  for  the  valuation  of  immaterial  assets  (e.g.  human  capital, 
market accessibility of the company in question, brand value, etc.). Graph 1 illustrates that these 
underestimations  have  been  very  significant  for  the  Netherlands.  In  the  period  2004-2011,  the 
difference  was  often  higher  than  EUR  100  billion,  sometimes  twice  this  amount.  At  the  end  of 
2011, the country was more than EUR 70 billion richer according to the market-value figures of 
both  outgoing  and  incoming  participations  (estimations  by  De  Nederlandsche  Bank  (2012b),  in 
addition to the usual figures). Stock market conditions played an important role in this respect: the 
more optimistic the investors, the greater the price effect, i.e. the greater the gap between market 
and book value.  

(1)  Depreciation  of  a  country’s  currency  results  in  gains  on  its  holdings  in  foreign  currency  denominated 
assets and vice versa. On the other hand, such a depreciation may also translate in an increase in value of 
it foreign liabilities.  

(2) This is a rough approximation, as the currency composition of most asset and liability categories is not 

known. 

(Continued on the next page) 

27 

 
 
 
 
 
 
 
                                                           
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Box (continued) 

Graph 1a:AEX index (billion euro), 2004-2011 

AEX

600

500

400

300

200

100

0

04

05

06

07

08

09

10

11

12

Source: De Nederlansche Bank

in 

While valuation effects are not new, two factors 
at  play  in  recent  years  have  contributed  to 
making  them  both  more  important  and  more 
volatile.  First,  with  an  increasing  size  of  gross 
external assets and liabilities  relative to GDP (2.5 
times the Dutch GDP in 2011), a given differential 
in rates of return across assets and liabilities has an 
increasing  effect  on  the  dynamics  of  the  net 
position.  As  a  result,  valuation  effects  have 
become more important for the external position of 
countries  than  the  current  account  flows.  Second, 
the  relative  importance  of  direct  and  portfolio 
investments 
international  portfolios  has 
increased,  and  these  instruments  have  on  average 
higher  and  more  volatile  returns 
than  debt 
instruments. In these high risk categories the return 
usually  comes  in  the  shape  of  capital  gains  or 
losses,  and  adjustments  in  the  book  value  of  FDI, 
which  do  not  result  into  measured  cross-border 
cash  flows  and  therefore  fall  outside  the  scope  of 
the  balance  of  payments  (but  affect  the  net  IIP 
low  risk 
through  valuation  changes).  In 
categories  (debt 
interbank 
instruments, 
positions),  the  yield  comes  in  the  form  of  interest 
income,  which  is  recorded  on  the  income  account 
of  the  balance  of  payments,  but  these  all  carry 
relatively  minor  weight (24).  The  volatility  of 
returns  is  illustrated  by  the  crisis,  which  brought 
about sign changes in returns on equity, indicating 
a reversal of fortune in the prices of foreign equity 
assets versus liabilities (Graph 3.8a). In this sense, 

the 
loans, 

(24)  Lane and Milesi-Ferretti (2004). 

28 

Graph 1b:Distortion of net external assets 
(billion euro), 2004-2011 

with subsidiaries at market value

with subsidiaries at book value

400

350

300

250

200

150

100

50

0

-50

-100

04

05

06

07

08

09

10

11

12

the  improvement  of  the  Dutch  NIIP  since  2008 
appears  to  have  been  driven  largely  by  relatively 
larger  declines  in  the  value  of  equity  liabilities 
owed to foreigners compared to those in the value 
of equity assets. In other words, it is to a sizeable 
extent driven by a worse performance of the Dutch 
stock market than the average of global indices. 

Pension  funds  and  insurance  corporations  by 
far  hold  the  largest  stocks  of  net  foreign 
assets (25),  followed  by  investment  companies 
and  'other  financial  institutions' (26)  (Graph 
3.8b). In 2010, the net external assets of these three 
sectors combined showed an increase, mainly as a 
result of revaluations, to EUR 838 billion, or 142% 
of GDP (27). The external asset position of pension 
funds  and  insurances  deteriorated  in  2008  and 
2009, caused by the fact that pension funds shifted 
a  substantial  proportion  of 
investments 
abroad  to  (domestic)  investment  funds,  but  also 
due  to  the  losses  they  suffered  as  a  result  of  a 
strong  decline  in  equity  prices  (mainly  stocks)  as 

their 

25 

(25)  The  data  on  pension  funds  were  included  into  the 
'other/households'  category  until 2002;  from  2003  on  they 
are  registered  apart  in  a  'pension  funds  and  insurances' 
category, explaining the break in continuity between 2002 
and 2003. 
Including  a.o. 
financial  holding 
companies,  special  purpose  vehicles  (SPVs)  and  special 
financial institutions (SFIs). 
investment 

financial  holding 
companies,  special  purpose  vehicles  (SPVs)  and  special 
financial institutions (SFIs). 
(27)  De  Nederlandsche  Bank; 

(26)  Including  a.o. 

commission 

investment 

services' 

funds, 

funds, 

calculations. 

 
                                                           
                                                           
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

P
D
G

f
o
%

50

40

30

20

10

0

-10

-20

-30

-40

-50

Graph 3.8a:Valuation effects 

Graph 3.8b:Sectoral contribution to the Dutch 
external net lending or borrowing 

800

600

400

200

0

P
D
G

f
o
%

-200

-400

-600

05q1 06q1 07q1 08q1 09q1 10q1 11q1 12q1

Dir inv, assets
Portfolio inv, assets
Other inv, assets
Fin derivatives (net)
Total net

Dir inv, liab
Portfolio inv, liab
Other inv, liab
Reserves (net)

86 88 90 92 94 96 98 00 02 04 06 08 10

Investment companies
Banking
DNB
Non financial corporations
Government
Other (a.o. households)
Pension funds and insurances
Other financial institutions (OFIs)

Source: For Graph 3.8a, Commission services (Eurostat); For Graph 3.8b: De Nederlansche Bank.

well  as  market  interest  rates.  At  the  end  of  2008 
and  2011,  this  led  to  a  fall  of  coverage  ratios (28) 
below  the  statutory  minimum  of  105%  and  in 
some  cases  even  below  100%,  compared  with 
144% at the end of 2007. 

the 
level  of  household  debt  may  entail  for 
economy,  given  that  debtors  are  vulnerable  to 
shocks, e.g. interest rate increases and house price 
declines,  and  any  deleveraging  pressures  would 
negatively impact on growth. 

implied  a  strong  decline 

Other  institutional  sectors,  such  as  the  Dutch 
government, non-financial corporations and the 
Dutch  banking  system,  all  have  a  net  external 
liability  position.  In  2008,  negative  valuation 
effects 
in  foreign 
obligations  of  non-financial  corporations,  due  to 
the fact that the large majority of stocks issued by 
these  corporations  are  quoted  on 
the  stock 
exchange, whilst on the asset side they mainly hold 
non-quoted stocks.  

3.2.  HOUSEHOLD INDEBTEDNESS 

This section analyses in greater detail the nature of 
household  debt  and  the  factors  underlying  its 
build-up as well as the possible risks that the high 

the  2nd  pillar,  sets  out 

(28)  The Financial Assessment Framework, which is part of the 
the 
new  Pension  Act  for 
requirements  for  the  financial  position  of  a  pension  fund, 
which  is  largely  reflected  by  the  coverage  ratio  (i.e.  the 
relationship between the fund’s assets and the pension fund 
liabilities).  In  addition  a  pension  fund  must  hold  enough 
financial buffers (equity) to be able to cope with setbacks, 
life 
such  as 
expectancy  and  financial  markets  turmoil.  The  pension 
fund’s  investment  results  as  well  as  the  liabilities  are 
valued at market price. 

rate  developments, 

increasing 

interest 

3.2.1.  Factors  underlying 

the  build-up 

in 

household debt 

Household debt has increased strongly over the 
last  decade  and  reached  an  all-time  high  of 
128.5% of GDP (or 266% of disposable income) 
to 
in  2010,  before  decreasing  afterwards 
127.6% 
in  2011.  The  bulk  of  household 
borrowing  has  taken  the  form  of  mortgage 
debt:  outstanding 
residential  mortgage  debt 
amounted  to  EUR  640  billion  -  corrected  for 
securitization (29) - in 2011, or 106% of GDP. (30) 
In  view  of  this,  a  closer  look  at  housing  market 
developments is warranted. 

(29)  De Nederlandsche Bank. 
(30)  40  %  of  GDP  in  2007  for  the  euro  area  as  a  whole. 
Mortgage  debt  as  a  share  of  disposable  income  increased 
from  151%  in  2000  to  250%  in  2010,  according  to 
Eurostat,  one  of  the  highest  shares  recorded  of  any 
advanced economy and the highest in the euro area, which 
had an average ratio of 99% in 2010 . 

29 

 
                                                           
                                                           
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 3.9a:Residential investment 

140

120

100

80

60

40

20

0

0
0
1
=
5
0
0
2

95

97

99

01

03

05

07

09

11

7

6

5

4

3

2

1

0

P
D
G

f
o
%

Graph 3.9b:Structural housing features 
(average2008-2011) 

Netherlands

EA17

EU27

80

70

60

50

40

30

20

10

0

Tenant

Owner

Low inc.

High inc.

)

%

(
n
o
i
t
a
u
p
o
p

l

f
o
e
r
a
h
S

Building Permits (2005=100)
Residential Investment (% of GDP, right axis)

Housing cost overburden 
rate 

Owner occupancy rate 

Source: Commission services (Eurostat)

3.2.1.1.  Housing market policy framework 

The  Dutch  housing  market  has  been  largely 
shaped  by  government  policies.  A  range  of 
policy interventions and incentives were originally 
aimed  at  stimulating  home  ownership  and 
providing  affordable  good  quality  housing  to  low 
income  classes.  They  encompass  direct  and 
indirect 
fiscal 
incentives,  controls  of  the  supply  of  housing 
through  zoning  restrictions  and  rent  regulations, 
and financial guarantees.  

government 

subsidies 

and 

In  response  to  public  policies,  the  Dutch 
housing  market  has  shifted  towards  higher 
owner-occupancy  over  the  past  three  decades. 
Today,  around  60%  of  the  7.4  million  dwellings 
are owner-occupied, up from 42% in 1980 but still 
comparatively  low  on  a  European  scale.  By 
contrast,  nowhere  else  in  Europe  does  social 
housing dominate the housing market as it does in 
the Netherlands. Social housing represents 33% of 
total  dwellings.  More  than  three-quarters  of  all 
tenants  rent  a  dwelling  from  a  social  housing 
corporation,  non-profit  organisations  that  have  to 
act  on  a  commercial  basis  but  are  required  to  use 
the  provision  of  good  and 
their  profits  for 
affordable  housing.  Social  corporations  were 
formally  separated  from  the  public  sector  in  the 
1990s  and  now  form  part  of  the  non-financial 
business sector, even though their core mandate is 
to pursue a public function and to this end they are 
heavily  regulated.  The  expansion  of  the  social 
the  mid-1990s  was 
to 
housing 

sector  up 

30 

accompanied  by  a  sharp  fall  in  private  renting, 
which  currently  accounts  for  a  mere  7%  of  the 
total housing stock. (31) 

However,  collectively,  these  interventions  have 
become costly and inefficient in achieving their 
aims,  with  a  gradual  build-up  of  distortions  and 
rigidities  in  the  housing  market,  which  carry  an 
economic  efficiency  cost  in  the  wider  economy, 
inter alia, in terms of capital misallocation toward 
housing,  disproportionately  favoring  high-income 
taxpayers,  budgetary  costs, 
redistribution  of 
wealth,  and  having  ambiguous  effects  on  housing 
tenure  and  labour  force  mobility  due  to  high 
transaction  costs.  The  institutional  set-up  also 
stoked house price rises. (32)  

The  rent  regulation  is  based  on  three  key 
elements:  a  maximum  rent  level,  annual  rent 
adjustments,  which  are 
the 
government,  and  tenant  protection.  The  rent 
is  regulated  by  a  point  system ( 33), 
ceiling 
depending on the quality of the dwelling (size and 
facilities) and the surrounding area (availability of 
shops, schools, public transport, etc.).  

capped  by 

(31)  CBS (2011). 
(32)  Vandevyvere and Zenthöfer (2012). 
(33)  The  points  system  is  a  score  card  according  to  which 
property  characteristics  are  graded:  square  meters, 
facilities, type of heating etc. score points. Within the point 
system local scarcity does not play a role. However, as of 1 
October 2011, 25 additional “housing points” for property 
value  (WOZ)  were  awarded  to  rental  homes  in  areas  of 
particular scarcity. 

 
                                                           
 
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

Box 3.2: The 1901 Housing Act and the 1994 grossing and balancing operation

The foundations of the strongly regulated Dutch housing supply and planning were laid in the Housing 
Act (Woningwet) of 1901, which responded to the often poor housing conditions prevailing at the time and 
obliged  municipal  governments  to  develop  and  enforce  formal  zoning  plans.  Government  involvement  in 
housing supply was further boosted in the aftermath of the Second World War. In the course of the 1980s, the 
political  agenda  changed,  and  the  sense  of  urgency  with  respect  to  housing  construction  waned  as  outright 
shortages  had  been  overcome. (1)  Since  then,  a  process  of  decentralisation  has  been  underway,  and,  today, 
providing social housing is seen less as a task of central government than a responsibility of the regional and 
local levels, with municipalities, housing corporations and households as the main players. Municipalities can 
develop their own regulations, as long as they comply with the 1965 law for spatial planning (Wet Ruimtelijke 
Ordening) the aim of which is to concentrate people in urban areas, to preserve landscapes and townscapes 
and to take into account the special topography of the Netherlands. Spatial plans in conformity with the law 
provide  very  detailed  regulations  affecting  the  environment,  air  quality  and  urban  aesthetics,  as  well  as 
detailed  urban  development  criteria  on  the  types  of  dwellings  that  can  be  built,  often  including  a  very 
restrictive maximum height of houses, limiting the possibility to increase living space on a given lot. This has 
led  to  constraints  on  land  supply  in  suburban  areas  in  a  period  of  growing  housing  demand  and may  have 
been  a  factor  causing  house  prices  to  rise.  Building  regulations  and  administrative  procedures  arguably 
restrict housing supply and led to a supply that is quite inelastic to house price changes. (2) At the same time, 
in  a  densely  populated  country  such  as  the  Netherlands  spatial  planning  processes  have  arguably  helped 
manage competing claims on scarce land. 

A  major  change  in  the  Dutch  housing  policy  occurred  in  the  1990s,  when  most  of  the  subsidies  on 
housing  construction  were  abandoned,  and  housing  corporations  became,  after  many  years  of 
deregulation, financially independent at the end of 1994, although still subject to government supervision; 
they work hand in hand with local authorities to roll out policy initiatives. They are also granted an exemption 
from corporate tax and can buy public land at reduced prices for the purpose of building social housing. Since 
then, on top of the rents from their tenants, housing corporations mainly raise funds through activities in the 
non-social housing sector (renting to people with higher income, construction and selling of homes) and can 
raise capital from selling dwellings which are recorded on their books at values far below market values. The 
government offers housing corporations various cost-reducing facilities, mainly through the Guarantee Fund 
for  Social  Housing  (Waarborgfonds  Sociale  Woningbouw,  or  WSW).  Social  housing  corporations  can  also 
obtain loans at favourable conditions from the Bank of Dutch Municipalities (Bank Nederlandse Gemeenten, 
or  BNG),  a  special  purpose  public  bank  with  an  exceptionally  good  credit  rating,  which  only  lends  to 
municipalities and housing corporations and the Nederlandse Waterschapsbank (NWB). Although the BNG 
has a limited liability, its top rating can only be sustained under the implicit assumption that the government 
would support the bank in case of financial problems (3). Finally, social housing corporations receive support 
from  the  Central  Housing  Fund  (Centraal  Fonds  voor  de  Volkshuisvesting,  or  CFV),  which  redistributes 
funds from financially healthier housing corporations toward weaker ones, to the extent that the need arises 
on the part of the latter. 
This policy change led to a substantial decrease in the construction  of social housing. While the total 
amount of social sector dwellings has remained constant since 1995, their share in the total housing stock 
has slowly decreased from a peak of 39% in 1998 to 33% at present.  

(1)  Vermeulen and Rouwendal (2007). 
(2)  OECD (2011). 
(3)  BNG (2010). 

31 

 
 
 
 
 
 
 
 
 
                                                           
payments  on  their  mortgage  loan  from  their 
taxable  income,  a  policy  that  has  been  in  place 
since  1893.  This  has  been  an  important  benefit 
especially for higher income households, given the 
relatively  high  marginal  rates  of  income  tax.  For 
mortgages  on  primary  residences,  the  interest 
payments  are  income-deductible  for  a  maximum 
period  of  30  years.  Consequently,  paying  off 
mortgages  is  often  postponed  until  the  loan 
matures  and  a  large  fraction  of  bought  homes  is 
fully  financed  by  borrowed  capital.  This  latter 
point  is  evidenced  by  the  high  average  loan-to-
value (LTV) ratio (the amount borrowed relative to 
the  value  of  the  collateral)  for  mortgages  in  an 
international  comparison.  Apart  from  influencing 
the  amount  of  mortgage  debt 
taken  up  by 
households  and  the  number  of  households  with 
mortgage  debt,  this  subsidy  also  had  implications 
for  the  types  of  loans  involved,  like  interest-only 
loans (see below).  

Policy measures proposed (and partly adopted) 
since  April  2012  aim  at  unlocking  the  Dutch 
housing  market,  by  stimulating 
investment, 
providing  more support to (first-time) buyers, and 
addressing 
rental  market  distortions  while 
protecting  vulnerable  groups.  Box  3.3  provides  a 
summary. 

European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Tenants  also  benefit  from  caps  to  the  annual  rent 
increase, which is set by the parliament and linked 
to  inflation.  In  the  Netherlands,  15%  of  the 
population  receive  cash  allowances  for  rents,  the 
third highest value in the OECD. (34)  

In  1993,  the  Dutch  government  set  up  the 
system  or 
National  Mortgage  Guarantee 
Nationale  Hypotheek  Garantie 
to 
(NHG)) 
stimulate  home  ownership.  Homebuyers  may 
insure 
their  risk  of  default  as  a  result  of 
unemployment,  divorce  and  health  circumstances 
by paying a small insurance premium (0.7% of the 
mortgage loan in 2012, increasing to 0.85% from 1 
January 2013). Mortgages up to the ceiling of EUR 
320.000  are  guaranteed.  The  facility  also  reduces 
the  credit  risk  for  banks  arising  from  mortgage 
loans  (see  below).  For  mortgages  not  covered  by 
the  NHG,  lenders  have  to  write  off  the  remaining 
debt  should  the  debtor  be  unable  to  pay  the 
residual debt after selling the property. Because of 
this  implicit  subsidy,  banks  urge  homebuyers  to 
obtain a guarantee by offering lower interest rates 
when taking a NHG facility. Ultimately, the Dutch 
government  underwrites  the  scheme  in  the  event 
the  guarantee  fund  should  prove  inadequate. (35) 
Public guarantees totalled EUR 782 million at end-
2012, 
implying  a  capital  coverage  ratio  of 
0.52%. (36) The government thus assumes the risks 
of  households  and  financial  institutions  stemming 
from  mortgage debt and acts as indirect guarantor 
for  a  growing  proportion  of  the  Dutch  housing 
market.  On  31  December  2012,  the  NHG  scheme 
was guaranteeing mortgage loans up to a value of 
EUR 122 billion, or around 20% of GDP. 

generous 

Among the housing market policy interventions 
mortgage-interest-rate-
the 
deductibility  (MID)  scheme  stands  out  as 
particularly  conducive  to  debt  accumulation. 
Private  home  ownership  has  been  encouraged  by 
allowing  home  owners  to  fully  deduct  interest 

(34)  Andrews et al. (2011). 
(35)  The  NHG  is  an  insurance  provided  by  the  Stichting 
Waarborgfonds Eigen Woning (WEW), a fund that receives 
the  onetime  premiums  paid  by  home  buyers  and  which  is 
used  to  cover  any  future  losses.  However,  since  the 
liabilities  of  the  fund  are  guaranteed  by  the  government, 
any large increase in defaults would ultimately have to be 
covered  by  the  government.  If  the  funds  of  WEW  are 
depleted,  it  can  request  an  interest-free  loan  from  the 
government. 

(36)  Kwartaalcijfers Stichting Waarborgfonds Eigen Woningen, 

4e Kwartaal 2012. 

32 

 
                                                           
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

Box 3.3: Policy measures in the housing market

•  The mortgage interest rate deductibility scheme is maintained. However, new mortgage loans (i.e. those 
initiated in 2013 and beyond) must take an annuity or linear form in order for mortgage interest to be 
deductible (adopted measure). From 2014 onwards, the maximum deduction rate of 52% (for the highest 
income tax bracket) will fall to 38% in steps of half a percentage point per year (over 28 years). Only the 
highest  earners  will  be  affected  at  first.  The  reform  will  be  applicable  to  new  as  well  as  existing 
mortgage loans.  

•  On  top  of  this,  it  will  be  possible  to  take  another  loan  for  repayment  of  the  first  loan.  With  each 
repayment on the first loan, a second interest-only loan builds up (it starts at zero to reach a maximum of 
50% of the value of the property after 30 years). The interest rate on the second loan cannot be below 
that of the principal loan, but is not tax deductible. On the one hand, this allows buyers to lower their 
monthly interest payments, on the other hand, it allows them to build up residual debt (after 30 years). 

•  More  funding  will  be  made  available  for  providing  loans  to  first-time  buyers,  to  support  the  ailing 
housing market. The already existing Housing Stimulation Fund Dutch municipalities (SVn) will receive 
funding of EUR 50 million. 

•  Prospective  home  buyers  face  more  restrictive  lending  conditions,  mainly  in  the  form  of  lower  LTV-

ratios, which will gradually decrease from 106% in 2012 to 100% in 2018 (adopted measure).  

•  There  is  a  new  approach  concerning  residual  debt  from  the  sale  of  a  former  property:  from  2014 
onwards, the interest payment of residual debt will become fiscally deductible for a maximum of 5 years 
(under certain conditions). 

•  According  to  the  announced  measures  in  the  rental  market,  for  tenants  in  the  social  housing  sector, 
maximum rent increases will become income-dependent. Tenants with a household income of less than 
€33,614 would pay up to 1.5 pp above the inflation rate, for tenants with and income between €33,614 
and €43,000 the difference to inflation will be 2 pp, and those with  incomes above €43,000 face  rent 
increases up to 4 pp above inflation. Landlords will be allowed to differentiate the rent increases among 
their  properties,  while  tenants  experiencing  income  decreases  can  obtain  rent  decreases,  and  lower-
income households are partly compensated with rent subsidies for possible losses in purchasing power.  

•  Social housing corporations should focus more on their prime task of constructing and managing social 
housing  and  will  be  brought  under  the  control  of  municipalities.  The  additional  rental  income  of 
corporations  resulting  from  the  rent  increases  will  be  skimmed  by  increasing  the  property  tax  levy, 
amounting  to  an  additional  €50  million  in  2013,  and  rapidly  rising  to  €1.7  billion  by  2017  (0.3%  of 
GDP). The adjustment of the remuneration of directors of housing corporations is accelerated through a 
law on normalization of top incomes. Rules for selling part of the social housing corporations' property 
will be loosened. 

33 

 
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 3.10a:Type of outstanding mortgage 
amounts 2010 Q2 (% of total)

Graph 3.10b:Average LTV-ratio of Dutch home 
purchase 2000-2010

Bridging
2% (EUR 
13 bn)

Other
4% (EUR 
21 bn)

Annuity / 
linear
2% (EUR 
11 bn)

Savings 
and/or 
investment 
linked 
36%
(EUR 210 
bn)

Interest-
only
56% 
(EUR 321 
bn)

120%

118%

116%

114%

112%

110%

108%

106%

104%

102%

100%

Source: For Graph 3.10a, DNB Financial Stability Overview, April 2011; For Graph 3.10b, Het Kadaster Kwartaalbericht 
in: Overview of Financial Stability in the Nederlands May 2010

00Q1

02Q1

04Q1

06Q1

08Q1

10Q1

3.2.1.2.  Housing finance arrangements 

credit 

policies 

Lending 
institutions, 
of 
considerably  expanding  the  credit  scope  of 
households in the 1990s, magnified the effects of 
government  policies  on  the  build-up  of  debt. 
Moreover, since 1993, a second household income 
can be fully taken into account when applying for 
a mortgage loan in the Netherlands. Liberalisation 
lenders 
and 
contributed  to  the  availability  of  more  diversified 
and  lower  cost  credit  instruments,  with  longer 
maturities (typically extending to 30 years) and on 
lower  amortisation 
more 
requirements and higher loan-to-value ratios.  

increased  competition  between 

flexible 

terms, 

i.e. 

include 

Mortgage products have been designed to fully 
benefit  from  the  tax  deductibility  of  mortgage 
interest  by  deferring  loan  redemption  until 
maturity.  These 
“interest-only” 
mortgages,  which  typically  involve  only  monthly 
payments  of  interest  and  represent  almost  60%  of 
total  mortgages  in  the  Netherlands  (Graph  3.10a). 
This  enabled  households  to  take  on  ever  larger 
loans,  especially  as  interest  mortgage  rates  have 
declined at the same time. However, it is not clear 
that households will be able to repay the principal 
at  the  maturity  date,  even  though  in  practice 
interest-only  mortgages  can  still  involve  some 
capital  accumulation  (households  do  build  up 
the 
earmarked  savings  and/or  partially  repay 
principal earlier). Very recently,  with the  Code of 
(Gedragscode 
conduct 

for  mortgage 

loans 

34 

since 

Hypothecaire  Financieringen)  agreed  in  2011, 
which, however, is not legally-binding, banks have 
taken steps to reduce new issuance of this type of 
loan. Interest-only  mortgages are now encouraged 
not  to  exceed  50%  of  the  market  value  of  the 
home.  However,  this  does  not  necessarily  affect 
gross  mortgage  debt, 
the  class  of 
amortisation-free mortgages also includes savings, 
investment  and  endowment  mortgages,  which 
involve capital accumulation  in a separate  vehicle 
(often  through  insurance  companies)  intended  to 
clear  the  mortgage  at  maturity. (37)  With  such  a 
cheap source of finance readily available, it is not 
surprising  that  households  have  increasingly  put 
their savings into those products (which they hope 
will  bring  higher  returns  and  provide  increased 
diversification  of 
than 
amortising the mortgage.  

their  portfolio)  rather 

The notional average LTV-ratio (or the average 
value  of  the  loan  relative  to  the  purchase  price 
or value of the property) increased from 79% in 
1970  to  100%  around  the  2000s  and  even  rose 
further to reach 120% at the end of 2009 (Graph 

(37)  Savings-based  loans  are  essentially  a  fiscally-advantaged 
way  of  saving  money;  they  include  a  separate  account, 
where monthly payments are accrued and used to clear the 
mortgage  at  maturity.  The  returns  on  investment-backed 
loans depend, of course, on the type of investment selected. 
Given the development of the stock markets over the past 
decade,  however,  the  realized  returns  on  many  of  such 
products  are  likely  to  have  been  below  those  on  savings-
based loans. In the 1998–2007 period, more than half of all 
newly 
sold  asset-backed  mortgage  products  were 
investment-based. 

 
                                                           
 
3. In-Depth Analysis of Selected Topics 

50

40

30

20

10

0

s
t
e
s
s
a

l

a
t
o
t

f
o
%

-10

-20

-30

Graph 3.11b:Household assets and liabilities, 
housing wealth and net financial assets

Graph 3.11a:Household assets (including 
insurance companies and pension fund 
savings) and liabilities

1993

2011

350

250

150

50

-50

P
D
G

f
o
%

-150

Owner
occupied
housing

Securities
(shares
and
bonds)

Deposits
in bank
and saving
accounts

Other
assets

Other debt Mortgages

Holdings
in
insurance
companies
and
pension
funds

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Assets, insurance technical reserves
Liabilities, loans
Assets, currency and deposits
Liabilities, other
Assets, securities other than shares
Assets, other
Assets, shares and other equity
Housing wealth
Net financial assets

Source: For Graph 3.11a, CBS; For Graph 3.11b, Commission services (Eurostat)

3.10b).  Survey  results  show  that  the  total  number 
of  households  with  an  LTV-ratio  above  100% 
quadrupled  between  2002  and  2008. (38)  The 
uptrend in LTV-ratios in recent years has a number 
of  causes.  Undoubtedly,  it  reflects  an  underlying 
increase  in  new  mortgage  volumes.  In  addition, 
due  to  the  high  number  of  amortisation-free 
mortgages,  the  LTV-ratio  of  an  average  mortgage 
decreases  less  rapidly  during  the  life  of  the 
mortgage than it would have for example ten years 
ago.  However,  the  LTV-ratio  figures  are  taken 
from the cadastre (the only comprehensive national 
data  source  available)  and  have  to  be  interpreted 
with  caution.  Such  ratios  are  to  some  extent 
overestimated  and  probably  increasingly  so  in 
recent  years  with  the  onset  of  the  crisis.  The  loan 
amount registered in the notarial contract is usually 
higher  than  the  actual  loan  to  allow  the  bank  and 
mortgagee  the  possibility  for  future  increases 
without  involving  additional  costs  for  a  new 
notarial agreement. (39) Moreover, often  voluntary 
interim  redemptions  on  the  mortgage  are  not 
registered in the cadastre.  

(38)  DNB Household Survey 2003 to 2009, in: DNB (2010). 
(39)  Anecdotal evidence suggests that the Kadaster  LTV-ratios 
are distorted by around 10 percentage points upwardly. The 
current average LTV is likely to be even lower than 110% 
given  the  maximum  LTV-ratio  of  106%  in  the  2011  code 
of  conduct  and  the  fact  that  the  supervision  has  been 
tightened.  

3.2.2.  Risks 

related 

to  high  household 

indebtedness 

Notwithstanding  a  number  of  mitigating 
factors, the high level of household indebtedness 
warrants  close  attention.  Indeed,  the  high  debt 
level implies a heightened risk to the Netherlands' 
macroeconomic  stability  by  making  households' 
net  worth  more sensitive to  negative  shocks,  such 
as  swings  in  interest  rates,  significant  drops  in 
house  prices,  or  a  prolonged  period  of  low  or 
negative  economic  growth.  Therefore, 
is 
essential  that  households  start  repaying  more  and 
thus gradually reduce their mortgage debts.  

it 

3.2.2.1.  Wealth effects 

From  a  balance-sheet  perspective,  the  strong 
overall  wealth  position  of  Dutch  households 
mitigates  their  relatively  high  indebtedness. 
Much  of  the  build-up  in  mortgage  debt  has  been 
mirrored  by  even  steeper  increases  in  household 
wealth, ( 40)  meaning 
the  net  worth  of 
that 
households  has  not  deteriorated  (Graph  3.11a). 
Households  have  capitalised  on  high  and  rising 
house  prices,  as  shown  in  Graph  3.11b:  the  total 

(40)  Household wealth is defined as the value of financial assets 
(which  include  equities,  bonds  and  bank  deposits,  and 
indirect  holdings  in  insurance  companies  and  pension 
funds)  plus  real  assets  (principally  housing)  after  the 
deduction  of  financial  liabilities  (which  are  dominated  by 
mortgage borrowing). 

35 

 
                                                           
                                                           
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 3.12a:Ratio of risky to non-risky 
households assets

Graph 3.12b:Financial assets of households 
(in % of GDP, year-end 2010) 

160

140

120

100

80

60

40

20

0

)

%

(
o
i
t
a
r

s
n
a
o
L

250

200

150

100

50

0

0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

DK

NL
IE

GB

NO

FI

SE

DE

FR

LU

GR

SI

ES

AT

PT

IT

BE

50

100

150

200

250

Liquid assets

Source: Commission services (Eurostat)

value  of  the  owner-occupied  housing  stock  was 
estimated  at  192.1%  of  GDP  in  2011. (41)  The 
share  of  housing  in  total  household  wealth  rose 
from 31% in 1993 to 39% in 2011, thus becoming 
the most important asset in households' portfolios. 
Gross  financial  assets  roughly  equal  300%  of 
GDP,  consisting  mainly  of  pension  and  insurance 
assets,  with  an  estimated  value  of  EUR  1116 
billion in 2011.  

Moreover,  Dutch  households  have  a  relatively 
low ratio of risky to non-risky assets ( 42), thanks 
to  relatively  high  currency  and  deposits  positions, 
and  relatively  low  asset  positions  in  shares  and 
other equity (Graph 3.12a). 

Nevertheless,  as  the  bulk  of  assets  is  tied  in 
pensions and homes, the liquid assets buffer for 
absorbing  direct  income  or  asset  shocks  of 
Dutch  households  is  relatively  modest  (Graph 
3.12b) (43). Potential problems with debt servicing 

(41)  Also  important  are  holdings  in  insurance  companies  and 
retirement savings in pension funds of EUR 1117 billion in 
2011. Other financial assets include deposits in banks and 
savings  accounts  (EUR  332  billion  in  2011).  Households 
also  possess  bonds  and  equities  to  the  tune  of  EUR  200 
billion.  Total  household  assets 
(including  housing, 
financial  and  other  assets,  but  not  holdings  in  insurance 
companies and pension funds) reached EUR 1952 billion in 
2011,  or  324%  of  GDP  (including  pension  funds:  EUR 
3068 billion or 510% of GDP) CBS (2012). 

(42)  The ratio equals "shares and other equity" to "currency and 

deposits".  

(43)  If the value of the both owner-occupied housing stock and 
holdings  in  insurance  companies  and  pension  funds  is 
excluded,  households  have  a 
liquid  assets  position 
(including  currency  and  deposits,  shares  and  other  equity, 
and securities) of 117% of GDP in 2011. 

36 

are  therefore  harder  to  mitigate  by  selling  assets. 
On  the  one  hand,  relatively  few  households  face 
acute  financial  problems,  amid  relatively  low 
(though rising) unemployment and a still relatively 
contained 16.6% fall in house prices from the peak 
in  2008.  On  the  other  hand,  however,  household 
balance  sheets  are  now  more  fragile  than  during 
earlier  recessions.  The  rise  in  house  prices  has 
lengthened  households’  balance  sheets  in  the  run-
up  to  the  crisis,  though  substantial  individual 
differences exist. 

led 

In  addition,  in  recent  years,  low  or  even 
negative  returns  on  pension  plan  assets  and 
declining  house  prices  have 
to  a 
deterioration in the net wealth position of Dutch 
households.  In  principle,  this  trend  affects  all 
homeowners  in  the  same  way,  but  there  are  large 
differences 
in  households’  starting  positions. 
Homeowners,  who  bought  their  dwellings  long 
ago,  have  accumulated  considerable  home  equity; 
on the other hand, given the fall albeit moderate in 
house  prices  since  2008,  a  number  of  first-time 
buyers,  in  the  25-35  age  group,  are  now  in 
negative  home  equity  (where  the  loan  balance 
exceeds  the  house  value).  The  homes  of  an 
estimated  20%  of  Dutch  homeowners  are  worth 
less  than  their  outstanding  mortgage  loans  which 
however 
imply 
does 
foreclosure. (44)  

necessarily 

not 

(44)  DNB (2012a). 

 
                                                           
                                                           
 
 
3. In-Depth Analysis of Selected Topics 

Graph 3.13b:Interest Burden, households 

Graph 3.13a:Cumulative distribution of fixed 
interest rate period and remaining fixed 
interest rate term in years 

s
e
g
a
g
t
r
o
m

r
e
b
m
u
n

l

a
t
o
t

f
o
%

100

90

80

70

60

50

40

30

20

10

0

I

D
G
d
n
a

d
e
d
d
a

e
u
a
v

l

f
o
%

14

12

10

8

6

4

2

0

0

5

10

15

20

25

30

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Cumulative remaining interest rate period

Cumulative chosen fixed interest rate period

Interest payments / gross disposable income, Households
Interest payments / gross disposable income, Households, EA17
Interest payments / value added, Non-fin. Corporations
Interest payments / value added, Non-fin. Corporations, EA17

Source: For Graph 3.13a, DNB Household Survey 2008 in Overview of Financial Stability in the Nederlands, November 
2009; For Graph 3.13b, Commission services (Eurostat)

On  a  macro  scale,  the  current  distribution  of 
refinancing  profiles  still  provides  protection 
against the pass-through of sudden increases in 
mortgage  interest  rates  at  the  time  of  renewal. 
In  2009,  about  half  of  all  mortgages  had  a 
remaining  fixed  interest  period  of  4  years  or  less, 
while  one-fifth  had  a  remaining  fixed  interest 
period  of  less  than  one  year  (Graph  3.13a). 
Moreover,  as  real  and  nominal  interest  rates  have 
declined,  the  rise  in  household  indebtedness  has 
been  associated  with  a  relatively  limited  debt 
service  burden  in  many  cases,  with  total  interest 
expenditure  as  a  share  of  disposable  income 
currently at about the average level observed over 
the  last  decade  (around  7%).  A  trend  decline  in 
mortgage rates has made it possible for households 
to service a growing debt stock without allocating 
a  larger  share  of  their  budgets  to  debt  servicing 
(Graph 3.13b).  

3.2.2.2.  Income and interest rate shocks 

and 

extensive 

is  characterised  by  a 

The  main  risk  to  service  mortgage  loans  stems 
from  repayments  arrears,  which  have  however 
remained  very  low  by  international  standards 
so far. Similarly, household defaults are still very 
much contained; foreclosures in terms of the total 
housing  stock  in  the  residential  property  market 
still accounts for only 0.07% of homes (45), which 
is among the lowest in the EU. This is not only due 
to  strong  creditors'  rights  and  a  very  strict  and 
austere  Dutch  insolvency  law,  but  also  to  the 
an 
existence 
generous 
of 
insurance  system.  The  Dutch 
unemployment 
labour  market 
low 
unemployment rate and a high participation rate, in 
an  international  context,  which  can  be  explained 
by a very high proportion of part-time jobs and the 
prevalence 
households. 
Moreover, mortgage debt has mainly been incurred 
by  those  with  higher  incomes.  A  full  60%  of  all 
mortgages are  held by  the  highest-earning fifth of 
households,  whereas  the  lowest-earning  fifth  only 
hold about 3% of total debt.  High-income earners 
usually  face  a  lower  risk  of  unemployment  and 
income  shocks  and  should  thus  be  more  able  to 
take on debt. Problems concerning foreclosures are 
therefore  mostly  the  result  of  unexpected  life 
long-term  unemployment, 
events, 
disability, death, and most importantly divorce. 

double-income 

such 

as 

of 

(45)  CBS (2012). 

37 

 
                                                           
 
 
 
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 3.14a:Interest charges by age category  

Graph 3.14b:Dutch bank's deposit funding gap 
(EUR billion) 

l

d
o
h
e
s
u
o
h
s
'
r
e
n
w
o
e
m
o
h

f

o
%

)
1
1
0
2

/

1

/

1

t

a
s
a
e
m
o
c
n

i

0.30

0.25

0.20

0.15

0.10

0.05

0.00

454

1000

750

500

250

0

25-34

35-44

45-54

55-64

65+

Total

10 - 90 percentile

25 - 75 percentile Median

Age

1

2

3

Private sector through securitisations (mainly mortgages)
Corporates direct
Private sector via banking subsidiaries
Households direct
Deposit funding gap

Source: De Nederlansche Bank

Nevertheless,  relatively  young  households  with 
an  average  to  high 
income  are  currently 
particularly  vulnerable.  They  have  taken  out 
high  mortgages  relative  to  their  income,  savings 
and  the  value  of  their  home.  Graph  3.14a  shows 
that  young  people  also  spend  a  higher  percentage 
of  their  gross  income  on  interest  charges,  even 
with the current low interest rates. This, combined 
with  their  high  level  of  debt  and  significant 
housing  expenses,  exposes  them  to  heightened 
risks. 

3.2.2.3.  Financial 

sector  balance 

sheet 

adjustments 

Changes  in  the  debt-to-asset  position  of  Dutch 
households  have  highlighted  the  exposure  of 
banks  to  longer-term  mismatches  on  their 
balance sheets because of deposit funding gaps. 
As  illustrated  in  Graph  3.14b,  the  current  total 
funding gap of Dutch banks is estimated to amount 
to  some  EUR  454  billion  (or  approximately  75% 
of  GDP),  larger  than  elsewhere  in  the  EU  (Graph 
3.15a), despite the national savings surplus. Dutch 
banks  hold 
large  home  mortgage 
portfolios compared to those in other EU countries, 
share  of  around  70%. ( 46) 
with  a 

relatively 

stable 

Simultaneously,  banks  have  limited  access  to 
savings, as pension capital is not accrued in banks 
but  rather  in  pension  funds.  Since  2008,  the 
funding gap is narrowing slightly thanks to growth 
in savings, but remains large (Graph 3.15b). 

conditions 

and  more 

Dutch  banks  are  under  pressure  to  reconsider 
their  funding  model  in  the  light  of  the  altered 
stringent 
market 
regulatory requirements, such as Basel III, which 
will  require  banks  to  reduce  their  dependence  on 
market  funding.  In  the  wake  of  the  crisis,  the 
tendency of banks to fund mortgage portfolios via 
wholesale  securitisation  came  under  pressure 
(Graph  3.16a).  Since  banks  can  only  partly  fund 
their 
through 
savings  deposits,  they  are  dependent  on  market 
funding,  which  may  dry  up  in  periods  of  severe 
market  unrest  or  uncertainty.  Mortgage  financing 
is generally issued with long maturity. If financing 
via  the  financial  markets  is  geared  towards  short 
maturities, banks are exposed to higher refinancing 
risks.   

large  mortgage 

loan  portfolios 

(46)  The  Netherlands  has  a  highly  developed  financial  sector 
(with  large  banks,  large  pension  and  insurance  funds,  but 
also  "special  financial  institutions").  The  Dutch  banking 
sector is large from an EU perspective, with the total value 
of bank balance sheets amounting to almost 500% of GDP, 
lower  than  the  banking  sector  in the UK  (650%  of  GDP), 

but  much  higher  than  that  in  France  and  Germany  (350% 
and  250%  respectively).  Moreover,  there  is  a  high  degree 
of  concentration  across  three  major  players  (Rabobank, 
ABN  Amro  and  ING)  which  hold  around  half  of  total 
outstanding mortgage credit.  

38 

 
                                                           
 
                                                                                   
 
 
 
 
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

Graph 3.15a:International comparison of 
deposit funding gap 

Graph 3.15b:Development of the deposit 
funding gap 

,
s
t
i
s
o
p
e
d

h
t
i

w
d
e
c
n
a
n
i
f

t
o
n
s
n
a
o

l

%

)
1
1
0
2
f
o

d
n
e

60

50

40

30

20

10

0

-10

-20

500

450

400

350

IE NL ES PT FI SI

IT GR FR AT DE LU SK BE

300

04

05

06

07

08

09

10

11

12

Source: De Nederlansche Bank

While Dutch banks have a relatively high core tier 
1 ratio in international comparison, the amount of 
core tier 1 capital as a percentage of total assets is 
nevertheless  fairly  low.  However,  Dutch  banks 
performed  well  in  the  latest  round  of  EBA  stress 
tests  thanks  to  a  favourable  weighting  of  risk-
weighted  assets  (including  mortgage  loans)  and 
should  be  able  to  withstand  a  heightened  level  of 
defaults (Graph 3.16b).  

3.2.2.4.  Household 
adjustment 

sector  balance 

sheet 

The  urgency  of  balance  sheet  recovery  for 
Dutch  households  or  the  immediate  need  for 
deleveraging  seem  less  obvious  than  for  other 
countries. The two most important reasons for this 

are  the  relatively  favourable  starting  position  of 
unemployment 
the 
relatively  gradual  and  contained  development  of 
house prices so far.  

the  Netherlands  and 

in 

liquidity  of 

Given  the  high 
level  of  household  assets, 
deleveraging pressures for the household sector 
are relatively contained. However, given the low 
degree  of 
these  assets,  Dutch 
households  might  be  relatively  sensitive  to  the 
impact  of  any  balance  sheet  adjustments  that  do 
occur. Moreover, when considering assets adjusted 
for  valuation  effects,  affecting  both  financial 
(mainly via prices of shares and other equity) and 
non-financial assets (mainly through house prices), 
the  expansion  of  household  balance  sheets  may 
have  been  more  asymmetric  than  shown  by 

Graph 3.16a:Savings, mortgage debt and 
securisation of mortgages since 1970 

Graph 3.16b:Tier 1 ratio, leverage and risk-
weighted assets of European banks 

700

600

500

400

300

200

100

0

o
r
u
e
n
o

i
l
l
i

b

Savings

Total mortgage debt

Securitised mortgages

0.14

0.12

0.10

0.08

0.06

0.04

0.02

0.00

1.00

0.90

0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00

I

S

T

I

T
P

E

I

Y
C

T
A

O
N

R
F

S
E

E
S

B
G

L
N

T
M

R
G

K
D

E
B

I

E F
D

U
H

0
8

2
8

4
8

6
8

8
8

0
9

2
9

4
9

6
9

8
9

0
0

2
0

4
0

6
0

8
0

0
1

 Tier 1 ratio

leverage

 risk-weighted assets (right axis)

Source: Central Planning Bureau

39 

 
 
 
 
 
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Graph 3.17a:Credit demand conditions 

Graph 3.17b:Credit supply conditions 

Unemployment
rate

House-purchase
loan demand (bank
survey, inv. scale)

SME loan demand
(SME survey, inv.
scale)

Consumer
confidence (inv.
scale)

Economic
sentiment (inv.
scale)

Corporate loan
demand (bank
survey, inv. scale)

House price
change (vs.
2007Q4)

SME lending
tightness (SME
survey)

Corporate lending
tightness (bank
survey)

Mortgage lending
tightness (bank
survey)

NPL increase (vs.
2007)

Sovereign CDS

Tier 1 ratio (inv.
scale)

Bank profitability -
ROE (inv. scale)

Banks' high-risk
foreign claims

NL

Average

Source: Commission services (Eurostat), ECB, IMF, BIS, Datastream

prompted households to rein in their spending and 
step  up  saving  in  order  to  rebuild  their  balance 
sheets.  Low  confidence  among  economic  agents 
and  the  pro-cyclicality  of  pension  premiums  and 
pay-outs tend to accentuate the drag resulting from 
housing-related wealth effects.  

Moreover,  by  adopting  stricter  credit  criteria 
banks  could  potentially  speed  up  balance  sheet 
adjustments.  As  their  capital  ratios  have  to  be 
restored,  banks'  ability 
to  accommodate 
demand for credit could potentially be reduced 
(Graph 3.17b). Any pick-up in credit demand will 
exacerbate this tension. In recent years, banks have 
sharpened the credit conditions for corporate loans 
due  to  increased  economic  risks  and  capital  and 
financing  costs.  Combined  with  decreased  credit 
demand, this has dampened credit growth by 1 to 3 
percentage  points,  affecting  especially  small  and 
medium-sized 
(SMEs).  Though 
currently  Dutch  banks  are  not  yet  scaling  down 
their domestic activities, credit growth is below the 
long-term  trend.  This  declining  credit  growth  of 
course  follows  years  of  exuberant  lending  and 
cannot be seen separately from the weak economic 
recovery and the faltering housing market.  

enterprises 

headline  ratios  (Graph  1a  in  Box  3.4),  implying 
deleveraging pressures). 

At the same time, heightened uncertainty about 
the economic outlook has reduced the incentives 
to  leverage  up  against  housing  wealth.  This  is 
illustrated  in  Graph  3.17a (47),  which  builds  on 
survey data but should be taken with some caution 
as  it  benchmarks  against  the  EU-27  and  may  not 
necessarily  reflect  a  calibrated  gauge  of  Dutch 
credit 
long-run 
fundamentals.  The  depreciating  value  of  financial 
assets  and  declines  in  house  prices,  along  with 
already 
increased 

insecurity,  have 

conditions 

allowing 

income 

for 

(47)  Graphs 45 and 46 present stress maps of credit demand and 
supply conditions. For each variable the range of the graph 
is given by the maximum and minimum observation among 
all  Member  States  (MS)  with  available  data.  A  weighted 
average  of  all  available  EU27  Member  States  is  provided 
as a visual reference. Variables are plotted on a regular or 
inverted  scale  ensuring  that  a  larger  map  corresponds  to 
more  adverse  conditions.  Credit  demand-related  data 
include  the  EC  Consumer  Confidence  Indicator,  the 
Economic Sentiment Indicator, the unemployment rate, the 
house price evolution relative to 2007Q4, the BLS changes 
in demand for (i) enterprises and (ii) house purchase loans, 
and the SAFE variable on External financing needs. Credit 
supply-related indicators include the change in overall non-
performing loans relative to 2007, the banks' Tier 1 capital 
ratio, banks' return on equity, banks' exposure to high risk 
foreign claims as % of GDP, the sovereign CDS spread, the 
Bank Lending Survey (BLS) tightening of credit standards 
for  (i)  loans  to  enterprises  and  (ii)  house  purchase  loans 
(trailing 4-quarter average), and the Survey on the access to 
loan  request  failure  rate 
finance  of  SMEs  (SAFE) 
(percentage  of  requests  that did not  receive  all  or  most  of 
the  amount  requested).  Most  recent  available  data  are 
presented (2012 Q2, Q3 or Q4). 

40 

 
                                                           
 
 
 
 
3. In-Depth Analysis of Selected Topics 

Box 3.4: Household debt sustainability

The  assessment  of  the  deleveraging  pressures  faced  by  Dutch  households  hinges  on  the  definition  of  a 
benchmark  against  which  to  compare  household  debt  dynamics.  Private  debt  is  considered  "sustainable" 
whenever it implies stationarity in terms of notional leverage. (1) Deviations of the notional leverage ratio 
from  a  balanced  path  imply  increasing  deleveraging  forces  as  debt  effectively  becomes  less  sustainable 
(meaning that deflated debt did not evolve in line with deflated assets). 

Graph  1a  plots  the  evolution  of  different  measures  of  household  indebtedness  (debt  over  GDP,  debt  over 
disposable  income  and  debt  over  assets)  and  also  reports  the  dynamics  of  an  estimated  sustainable 
benchmark. The ratio of household debt to GDP has increased from 59.1% in 1995 to 127.6% in 2011. The 
ratio  of  debt  to  gross  disposable  income  followed  a  similar  evolution.  On  the  contrary,  the  change  in 
leverage ratio was more moderate, from 17.6% in 1995 to 30% in 2011 (see 3.2.2.1) due to the concurrent 
increase  in  both  asset  prices  and  household  debt.  Adjusting  for  valuations  effects,  however,  the  measure 
used  of  notional  leverage  shows  increases  over  the  period  considered.  The  gap  between  the  actual  and 
notional leverage opened up fairly rapidly from the second half of the 1990s and again halfway through the 
2000s. Graph 1b shows tentative estimates of the annual deviations of the total gross household debt-to-GDP 
ratio from a synthetic measure of an underlying sustainable path (attempting to adjust for valuation effects). 
Using period 1995 to 2007 to calculate the cumulated increases in the estimated "excessive debt", it amounts 
to 38 percentage points. 

Graph 1a:Leverage ratios and balance sheet 
repair of Dutch households

140

120

100

80

60

40

20

0

)

%

,
s
t
e
s
s
a
&
P
D
G

.
s
v
(

s
o
i
t
a
r

t
b
e
D

95

97

99

01

03

05

07

09

11

300

250

200

150

100

50

0

P
D
G

f
o
%

)

%

,
I

D
G

.
s
v
(

o
i
t
a
r

t
b
e
D

45

40

35

30

25

20

15

10

5

0

Debt / GDP
Sustainable debt / GDP
Debt / total assets
Debt / gross disposable income (right axis)

Source: Commission services (Eurostat)

Graph 1b:Household sector balance sheet 
adjustment (Difference between actual and 
sustainable debt)

10

8

6

4

2

0

-2

-4

-6

-8

-10

95

97

99

01

03

05

07

09

11

Annual change in difference (right axis)

Difference between actual and sustainable debt (% of GDP)

The  rebalancing  of  household  sector  balance  sheets  towards  a  more  sustainable  level  implies  the 
closure  of  the  gap  between  the  actual  and  the  balanced  or  sustainable  debt  ratios.  This  movement 
depends,  on  the  one  hand,  on  the  actual  level  of  debt  to  GDP  going  down  (deleveraging  efforts  from 
households reducing their liabilities) and, on the other hand, on the benchmark going up (through corrections 
or negative valuation effects in asset prices, as houses prices and stock market adjust, allowing for an increase 
in the sustainable level of debt). The pace of the adjustment towards a more sustainable level of indebtedness 
and  the  associated  impact  on  economic  activity  will  crucially  depend on the  interaction between  these  two 
forces.  

(1)  Notional leverage is defined as the deflated (i.e. corrected for valuation effects) ratio between debt and total assets 

(financial and non-financial). 

(Continued on the next page) 

41 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Box (continued) 

In the case of the Netherlands, the existing high share of financial assets (i.e. pension funds) mitigates the 
impact  of  negative  valuation  effects  in  non-financial  assets  (drops  in  house  prices)  as  households  have  a 
more diversified asset portfolio than the average EU country. 

42 

 
 
 
 
 
 
 
4. 

POLICY CHALLENGES 

The  analysis  in  sections  2  and  3  indicates  that 
macroeconomic  developments  regarding  private 
sector  debt  and  deleveraging  pressures,  also 
the 
coupled  with  remaining 
housing  market,  is  the  main  challenge  in  the 
Netherlands.  Although  the  large  current  account 
surplus does not raise risks similar to large deficits, 
the  development  of  the  current  account  also 
deserves attention.   

inefficiencies 

in 

It  should  be  recalled  that  a  relevant  policy 
the  housing  market  was 
recommendation  on 
reflected  and  integrated  in  the  country-specific 
recommendations  issued  for  the  Netherlands  in 
July  2012.  The  assessment  of  progress  in  the 
implementation  of  this  recommendation  will  take 
place in the context of the assessment of the Dutch 
National  Reform  Programme 
and  Stability 
Programme  under  the  2013  European  Semester. 
Addressing the structural problems  underlying the 
key challenge outlined for the Netherlands requires 
a  gradual  redirection  of  policies,  as  embedded 
patterns need time to adjust.  

Against  this  background,  this  section  discusses 
different  avenues  that  could  be  envisaged  to 
address the challenges identified in this IDR. 

The  Netherlands  has  to  a  large  extent  been 
tapping  financial  flows  from  abroad  in  an 
original, yet potentially risky way which merits 
reorientation.  Dutch  household  savings  primarily 
end up with pension funds and insurance vehicles, 
which channel the bulk of these savings abroad. In 
recent  years  the  net  returns  of  these  institutional 
investors have been disappointing and their buffers 
to  be  able  to  cope  with  financial  setbacks  have 
significantly  decreased  since  2008.  Along  with 
substantial  pension  savings,  Dutch  households 
took  on  substantial  gross  housing  debt,  in  turn 
shaping the funding patterns of the financial sector. 
At  the  same  time,  profits  received  from  foreign 
affiliates  have  spurred  registered  non-financial 
corporation's  savings,  creating  a  net  savings 
location, 
surplus.  Owing 
historical  ties,  a  traditionally  strong  competitive 
position  and  sound  and  credible 
institutional 
setting,  the  Netherlands  has  become  a  hub  for 
international trade and capital flows. This allowed 
non-financial  corporations  (mostly  multinationals) 
to  channel  FDI  and  "route"  income  flows,  via 
entities in the Netherlands, between a company in 

its  geographical 

to 

one  country  and  subsidiaries  or  affiliates  in  other 
countries.  A  partial  and  gradual  reorientation  of 
overall  savings  and  funding  flows  towards  more 
balanced  patterns  across  sectors  could  help 
mitigate risks. 

purchasing 

Profitable  segments  of  the  economy  with  a 
strong  competitive  edge  can  help  to  underpin 
domestic 
power.  Aggregate 
profitability  of  firms  has  remained  high  in  the 
aggregate yet with very marked differences across 
firms  and  industries.  Especially  SMEs  oriented 
towards  the  domestic  market  have  seen  buffers 
diminish  as  labour  hoarding  has  become  costly  in 
the presence of protracted weak domestic demand. 
In addition, exploiting the space in the institutional 
for  pursuing  differentiated  wage 
framework 
lower  pension  contributions, 
increases  and 
particularly 
the  second  pillar,  may  help 
in 
vulnerable households restore their balance sheets, 
while also cushioning domestic demand. Domestic 
demand 
is  under  pressure,  with  confidence 
indicators near historic lows, a deteriorating labour 
market situation, fiscal consolidation, and pressure 
on  pension  contributions  and  pay-outs.  Lower 
pension  contributions  can  also  contribute  to  a 
rebalancing, although households will then have to 
revise their pension expectations.  

Fairly  sluggish  productivity  increases  in  the 
most  recent  period  and  the  low  value  added  of 
re-exports 
(the  most  buoyant  segment  of 
exports) illustrate the importance of focusing on 
fostering innovation and competitiveness. In this 
regard,  public  spending  on  fundamental  research, 
knowledge  and  education  can  help  support  the 
long-term growth potential of the Dutch economy. 
Cyclical  effects,  finance  bottlenecks,  unusually 
high  uncertainty  and  the  impact  of  (expected) 
balance sheet adjustments all seem to play a role in 
low  domestic  rate  of  capital 
the  relatively 
formation,  yet  there  may  also  be  a  structural 
element  at  play.  For  firms,  a  critical  reflection  on 
how  best  to  invest  the  proceeds  of  accumulated 
surpluses  and  how  to  rebalance  home  and  foreign 
investments 
Balanced 
adjustment  should  have  a  beneficial  effect  on  the 
domestic investment climate.  

warranted. 

seems 

As  regards  private  debt,  comprehensive  and 
appropriately  timed  and  sequenced  reforms  in 
reduce 
the 

housing  market 

would 

43 

 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

of 

respect 

improve 

households, 

that  encourage  mortgage 

the  allocation  of  capital, 

vulnerabilities 
financial 
institutions  and  the  government.  They  would 
also 
thus 
supporting  the  long-term  growth  potential  of  the 
Dutch  economy.  With 
to  housing, 
initiatives that eliminate fiscal incentives for taking 
on  debt  and 
loan 
repayments  are  welcome.  Recent  measures  by  the 
government  in  this  area  appear  to  be  steps  in  the 
right direction, but they still have to be assessed in 
detail.  There  are  also  obvious  implications  of  the 
current  housing  policies  on  government  finances, 
tax  revenues. 
notably 
Government  measures  recently  taken  only  partly 
address these.  

terms  of  foregone 

in 

the 

reduce 

the  overall 

fully  differentiation  opportunities 

restraining  effect  in  the  coming  years  on  activity, 
the process of adjusting balance sheets and savings 
insecurity  about 
patterns  should 
fiscal 
financial  stability.  Within 
constraints,  efforts  to  promote  innovation  and  to 
exploit 
in 
managing costs and financing opportunities will be 
key  to  a  successful  adjustment  process.  Balanced 
adjustment  will  have  a  beneficial  effect  on  the 
investment climate and, hence, economic prospects 
in  the  long  term.  Managing  the  transition  in  the 
housing  market  at  a  sustainable  pace  will  be  a 
defining element of such a strategy. 

private 

rental  market 
to  advance 

Moreover,  measures  are  required  to  correct 
rigidities in the housing market, including those 
that  have  prevented  the  emergence  of  a 
functioning 
of 
the 
appropriate  size.  Measures 
operation of the housing market by improving the 
functioning  of  the  private  rental  market  and 
reducing the inefficiencies and dead-weight losses 
associated  with  the  operations  of  social  housing 
corporations may help to get the market afloat. Of 
course,  this  should  be  done  while  duly  protecting 
the segment of dwellers in need of social housing. 

and 

harness 

The 
imminent  policy  challenge  will  be  to 
contain  balance  sheet  adjustments,  restore 
confidence, 
growth  while 
simultaneously stabilising public finances.  Thus 
it  is  essential  to  strike  an  appropriate  balance 
between  adjustment  needs  and  the  desirability  of 
supporting  near-term  activity.  This  implies  any 
measures  would  have  to  be  phased  in  gradually 
and predictably. In this  way,  both households and 
lenders  will  have  time  to  adjust  to  the  new 
circumstances 
abrupt 
adjustments  in  the  housing  market  and  in  finance 
can  be  avoided.  Long-run  gains  could  even  be 
larger if, after successful fiscal stabilisation, part of 
the  budgetary  savings  were  to  be  channeled  back 
into  the  economy  by  tax  relief  aimed  at  reducing 
the  costs  of  labour,  promoting  investment,  or  a 
combination of such measures. 

substantial 

and 

and 

Although  balance  sheet  adjustments  initially 
would  tend  to  dampen  near-term  economic 
activity, they can be expected to contribute to a 
sustainable  recovery  and  the  benefits  should 
the 
eventually  outweigh  the  costs.  Despite 

44 

 
 
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externe  vermogenspositie.  Over  zwarte  gaten, 
zwarte  materie  en  goede 
statistieken,  VU 
Uitgeverij, Amsterdam. 

Conijn,  J.  (2011),  De  Vastgoedlezing  2011: 
Woningcorporaties  op  een  Kruispunt,  Amsterdam 
School of Real Estate.  

Council  for  Socio-economic  Affairs  (2010),  Naar 
een  integrale  hervorming  van  de  woningmarkt, 
Commissie  Sociaal-Economische  Deskundigen: 
Sociaal-Economische Raad, Centraal Planbureau. 

Centraal  Planbureau 
Stability Report. 

(2012),  CPB  Financial 

Centraal  Planbureau  (2010),  Hervorming  van  het 
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45 

 
European Commission 

Macroeconomic Imbalances -Netherlands 2013 

Vandevyvere,  W.  (2012),  The  Dutch  current 
account  balance  and  net  international  investment 
position,  European  Economy  -  Economic  Papers 
No. 465, Brussels. 

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Imbalances: 

46 

 
 
 
 
 
 
 
 
K
C
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A
H
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1
3
-
1
4
0
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E
N
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N