Dutch Policy Overshooting: An Export Led Model with a Liberal Credit Market

• In Event: The Politics of Overshooting in Advanced Economies

Abstract

Most studies on credit expansion, financial overshooting, and widening access to consumer borrowing focus on the Anglo-liberal case studies and bury the small OECD countries into a large panel data study which marginalizes their distinctiveness. This paper will examine the case of the Netherlands, which is often presented as a typical example of an export-led growth model with a coordinated market economy. Unlike Germany, however, Dutch authorities have relied on consumer lending (mortgage credit) to stimulate economic growth, even though wage freezes and collective bargaining suppressed wage growth. Two questions will be addressed in the paper. The first question is why did Dutch elected and non-elected officials embrace a model of financial deregulation? And the second one is what were the economic, social, and political ramifications of this framework during the global financial crisis? Briefly, to answer the first question, the arrival of the single currency and financial deregulation in the early 1990s convinced the Dutch parliament and regulators to adopt a slew of liberal mortgage lending rules while housing reforms relied on an expansion of the home owners market. The ramifications of this policy were severe as the Netherlands suffered a deep and prolonged recession between 2010-14, house prices dropped by 30 percent and GDP fell sharply. Since 2015 recovery set in, but the lasting results are increasing wealth and generational inequalities due to different levels of indebtedness across generations and greater difficulties after 2013 in gaining access to the housing market.

Author

• Paulette Kurzer, University of Arizona