The Dutch and the US Debts: Is the Shoe on the Other Foot?

By Tom Kando

I have been in Holland for a few days. This small town of Bergen is like a little Brigadoon. It never changes. The thatched roofs, the geranium pots in the windows, the happy and well-dressed people in little cafes, everything in its place and within a few yards from each other. Tom Swinkel's First Bergen bookstore, the cheese shop, the market, the bike rental, the post office, all within two blocks from the main intersection. It's less than a mile from my mother's retirement flat to "downtown" Bergen, and I have walked it half a dozen times already to have my morning "koffie verkeerd" at the Terraza sidewalk cafe, to read my daily copy of the Herald Tribune.

"koffie verkeerd" literally means "coffee the wrong way." It's simply a cup of coffee with a lot of milk. "Cafe au lait." For some reason, the Dutch now call it "koffie verkeerd" - coffee the wrong way.

Today, I tried some humor on the waitress. I ordered "koffie fout," which is another way to say "coffee the wrong way", but she didn't smile. Probably thought I was an idiot.

One huge issue in this country right now is that the government suddenly finds itself in a deep deficit hole. The Dutch have been traditionally fiscally tight and highly responsible. The opposite of the Greeks. One of the STRONG European economies - like Germany. More than any other country, the Dutch government had insisted that the European Community FORBID all member states to run up a government deficit in excess of 3% of their GDP. And the European government in Brussels adopted this rule. For several years, strong countries like Holland and Germany managed to abide by the 3% rule, while weak countries (the "PIGS, the Mediterranean underbelly of Europe - Portugal, Italy, Greece, Spain, plus others such as Ireland) ran up annual government debt way over the mandatory 3% limit.

But low and behold, the Dutch suddenly find themselves on the wrong side as well: They are now running up a projected 4.5% deficit for 2013. So all of a sudden, the government has to make enormous cuts in all major services, in military expenditures, in wages to public employees, etc. They have to cut the deficit by at least 9 billion Euros. Minister President Mark Rutte has a huge fight on his hands. His government is a coalition government which includes Geert Wilders' Freedom Party. The question is whether, and how, the Dutch government will solve this problem. The shoe is now on the other foot: The problem is no longer with countries like Italy (which has managed to drastically reduce its budget deficit), but with a country such as Holland, which only a couple of years ago was moralizing and lecturing everyone about fiscal responsibility.

But my main question - as an American - is a different one: The budget deficits of the 27 Euro-zone countries range from highs of 6% to 7% of GDP in countries that are in the worst trouble, to lows of 1.5% of GDP in "strong" countries like Germany. Remember, these numbers are for ANNUAL budget deficits. The ACCUMULATED budget deficits of these countries range from 40% (Germany) of GDP to 160% of GDP (E.g. Greece). Holland's accumulated government debt is about 75% of its GDP.

What always gets me is that the European governments have considerably LESS debt than does the US government (as well as the Japanese). The US federal government is projected to run up a $1.5 trillion deficit next year, i.e. 10% of its GDP, and its CUMULATIVE debt is now around $15 Trillion, i.e. 100% of its GDP. Japan's is TWICE as high as America's - 200% of GDP(!)



So I ask: why are the Europeans held to a stricter standard than the US or Japan?
I know, I know, everyone points out the obvious: Europe is not one country. the US and Japan are. Europe can't print infinite amounts of Euros, as the US can print infinite amounts of dollars. And?

Another explanation is that the US can afford to run a high deficit because it can borrow cheaper. It can actually borrow at zero % right now, because everyone wants to invest in the US, and everyone is running away from Europe. I'm not sure. The Euro remains a stronger currency than the dollar - I experience this painfully every time I come here.

I still don't get it. Debt is debt. The more indebted country is economically less viable than the less indebted country, no?
I ask again: The Europeans have a 3% rule; they worry when a member state exceeds that threshold, and they have rules in place to prevent this from happening. On the other hand, the US annual deficit is 10% of GDP, and yet we only hear of a EUROPEAN debt crisis, not a US crisis. Why? Someone please explain this to me.



There is another interesting aspect of this fiscal crisis, in terms of Dutch-American comparisons: My mother just received a notice in the mail that her pension is going to be reduced a little, starting next month (.5%). For the time being, this would be INCONCEIVABLE in the US: In California, for example, the state budget is severely out of whack, and cutbacks MUST be made in the near future in order to balance the budget, just like in Holland. One of the main contributors to the deficit, in both places, are unsustainable public pension benefits (enjoyed by people such as myself). But in California NOBODY has EVER suggested re-writing the contracts AFTER THE FACT between the State pension systems (E.g. California's PERS) and those who are ALREADY in the system. The consensus is that it would be illegal to violate contracts which were arrived at decades ago. The ONLY talk there is, is to reduce benefits to people entering the pension system now and in the future - in other words, NEW public employees. So it's interesting that the Dutch have no qualms about changing the terms of my mother's pension, terms which were arrived at contractually between her and her employer long ago...leave comment here