Recession, austerity spur Dutch frugality

AMSTERDAM Tue Apr 3, 2012 4:16pm BST

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AMSTERDAM (Reuters) - Child psychologist Denise Dulcic has suffered first-hand the economic downturn and fiscal squeeze that is gripping the Netherlands and says she is "just surviving".

When the government cut back on subsidies for the disabled in a package of austerity measures intended to bring a bloated budget deficit under control, Dulcic's contract working with disabled youths at a secondary school was not renewed.

"It is really difficult to make a living," she said. "I cut back on food. I'm not going out. Holidays? Forget about it."

With the economy in recession, unemployment has crept up to 6 percent, the highest since early 2006, while disposable household income has fallen for the fourth year in a row.

One in eight Dutch households barely manages to make ends meet, statistics show, compared with six out of 10 in Greece. Dulcic, 32, says she survives on the proceeds from her small catering business and by cooking for a neighbourhood food-sharing programme called "Tweetje Mee" or "Table for Two".

Set up to help people save time and money - a food portion costs between 2.50 and 6.00 euros, while a three-course meal is about 15 euros - Tweetje Mee has signed up more than 1,000 members and has spawned imitators.

"I am a single mother of two, so the idea of starting a food-sharing programme came from my personal situation," founder Manette Zeelenberg, told Reuters.

"It's just as easy to make six portions of spaghetti when I cook for my family, so why not sell the other three meals, then effectively we eat for free?"

Zeelenberg said she learned as a child not to waste food. Her mother told her how little she ate during World War Two, when food was so scarce that some people survived by eating tulip bulbs, potato peelings, and leaves.

The Dutch are legendary at home and around Europe for their frugal habits, such as taking their own food with them when they go on holiday to avoid spending money abroad.

The language abounds with expressions about saving money such as "pile up your nickels and you will build a house".

So it is no surprise they are meeting the current adversity with penny-pinching ingenuity.

CORE OR NON-CORE?

The Netherlands has long been considered a core member of the euro zone and a virtual proxy for Germany because of its fiscally conservative ways.

Dutch government bonds typically traded in sync with German Bunds, commanding only a slightly higher yield. The Netherlands, along with Germany, Finland and Luxembourg, was one of just four euro zone countries to keep a precious triple-A credit rating when France and Austria were stripped of theirs this year.

Dutch Finance Minister Jan Kees de Jager is a firm believer in sticking to the euro zone's targets, like his predecessors, and has been an outspoken critic of budget "sinners" such as Greece and Portugal.

Now the Netherlands finds itself in a similar predicament to peripheral economies with the same arduous task of pushing through another round of unpalatable austerity measures. The fact the Dutch have to eat humble pie has not gone unnoticed, at home or abroad.

The minority centre-right coalition government is struggling to win support from its key political ally to lop as much as an extra 16 billion euros off the annual budget, on top of the 18 billion euros already agreed in annual reductions by 2015.

Up for discussion: an across-the-board pay freeze, raising Value Added Tax on goods and services, more cuts in welfare benefits and the phasing out of tax breaks on mortgages.

But clinching a deal with Geert Wilders, leader of the populist Freedom Party which is not in the government but has a pact to support it in parliament, will prove difficult.

The Freedom Party is anti-immigrant, anti-Islam and anti-euro, and appeals to voters tired of the political elite.

The typical supporter "is a cleaner, a construction worker, a house painter, not very well educated but very hard-working, self-made, middle class," said pollster Maurice de Hond. They tend to be against handouts for foreigners - whether in the form of benefits for immigrants or aid to developing countries.

Wilders' view is that benefits funded by Dutch taxpayers should be enjoyed by the Dutch themselves. He opposes euro zone bailouts and says Greece should leave the single currency area.

He wants to slash spending on development aid to 600 million euros from 4.6 billion currently. The Netherlands spent 0.75 percent of GDP on development last year and has cut it to 0.7 percent this year as part of the cabinet's saving plan.

While Prime Minister Mark Rutte has relied so far on the opposition Labour Party to secure a parliamentary majority for bailouts, that support is no longer guaranteed. Labour has a new leader, Diederik Samsom, who wants the Netherlands to soften its stance on Europe.

Samson and Labour's financial spokesman Ronald Plasterk said last month they could block ratification of an EU fiscal compact treaty, which sets stricter budget rules, unless the Netherlands is given more time to lower its deficit.

That public deficit is forecast to hit 4.6 percent of gross domestic product in 2013, well above the 3 percent agreed with the European Commission. If the Dutch do not cut spending they risk breaking EU budget rules and losing their triple-A status.

The level of state debt has risen to 65.2 percent of GDP at the end of 2011, from 62.9 percent in 2010, Statistics Netherlands said last month.

In a report last month, Citibank went as far as to say the Netherlands no longer deserved to be considered a core member of the euro zone because of its fiscal woes.

GENEROUS SUBSIDIES

Outwardly, the Netherlands still exudes an air of sober prosperity. But in a country accustomed to generous benefits - whether for child care, unemployment, social housing, education, or funding for the arts - austerity is starting to hurt.

"Economic changes impact on people's lives with a time lag. Someone who loses their job does not immediately give up sport or voluntary work, for example, and is also not forced to leave their home straight away," the Netherlands Institute for Social Research said in a report.

"The consequences of the austerity measures taken by the present Dutch government will only take effect from 2012 onwards. The biggest blows are, in other words, yet to fall."

Unemployment remains low by European standards, thanks partly to the large number of Dutch who work part-time.

One area where the downturn is most noticeable is in house prices, which have fallen about 13 percent from their 2008 peak.

Generous tax breaks on mortgages have distorted the property market, encouraging home ownership and high levels of household debt, which Citibank ranks among the highest in Europe given a gross household debt to GDP ratio of about 133 percent.

That makes it harder for the government to phase out the tax breaks, which would most likely depress house prices and further erode consumer confidence.

Such reforms would be highly unpopular with voters. About 55 percent of Dutch households are homeowners, with the right to deduct mortgage interest costs from their income up to a level of 50 percent, lowering the net amount they pay for housing.

Wilders has said this is a no-go area, tweeting "Hands off mortgage interest deductibility!".

Home owners complain that with so much property on the market, sales are stagnant.

"My home has been on the market for more than two years now, and I've already dropped the price by 100,000 euros," said one seller in Amsterdam's elegant canal belt, with its gabled houses and converted warehouses that once stored spices from the Dutch East Indies. He asked not to be named.

A popular television series called "Stay of Execution" helps members of the public to clear their debts and sell their homes. For example, if someone is at risk of having their home repossessed by the bank, they may get help with redecorating the property so it fetches a better price on the open market.

LESS DISPOSABLE INCOME

Many Dutch have had to find ways to spend less. More are now turning to the Food Bank, which hands out grocery parcels to the poor and needy, including people who are heavily in debt.

"We had about 900 to 1,000 households a year ago in Amsterdam. Now it is more than 1,300. The growth primarily took place in the last few months," Piet van Diepen, spokesman for Food Bank Amsterdam, told Reuters.

"Some people who had some reserves have now used them. In addition, a large number of our user group are people with loans. More than 80 percent have loans," Van Diepen said.

At the Basis Bar on one of Amsterdam's canals, customers can bring their own food and heat it in a microwave oven so they can enjoy a social evening without paying steep restaurant prices.

On a recent evening, it was bursting with customers. Two young women stepped up to the counter to order beers, then handed their ready-to-cook supermarket meals to bar co-owner Michiel Zwart who popped them in the microwave.

"It's much more affordable to go out for an evening when we bring our own food," said unemployed social worker Janis Breed. "Going to a restaurant would cost three or four times what we pay for the food we brought and this is a very nice atmosphere."

(Reporting by Gilbert Kreijger, Sara Webb, Roberta Cowan and Svebor Kranjc in Amsterdam, additional reporting by Renee Maltezou in Athens; Writing by Sara Webb; Editing by Paul Taylor)

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