Dutch citizens are increasingly failing to pay their bills. Financial situation in ‘stable’ Euro-country The Netherlands might deteriorate very quickly, very soon.

The Dutch press agency ANP and the website www.Sargasso.nl executed an investigation, based on figures from the Dutch Association for Debt Collection Agencies, the NVI (www.nvio.nl).

The following snips come from an article at was posted at Sargasso:

We cannot pay our bills anymore (link in Dutch)

Consumers experience increasing difficulties with paying back their debts. Amounts at debt collection agencies are due longer and longer and the amount that these agencies could collect has decreased substantially during the last Quarter. 

The amount due at debt collection agencies has reached the record level of €6.3bln. These facts were disclosed during a joint ANP and Sargasso analysis of figures that were released today by the Dutch association of certified debt collection agencies (NVI).

‘I was shocked when I saw these figures’. This was stated by Jet Creemers, chairwoman of NVI. ‘We supposedly have reached a point that the piggy bank of people is empty; as a consequence people get into considerable payment problems’.

In the consumer base, the number of open files increased by 7%. The number of new files, however, decreased by 6%. This means that the present files remain open longer and longer. The amount that debt collection agencies could collect in Q4 has decreased by no less than 26% in 2011. Creemers: ´From this event, we can safely conclude that it is harder for consumers to meet their financial obligations’. 

That the number of new files from consumers decreases seems to points at two circumstances. Creemers:´At one hand consumers have become more cautious in running into debt and on the other hand companies have become more defensive; they instigate a debt collection agency for increasingly smaller amounts. The aggregated amount due, at consumers as well as companies was €6.3 bln at the end of 2011, which is a record. The number of files was 3.5 mln; also high, but about equal to the number in 2010Q4.The NVI represents about 70% of all debt collection agencies in The Netherlands.

And there is more information about this topic on the website www.xead.nl. Here are some snips:

Consumer cannot pay bills anymore (link in Dutch)

The number of consumers with a loan (mortgage) that is struggling to meet their payment obligations, increased slightly until 656,000 during the last six months. This means that 7.4% of the total number of consumers has real payment problems. During 2011H1, this number was still 7.2%.

The following costs have increased or will probably increase:

• Child care subsidy decreased by 50% (extra costs €250 per month) 
• Health care Insurance increased by 6% (€30 per month) 
• Real estate tax will probably increase by 5% (about €3 per month) 
• Fuel prices increased (about €30 per month) 
• Higher fixed interest rate on the mortgage (about €100 per month) 
• Value Added Tax (VAT) might increase to 21% from 19% (about €20 per month) 

The phenomena of deteriorating payment behavior and people being increasingly in arrears that has been described in both articles, has two main causes in my opinion:

First: for many people it took considerable time to get used to the new normal of more austerity and less consumption:

• Some people had the bad luck of losing their job or getting into a divorce, with as a consequence that either their house had to be sold at a much lower price than the outstanding mortgage amount, or they couldn't afford their mortgage redemption and interest payments anymore. 
• Some other people started to use the credit card to fill in the void that a lower salary / less income or a double mortgage burden left. 
• Numerous other people used their current account (see chart), or took mid-term or short-term loans (like end-of-month loans) and supplier’s credit to keep up appearances and not having to admit to the outside world that their income dropped. 

Debt on current accounts and outstanding contracts 1995-2011
Data courtesy of statline.cbs.nl
Click to enlarge

But those times seem over now, as the banks are currently much less flexible against people that want to borrow extra money. Now all these people are probably among the people with the longest and highest arrears.

Second: the central and (especially) local governments have used the Dutch citizens as a Credit Default Swap for investments gone awry.

If a private company loses money on investments, it just has less money left to invest with. If it still needs more money, then it should ask either its bank or its shareholders and the secundary markets to supply new money through new loans or the issuance of equity or bonds.

However, when a local government loses money on investments, it just raises all kinds of taxes and service costs to replenish its cash position. Parking fees, building permit costs, local traffic penalties, real estate taxes or sewerage and waste processing taxes are the weapons of choice.

And although the aforementioned specification of increased costs from the second article seems to consist of only small amounts, the aggregated amounts are enough to get middle-class families into trouble when their financial reserve is already very small.

I understand it that local governments currently need extra money to pay welfare and unemployment benefits; there are simply much more unemployed or poor people than a few years ago.

What I don’t understand is when local governments or semi-governmental institutes, like building cooperatives (Vestia) make poor investments and lay the burden of their aggregated losses totally on the shoulders of the citizens or clients that they care for.

Everybody in The Netherlands remembers the communities and provinces losing litterally hundreds of millions of Euro’s in the Icesave (Landsbankki) and DSB Bank collapses. Should the taxpaying citizen replenish those losses that were clearly caused by bad judgment of highly paid government officials? Initially I don’t think so.

In my opinion these losses should be mitigated by cutting the budgets for municipal investments and consumption, like residential and commercial real estate, city development and budgets for city presentations, parties and other events that the citizens don’t directly benefit from. And when the losses of the cities are too big to be mitigated by those budgets alone, then the central government should step in.

The same should be true for the central government: when government investments or large government projects fail, it should be the central government itself that mitigates the financial damages.

But that is unfortunately not what happens. Unfortunately, it are the lower and middle-class citizens that pay the bill for these government failures by substantially increased costs of living. Until the citizens can’t pay those costs anymore and default in the process. And that is something that will happen much more often in 2012 and 2013.