By Anthony Deutsch
LANSINGERLAND, Netherlands (Reuters) - The euro zone crisis is washing over the walls of one of the region's safest havens.
So far the Netherlands, a founding member of the European Union and fiscal hawk along with neighboring Germany, has been spared the dramatic collapse of property prices associated with southern European countries such as Spain.
Housing prices have fallen roughly 15 percent since 2008, compared with up to 30 percent in Spain since the crisis began.
Now, though, four years after the global financial crisis first hit, the economy is on the brink of another recession. And steadily sinking property prices are exposing a deep Dutch weakness: unpaid mortgages.
The Dutch, who have been able to borrow up to 12 times their income to buy homes, are leveraged to the hilt. By some measures the Netherlands has the highest per capita mortgage debt in the European Union.
ING, one of the country's largest lenders, forecast earlier this month that by next year, the debt on one in four mortgaged homes will exceed their value.
The Dutch expression is graphic - they say such homes are under water.
In the low-lying Netherlands, that's evocative enough. The problem is also bigger than the economy. Collective Dutch mortgage debt rose from 140 billion euros in 1995 to 640 billion euros ($790 billion) last year - or from 46 percent to 105 percent of GDP.
On top of that, the central bank predicts economic growth in the seven years through 2014 will be the lowest since World War Two. The European Commission in May forecast the Dutch economy would shrink by almost one percent this year.
In July, Moody's said it might downgrade its rating on Dutch government debt. "This dynamic creates additional fiscal headwinds and means that the Dutch government's debt burden will begin to fall later and from a higher level," it said.
If housing prices fall another 10 percent, the central bank projected last year, 30 percent of all mortgages would no longer be covered by the home value. That would lead to losses at the four Dutch commercial banks, where about one third of lending comes from mortgages and which are already reporting rising mortgage delinquency.
Dutchman Nico van Os's experience shows how the problem runs from the countryside to the heart of the state's finances. He and his father tended greenhouse flowers in the western Netherlands for decades, trading overseas and hiring locally.
In 2003, as the property bubble was inflating, the local authorities persuaded them to cash out the family business and sell their land to a multi-billion-euro property development.
"They acted as if the trees could grow to the heavens," said Van Os, recalling how bitter he was at the pressure to sell.
A decade later, the land his family and six neighboring farms sold to the government is an overgrown field. A plan to build 2,800 houses has been scrapped.
The defunct Van Os business is just one headache for the municipality of Lansingerland, a sprawling new residential development with 56,000 residents just north of Rotterdam.
Lansingerland bought land from owners like Van Os and ran up debts almost double its income. Until recently, it was among the country's fastest growing regions, building 1,000 homes in 2008. This year, 300 looks optimistic.
Scores of projects have been cancelled and this year it wrote off 45 million euros in losses.
But mayor Ewald van Vliet's worries extend beyond his region.
"Of the Europeans, the Dutch spend the most on housing and that's where there is a large risk," he said. "I am worried that the risk is being underestimated."
Where Dutch households had since the 1990s been able to borrow up to 12 times gross salary, since the Lehman crisis new guidelines have lowered that to around five times. Continued...