Is the optimism regarding the economy after the pandemic justified?

Erasmus School of Economics

In a broadcast of Economenpanel (economist panel) from BNR Nieuwsradio, Professor of Monetary Economics at Erasmus School of Economics Casper de Vries, together with Barbara Baarsma, Professor of Applied Economics at the University of Amsterdam, talk about the reigning optimism at the Dutch central bank (De Nederlandsche Bank, DNB) and the OECD concerning the state of the economy after the pandemic.

Klaas Knot, president of the Dutch central bank, is optimistic about the potential of the Dutch economy after the pandemic. Nevertheless, he seems to be worrisome about the risks that overly optimistic forecasts tend to carry along. Especially, the housing market is a source of concern. One of the main problems seems to be the mortgage interest relief since companies and banks are allowed to make use of the regulation as well. The consequence seems to be that these parties are particularly interested in financing their activities by means of acquiring debt.

Housing market

However, the housing market is overheated; De Vries states that young people have to pay way too much to buy a house, which means that they are indebted with colossal companies. Furthermore, this leads to a transfer of money from the young generation to the old generation. The answer to the rhetorical question of De Vries may be clear: is this really what we want as a society? The most obvious measure to end this devastating situation, is to abolish the legislation of mortgage interest relief. This Friday, 11 June, Klaas Knot will be giving a lecture right after making a decision on the mortgage interest relief together with other decision makers of the European Central Bank (ECB). De Vries emphasises that it is of vital importance to start building more houses to relief the currently overheated housing market.

Alternative solution

One of the alternative solutions is to allow Dutch households to use a part of their retirement savings as collateral for acquiring a house. In the current situation, this is still not allowed. Baarsma completely agrees with De Vries, stating that this really is a great way of addressing the current problem of the housing market. However, the Netherlands still have a long way to go; in the list of the Organisation for Economic Co-operation and Development (OECD) the Netherlands is the country with the highest amount of private debt, because all the wealth is stored in our pensions. With the publication of the KidsRights Index, the Netherlands turns out to not give attention to the needs of children. In conclusion: the economic forecasts sketch a beautiful picture, but there are still a lot of obstacles to overcome before we are really back to normal.

Professor
More information

You can listen to the full broadcast from BNR Nieuwsradio, 7 June 2021, here