Going Dutch or going bust

Last week, three associations of Dutch pension funds' issued a quite startling warning to the Dutch Parliament: "If interest rates remain so low" they said "the the entire pensions system will be undermined”, adding that insurers could take a serious hit as well.

Thing is, Dutch pension funds are stuck in a tricky dilemma: they're promising their savers annual returns of 3.75 percent or more, but long term interest rates are substantially lower than that (down to 2.13 percent in Germany).

This has led to a big uproar in the Netherlands, as it emerged that as many as fourteen Dutch pension funds could be forced to backtrack on their obligations - for the first time ever. This, in turn, would result in a 14 percent loss for some 150,000 Dutch pensioners. The Dutch pension system is very much designed around a large number of private pension funds, which traditionally have yielded good returns for Dutch citizens - so the pain would be felt.

The Dutch National Bank, effectively working under the ECB, argued that the pension funds had themselves to blame for the problems. But Albert Roëll of Kas Bank blamed the situation on the continued low interest rates and the cheap money the ECB has distributed to banks, in the wake of the sovereign debt crisis in the eurozone.

The Dutch government has now rejected demands from the pension funds to relax capital standards (which they argue would be one of the few ways to address the problems. Adjusting interes rates could have been another, if the Netherlands hadn't given up its control over interest rate policy) .

So what do we see?

- The Dutch pension system, which is world famous for its large share of private pensions, is coming under strain because of the ECB's low interest rates. These rates are in many ways now intended to serve struggling periphery economies in the eurozone and big banks who did unwise investments in these same economies.

- In turn, Dutch pension funds are forced to take on more risks (holding less capital) in order to cope with these strains. The alternative is to cut returns, meaning less money for the country's pensioners.

- Another example of the problems with a one-size-fits all monetary policy in an area with such diverging economies as the eurozone.