UPDATE 1-EU Commission to look at risks of Dutch housing bubble

Wed Nov 28, 2012 11:52am EST

BRUSSELS Nov 28 (Reuters) - The European Commission will launch an in-depth investigation into the Dutch economy to assess the risks of a housing bubble in the country, the executive arm of the European Union said on Wednesday.

"There is a need to investigate more in-depth the potential risks stemming from a very elevated level of private sector debt in combination with high house prices," the Commission said in a statement.

The EU's executive monitors all euro zone economies each year to see if there are any macroeconomic imbalances that require further investigation.

The Netherlands has one of the highest per capita mortgage debt ratios in the EU, at more than 110 percent of GDP in 2011. A fall of more than 15 percent in housing prices since 2008 is cutting into household spending and economic growth.

The European Union executive will also look into Malta's financial sector.

"Potential risks relate to the nexus of an extremely large financial system and the high exposure of the banks to the property markets, in combination with high private sector indebtedness," the statement said.

"Moreover, the size of the (Maltese) financial system is very large."

If the conclusions of the investigations, endorsed by euro zone finance ministers, are that there are no problems, the matter will be dropped.

But if the risks might threaten the functioning of the single currency area, the Commission will send recommendations to the Netherlands and Malta and the countries would have to take steps to rectify the situation or could face fines.

The Netherlands has one of the highest per capita mortgage debt ratios in the EU, at more than 110 percent of GDP in 2011.

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