Last Friday, it finally happened: Moody’s—the last credit rating agency still holding on to a shred of faith in Uncle Sam—downgraded the United States from AAA to Aa1. America is now officially among the ranks of “almost-but-not-quite-perfect” countries. It’s a bit like a high school student going from a 10 to a 9.5—still excellent, but mom and dad are disappointed nonetheless.
The markets shrugged it off, having already weathered S&P’s removal of America’s top rating back in 2011 and Fitch’s downgrade last August. Moody’s had already issued a “negative outlook” on November 10, 2023, signaling that this move was on the way.
With an annual budget deficit of around 2 trillion dollars (that’s a two followed by twelve zeros!) and a national debt larger than the entire economy, this downgrade was about as surprising as rain in the Netherlands—although even that’s been different this year.
Speaking of the Netherlands, the country remains part of an increasingly exclusive club of nations with a perfect credit rating. While the U.S. now has to settle for an Aa1 from Moody’s, this little country continues to flaunt its three shining A’s. Moody’s recently reaffirmed the Netherlands’ AAA status, citing its “strong economic fundamentals, fiscal prudence, and institutional resilience.”
This contrast becomes even sharper when we look at their eastern neighbor. Germany—once the poster child for fiscal discipline with its famous “Schuldenbremse” (debt brake)—has been loosening the reins. The Netherlands, meanwhile, has emerged as the model student of the European class. Their national debt has dropped to 43.2 percent of GDP—well below the European benchmark of 60 percent. Compared to figures like 137 percent for Italy, 160 percent in Greece, and 63 percent for Germany, this is remarkably modest. And while the Dutch project a 2.8 percent budget deficit for 2025—just under the EU’s 3 percent limit—many other countries are grappling with much larger fiscal holes.
Most major institutional investors had already adjusted their rules after S&P’s 2011 downgrade to allow continued purchases of U.S. Treasury bonds, even without the AAA rating. Moody’s itself emphasized that America’s “exceptional economic strength and the unique and central role of the dollar and U.S. Treasury market in global finance” remain significant.
The key difference between the United States and countries like the Netherlands is that the U.S. still has its own currency—the dollar—whereas Europe gave up national currencies long ago. This means the U.S. can always repay its debts in dollars, while Dutch debt in euros can never be 100 percent guaranteed. As a result, the U.S. can print dollars indefinitely. The only remaining question is what those dollars will actually buy you.
There’s no longer any question whether America’s finances are a mess—we’ve all known that for years. The real question is: does it actually matter? As long as the dollar remains the world’s reserve currency and foreign investors continue to believe in the “greatness” of America, the U.S. can keep borrowing as if there’s no tomorrow. The Dutch look on, shaking their heads, while keeping their own budget in check—because who are we to judge the financial chaos of a superpower? They’ve got plenty of problems of their own—from a housing crisis to a nitrogen crisis. But their public finances are solid.
Dutch trademark Calvinism and their frugality do have their advantages. Other countries may laugh at the meager cheese sandwiches and buttermilk, the aversion to unnecessary luxury, and the constant calls to “just act normal.” So while Uncle Sam sees his credit rating crumble and even German “Ordnung” starts to falter, the Netherlands still stands tall as one of the last “Triple-A” countries in the West.
The downside of the Dutch AAA is that they’re still suffering the drawbacks of the thriftiness but enjoying fewer of the benefits. Yes, they can borrow at lower interest rates—but got so little debt left that it hardly makes a difference. A strong economy results in strong credit and a strong currency.
Take Switzerland, for example. For years, the growth of Dutch prosperity ran parallel to that of the Swiss. That prosperity creates a self-reinforcing cycle: better education, good healthcare, and people who want to work in a country at the forefront of innovation and healthy living—without constantly increasing the tax burden.
Since the euro crisis, the difference in prosperity between these two countries has grown rapidly. Where the Dutch once kept pace with the Swiss, their international purchasing power has now been cut in half. As a result, the Dutch can no longer invest freely in further optimizing its economy. There is a solution, and that is to take on more debt—but that would come at the cost of their AAA rating.
Han Dieperink is Chief Investment Officer at Auréus Vermogensbeheer. He was previously CIO at Rabobank and Schretlen & Co.