I have mentioned before, that I do not particularly like Acting Man/Pater Tenebrarum’s approach to economic reporting; they are incorrigable goldbugs and they have some serious ideological problems with social safety nets – their invocation of Socialism! Socialist! Marxist! is just ridiculous. And I don’t know if it is a sense of humour on their part but they for instance connect the former accusations to the ‘obvious’ Dutch Economic Policy Research Centre (or what is it officially), i.e. the Centraal Planbureau or literally Central Planning Bureau. This name really reflects 1950s-1970s economic thinking and has never had anything to do with Communist institutions of the same name. But the good Pater doesn’t know that obviously.
That being said, AM does also have good, data-based reporting, and today’s data on the Netherlands is such a case. I disagree with their interpretation regarding inflation/devaluation and ECB, but the important part is the data on the Dutch housing market. The crash is really quite worrisome, and as Ambrose Pritchard-Evans has also pointed out, there will be more and more mortgages ‘under water’, which puts incredible strain on the banks. Similarly, and relatedly, private debt is, as shown in the post, much higher than it even was in Ireland. This doesn’t bode well, given how quickly the unemployment rate is going up at the moment! Acting Man points out core problems with the tax constructions that were/are possible in the Netherlands. And indeed, the Netherlands seems to be a ‘worse offender’ than Cyprus, regarding tax evasion, Russian money etc.
You can’t be very happy about the euro given these developments.
Ambrose Pritchard-Evans discusses the state of the Dutch economy here. As usual, other people with more experience are able to write about the same issues much more concisely than I can. But there are the same issues nonetheless: wobbly banks, with too much real estate on their portfolio; extremely high private indebtedness and a stuck housing market where real estate prices decline rapidly. As I mentioned here, the trajectory of housing prices is very much like Spain’s, and I have seen a long-term graph of Dutch housing prices which really shows that a slow bubble had been developing since the 1990s.
After the collapse of SNS Reaal due to ‘bad real estate’ portfolios, it is a matter of time when the next banks start to become very shaky, as per Pritchard-Evans Dutch banks are
up to their necks in mortgage portfolios. They face a huge “funding gap”. The loan-deposit ratio (LTD) is 183pc, compared with roughly 70pc in the US and Japan, 100pc in Germany or 120pc in Britain.
This means that Dutch lenders – like Northern Rock before them – must rely on the capital markets to roll over debts. This is courting fate. “The persistently high LTD ratio makes Dutch banks particularly vulnerable to a scenario in which market confidence evaporates,” said the Nederlandsche Bank (DNB) in its latest stability report.
With unemployment rising, scrutiny of Dutch (and Luxembourgian) tax constructions, and weakening of the Dutch neighbour countries (on which it relies with export and throughport), things are not looking so well.
And as Pritchard-Evans says: ‘It is a case of misaligned monetary policy. The Netherlands offers a salutary lesson of what can happen to a rich sophisticated economy caught in a post-bubble crunch once it has lost control of its currency, central bank and monetary levers.’ In other words, the existence of the EMU.
Nobody is safe anymore.
As I posted to this blog a few days ago, the European Commission has temporarily approved the rescue aid for SNS Reaal. But that was to be expected in a sense. More interesting was yesterday’s statement by the Raad van State on whether or not the nationalization was legal. The NRC newspaper reported extensively on this, but again only in Dutch (in English here, on Reuters). In short, the nationalization is legal, and also the expropriation of shares and subordinated (junior) bonds /participation certificates is legal. But the Raad van State clearly states that this would not be legal for future expropriations, if the Dutch State would want to attempt such a thing. The core reason for the legality is the importance of SNS to the Dutch financial system (‘systeembank’).
Another bit of news relates to the FNV labour union federation, which I wrote about here. The same statement by the Raad van State argues that also the expropriation of the loan by FNV to SNS in the process of the nationalization was legal. This means FNV has lost about 20 million euros. The federation wishes to claim damages from the Dutch state but the Dutch Finance minister has announced this will not be honoured (or to be precise – the damages paid will be zero euros.)
http://europa.eu/rapid/press-release_IP-13-150_en.htm Not unexpected, because otherwise the whole excercise would already fall apart. But I hope this state aid will be scrutinized well, because Dutch taxpayers are already big into it from the previous state aid, which is apparently waived?