Tag Archives: The Netherlands

This chart tells Finnish house prices are overvalued

“Developed economy house price-to-rent ratios from Canada to Japan” http://feedly.com/k/1c1GKoJ

The chart in the link, that is.

Although it looks like house price-to-rent is fairly balanced in the Netherlands, this perhaps so because rents are so high in the Netherlands.

The Eurocrisis comes through the backdoor for Finland, the Netherlands and Germany

At the end of September I had already a post on restructuring, budget cuts and redundancies in Finnish counties. All of these, directly or indirectly relate to the budget cuts implemented by the Finnish government and decisions to reduce some tasks of the local government.

You can read my post here on the budget cuts and why the Finnish government thinks it is so important that Finland sticks to the Maastricht criteria (hint: most of it relates to ‘we have lived beyond our means’). The same post also reflects on the Dutch politics of budget cuts, and how the Netherlands somehow is able to bend the rules somewhat despite rapidly worsening economic indicators (or maybe especially because of those).

I just want to make a short point here. In Finland, the Netherlands and Germany local governments (Gemeinde, kunnat, gemeente) are the governmental units largely responsible for the costs of infrastructure, schools/education, healthcare, sports facilities etc. Very roughly said, these local governments fulfill in practice many of the duties of the state, through delegation. For this, local government gets supported by the state through (tax/wealth) transfers. Now, with these Northern European countries firmly stuck in austerity mode, you see the inevitable: budget cuts implemented by the government trickle down to the local level where many of these funds are used in the end. And remember that budgets at the local level have to be balanced by law, hence the dependence on loans (I don’t want to think of the effects of interest rate hikes for local government borrowing costs).

So what do you see?

Dutch local governments have an aggregated budget gap of 6,1 billion euros because of the governments’ budget cuts.

– German local governments need at least 50 billion euros to execute necessary investments in e.g. infrastructure, schools, various social policy services and waste management. Because of the ‘debt brake’ of German local government the only way forward is to increase taxes – there is no other way to pay for investments.

– Finnish local governments have to find ways to replace the 1,1 billion euros in cuts of the funds that the government transfers to the local governments. This means local tax increases, budget cuts and cuts in personnel and/or services.

Thus, in this broad picture it is possible to see that local governments cannot in any way function as a counter-balance to budget cuts at the national level, i.e. investments decline. In many cases also jobs disappear and services become poorer. In the context of the tasks of local governments, this is something people feel directly – through tax increases and a decline in the level of services (think lay-offs of teachers, reduced health care services).

This way the Finnish, German and Dutch preferred policy of dealing with the Eurocrisis (“fiscal discipline”, otherwise known as “austerity”) comes in through the backdoor to worsen the economies of these supposed core countries. And this is beyond the woes of rising unemployment and bad news about Finnish and Dutch companies laying off people.

The Low Countries sinking lower: new economic data on the Netherlands

Yesterday, Paul Krugman already did a quick comparison between Belgium and the Netherlands (link here in Mark Thoma’s blog). His conclusion was:

And in general, it’s hard to escape the impression that Belgium has been better served by political paralysis than the Netherlands has by its unified, effective determination to do exactly the wrong thing.

I am not sure if that is the only thing that is relevant (e.g. the Netherlands has thrown a lot more money around to save banks than Belgium, I think) but today a handful of new economic data has come out for the Netherlands, and it doesn’t look pretty. See also here.

First, GDP growth/decline: the Dutch economy has shrunk for four quarters; GDP is 1,8% less than last year in the same period. Investment has shrunk 9,4%, private consumption 2,3% and exports declined by 0,3%. Government consumption shrunk by 0,5%.

Second, jobs/unemployment: in one year’s time, 147.000 jobs have been lost (1,9% since last year and the biggest decline since 1995). Unemployment jumped from 6,5% last year to 8,7% this July. Unemployment has been rising rapidly since 2011. Also the number of job vacancies is at the lowest level in ten years.  Currently, there are 694.000 unemployed. Youth unemployment stands at 17%.

Third, budget deficit: next year the budget deficit is estimated to be 3,9%, which according to the Dutch Bureau for Economic Policy Analysis (CPB) means that the goverment should cut the budget by an additional 9 billion euros to stick to the European norm of 3%. As noted earlier, the Netherlands got a bit of relief for this norm, because it isn’t going to achieve it for this year. The government agreed to cut the budget by 6 billion euros at most for 2014. According to the politics editor of the NRC/Handelsblad newspaper, Commissionar Olli Rehn has promised that this 6 billion is enough, but that it is in particular the Liberal party in government that wants to stick to the 3%-norm. According to the editor this is because the Netherlands have been so tough with other countries it should give the right example now.

This might be exactly the foolish Doing the Right Thing that Krugman mentions. It is going to be a very rough time in the Netherlands because since the 1990s the social security system has been made much, much leaner. Even though there is a new Social Pact, some representatives of Dutch labour relations feel that the budget cuts amounts to the end of the very same Social Pact the Dutch prime minister used so much political capital for – because part of the Social Pact was a postponement of budget cuts amounting to some 4,3 billion euros.

NYTimes: A Tale of Two Flat Countries

NYTimes: A Tale of Two Flat Countries

Belgium and the Netherlands compared. My question remains: why has Belgium gotten so much less attention than e.g. the Netherlands, Portugal and Ireland? Anybody who remembers Dexia or Fortis knows that Belgian banks are not necessarily in good shape…

A quick one: Employment in the EU

I just browsed through my Eurostat rss-feed and I came across this press release from the 14th of June. The first picture in that press release should be familiar from this post by Paul Krugman. But the next picture is maybe worrying in its own right, because look at where Finland and the Netherlands are! Indeed, on the declining side of employment. Not good. How can you be a Serious Core Country when your employment is going down?


We can end the ‘Rehn of Terror’

We can end the ‘Rehn of Terror’

A very critical post by Ambrose Evans-Pritchard. But the ‘crimes agaist Greece and against economics’ rather invite this kind of writing. But remember:

Mr Rehn is a decent man, with an impossible task, carrying responsibility without power. The politicians of the northern EMU states and the ECB are chiefly to blame.

Especially this part is worth noting:

If no such resignation comes from Commissioner Rehn, we know the Rehn of Terror will go on. The regime will persist in destructive folly, adding 100,000 people to the jobless rolls each month.

Just a reminder of the scale of error, which I wrote about in this blog last year.

The Troika originally said that Greece’ economy would contract by 2.6pc in 2010 under the austerity regime, before recovering with growth of 1.1pc in 2011, and 2.1pc in 2012.

In fact, Greek GDP remained in an unbroken free-fall. It did not grow in either year. It contracted a further 7.1pc in 2011, 6.4pc in 2012.

Roughly speaking, the Troika misjudged the scale of economic decline over three years by 12pc of GDP. The total decline will be around 25pc, surely a Great Depression.

Don’t tell it was hard to foresee. The Greek Labour Institute and the think tank IOVE produced very accurate forecasts. The truth is that the Troika’s ideology of “expansionary fiscal contraction” is bunk, and doubly dangerous when compounded by tight money.

Like the Spartans, Thebans, and Thespians at the Pass of Thermopylae, the Greeks were sacrificed to buy time for the alliance.

Instead of applause, they were then vilified for their heroic efforts by ill-informed and self-interested Dutch, Finnish, Austrian, and German politicians. A squalid episode.

Dutch debt and the future of Germany’s little brother

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.