Posts Tagged ‘Netherlands’

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It’s an odd thing, isn’t it? Not so long ago, people were talking about Belgium as being the country in northern Europe that was most in danger of going the way of Spain, Portugal and co. And for a long time, Holland – along with Germany and Finland – had been lecturing the rest of Europe about the need to live within one’s means. All of a sudden it looks a lot different. Holland is fast becoming the sick man of northern Europe, and the reason? Well, let’s hope George Osborne is paying attention, because it is a lesson he could do with learning.

According to data out recently, the Eurozone is out of recession. The German economy grew by 0.7 per cent, France by 0.5 per cent, and at face value it was encouraging stuff, but among all that good news there was one piece of worrisome news. The Dutch economy contracted by 0.2 per cent. It was not really a surprise. It contracted in the last quarter too, and the one before that and before that. In fact the country has been in recession for 18 months now. That makes this one nasty recession, but just remember, it was also in recession in 2008/09, so for Holland it has been a double dip of truly unpleasant proportions.

The reason is not rocket science.

During the boom years Dutch house prices rose too high – way too high. Seduced by the idea that owning a house in Holland was a sure-fire investment winner, sucked into the narrative that a shortage of land meant that house prices across the Netherlands were guaranteed to rise, urged on by a government that subsidised mortgages, the Dutch borrowed against their home, and borrowed against the belief their home would rise in value and they ran-up huge debts.

It really is a puzzle. Among those who lecture us the most about the need to live within our means – so that is Dutch and British finance ministers for example – there seems to be a kind of casual disregard for household debt. We must live within our means, unless that is to say you are a voter, in which case, borrow, put it on the plastic – it matters not, your home will rise in value.

According to OECD data, household gross debt to gross disposable income in the Netherlands is 285 per cent. This is the highest ratio across the OECD. To put those numbers in context, the equivalent ratio in the US for 2008 was just 108 per cent. In the UK the ratio is 146 per cent – which most would agree is worryingly high – and yet the UK household debt levels seem like prudence personified compared to those of the Dutch. Dutch house prices fell sharply in the first quarter of 2013, in 2012 and 2011. Yet despite the falls, Dutch house prices to incomes are still above the average for the country – although admittedly not by much.

Government debt is not so bad. Gross government debt is 71 per cent of GDP, net debt just 33 per cent, which is the lowest among the Eurozone’s bigger economies. Holland’s government appears to be in love with the idea of austerity; of prudence keeping government debt under control.

Yet consider what might happen if households find they just can’t afford their debt. Imagine what might happen if global interest rates rise, which they are likely to do over the next few years. If households find they cannot pay their way; if there is a surge in the number of properties repossessed by the banks, the chances that Holland will experience its own Northern Rock type moment seems real. The possibility of a Dutch banking crisis is very real. Yet the consensus among economists towards Holland seems to be one of relaxation. The country still boasts a top notch credit rating, for example.

The thing about austerity is that it matters not how prudent a government is, how clearly it balances its books (not that the Dutch government is balancing its books), when households run-up debts, and house prices crash, household debt can become government debt. This is what happened in Spain two years ago. It may happen in Holland, and may well happen in any country where the government tries to stimulate house prices, creating consumer confidence, in turn creating growth. Are you listening Mr Osborne?

© Investment & Business News 2013

The news out of the euro area was good yesterday. Yes, it is still in recession, but it has been in recession for a record length of time. No, there is no sign of the recession coming to an end, but at least the rate of contraction seems to be falling.

See it in terms of a football team that has been thrashed three games in a row, say seven nil, six nil and eight nil. Then it only gets beaten four nil, and the manager breathes a sigh of relief, fans go home smiling, things are getting better, they say.

The latest Purchasing Managers’ Index tracking the euro area was out yesterday. The index rose to a 15 month high.

In fact, it rose from 46.7 to 48.3. As Markit, which compiles the PMI data, said: “The seasonally adjusted Markit Eurozone manufacturing PMI indicated the slowest pace of contraction since February 2012.”

It is just that any score under 50 is meant to suggest contraction.

The PMIs for Germany, the Netherlands and Austria all hit three month highs; Italy rose to a four month high; France to a 13 month high; Greece to a 23 month high, and Spain to 24 month high.

That may seem impressive, but just bear in mind that in each case the PMI index was consistent with contraction.

Yes it is good news, and maybe it is a little harsh to compare it with a football team celebrating because it had only been beaten four nil, but neither does the data provide reason for much excitement.

PS: In Spain, there are signs of a gradual improvement – although unemployment remains awful. Talk is that the Spanish economy is beginning to have a more Germanic feel about it. Maybe in a few years’ time Spain, just like Germany, will be a great exporter… maybe. Just bear in mind that the global economy cannot afford too many Germanic type models, because if every country tries to export more than it imports the result will be economic depression.

© Investment & Business News 2013

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In 2008 UK average labour costs per hour, measured in euros were 20.9. In 2012 they were 21.6 euros. That’s a rise of just 3.3 per cent.

Or let’s use sterling rather than euros as the measure. In 2008 unit labour costs per hour were £16.70.In 2012 they were £17.50, which is a growth rate of 5.2 per cent. Contrast that with Germany where unit labour costs are up 9.1 per cent. They are much higher too: 30.4 euros in 2012.

In France, unit labour costs have risen 9.5 per cent to 34.2 euros. Of course, Germany has roughly half the unemployment rate of France.

The highest unit labour costs are in Sweden: 39 euros, while Denmark, Luxemburg, Finland, Belgium, the Netherlands, and Austria all have unit labour costs over 30 euros an hour.

Of the 27 counties in the EU, 15 have lower unit labour costs than the UK. They are slightly lower in Cyprus, a lot lower in Greece (14.9 euros), much higher in Ireland (29 euros), lower by the tiniest of margins in Spain, and significantly higher in Italy (27.4 euros).

In terms of growth between 2008 and 2012, only Ireland, Greece, Latvia, Lithuania, Hungary, Poland and Portugal saw a lower growth rate.

Unit labour costs contracted in Lithuania, Hungary, Poland and –most notably – in Greece, where they have fallen 11.2 per cent.

From an economic point of view, falling unit costs are good in the sense that they provide a country with improved competitiveness. But they are bad in the sense that they are a function of productivity, and wages. That Greek wages are falling so fast may be an indication that the country is gradually becoming more competitive but the resulting depression is really rather nasty.

As for the UK, falling unit labour costs is a sign of poor productivity. But why is UK productivity so low? When you factor in networked readiness it is harder to explain. See: IT readiness: does Finland lead the world for economic potential, is the UK in seventh spot?

What the UK needs is investment. Maybe Vince Cable’s plan for a business bank is the right one. More likely it does not go anyway near far enough.

©2013 Investment and Business News.

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“The lady doth protest too much, methinks,” said the Queen Gertrude to Hamlet. Maybe Uros Cufer, Slovenian finance minister, said something similar. He said “We do not have to go to the markets in these overheated times due to Cyprus…We can wait for the markets to calm down, for the investors to feel comfortable about our action and then we will tap the market.” Pressing home his point he also said: “We will need no bail-out this year….I am calm.” And just in case you are still in doubt he also said: “Slovenia cannot be compared to Cyprus. It is certainly not a tax haven… the basic problem of the banks in Slovenia is too much debt in companies and a lack of capital.”

Hamlet had tricked Queen Gertrude. He suspected she and his stepfather had colluded to murder Hamlet’s father. He staged a play to see how she would react to scene in which a woman promises her husband that if he died she would never remarry. Hamlet asked his mother what she thought of the play so far and she replied: “The lady doth protest too much, methinks.” In Elizabethan times the phrase actually meant: “I think the lady is promising too much.”

English lesson over. It matters not. Does Mr Cufer protest or promise too much? It boils down to much the same thing. The markets are fretful; they think Slovenia may be next. Whether next means next to the gallows, to the IMF, or to something else, is not clear.

In one sense though, Slovenia most certainly isn’t Cyprus, or Portugal, Greece, Spain, Italy or even France.

Slovenia’s gross government debt at the end of 2012 was around 52 per cent of GDP. Only three Eurozone countries had less debt. Its unemployment level in February was 9.7 per cent; that is high, but then again it is below the Eurozone average. Slovenia is different in one other way. It is exporting more than it is importing, and is expected to enjoy a current account surplus worth around 3 per cent of GDP this year. Across the euro area, only The Netherlands, Luxembourg and Germany are expected to see a better performance than that.

Slovenia’s problem is that its government debt is rising – the fiscal deficit has been around 5 per cent of GDP every year since 2009, and is forecast to fall only very slowly. Bank liabilities are more than 100 per cent of GDP (much less than Cyprus but still very high) and bank lending to households and business is around 85 per cent of GDP. The country is stuck in recession, and is likely to stay there this year.

Now some might look at those fundamentals and say Slovenia is a bit like the UK, only thanks to its trade surplus in some ways it is better off. It is just that the markets see the UK as a safe haven, and the government can borrow money so cheaply it is a wonder it doesn’t do so more often. In Slovenia bond yields are approaching levels that in the past and in other countries precipitated asking the IMF for help.

The markets are demanding austerity when what Slovenia needs is more demand. And that is why Mr Cufer may indeed be promising and protesting far too much.

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here