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Wednesday, 30 November 2011

Average unemployment in Europe higher than ever in October. Credit crisis hit hard on unemployment in the PIIGS countries, but had hardly any consequences in the strong Euro-countries.

Today the European unemployment figures for October were presented by Eurostat, the European statistics institute. The EU-27 show an unemployment rate of 9.8%.  Average unemployment of 10.3%  in the Euro-area is said never to be higher since the beginning of data collection. Here are the pertinent snips of the Eurostat Press Release:

Euro area unemployment rate at 10.3%
EU27 at 9.8%

The euro area (EA17) seasonally-adjusted unemployment rate was 10.3% in October 2011, compared with 10.2% in September. It was 10.1% in October 2010. The EU271 unemployment rate was 9.8% in October 2011, compared with 9.7% in September. It was 9.6% in October 2010.

Eurostat estimates that 23.554 million men and women in the EU27, of whom 16.294 million were in the euro area, were unemployed in October 2011. Compared with September 2011, the number of persons unemployed increased by 130 000 in the EU27 and by 126 000 in the euro area. Compared with October 2010, unemployment rose by 440 000 in the EU27 and by 367 000 in the euro area.

Among the Member States, the lowest unemployment rates were recorded in Austria (4.1%), Luxembourg (4.7%) and the Netherlands (4.8%), and the highest in Spain (22.8%), Greece (18.3% in August 2011) and Latvia (16.2% in the second quarter of 2011).

Compared with a year ago, the unemployment rate fell in twelve Member States and increased in fifteen.

The largest falls were observed in Estonia (16.1% to 11.3% between the third quarters of 2010 and 2011), Lithuania (18.3% to 15.0% between the third quarters of 2010 and 2011) and Latvia (19.3% to 16.2% between the second quarters of 2010 and 2011).

The highest increases were registered in Greece (12.9% to 18.3% between August 2010 and August 2011), Spain (20.5% to 22.8%) and Cyprus (6.0% to 8.2%).

I took the September-October 2011 month on month data of all countries that supplied unemployment figures and put it into two tables. Countries that didn´t deliver their data for October in time were left out for convenience: a.o. Greece, the UK and the Baltic States. Inquiring readers should click the link of Eurostat.

Unemployment month on month for October 2011
All data courtesy of Eurostat 

Unemployment month on month for October 2011
All data courtesy of Eurostat 
Outliers in these data are Portugal, Slovakia, Croatia, Greece and Spain with an unemployment that is significantly higher than all other countries. Of these outliers only Croatia showed improvement.

But also here I tried to find the truths and trends behind the facts, by looking at the longterm unemployment data of both the PIIGS and the strong Euro-countries (Germany, France, Luxemburg, Finland, Austria and The Netherlands). These showed some interesting differences.

Youth Unemployment

Unemployment male youngsters.
All data courtesy of Eurostat
Especially in this chart of male youngsters, you can see how hard the credit crisis hit the PIIGS countries. Although unemployment among male youngster has always been quite high with a minimum trendline of 5% and a maximum trendline of 23%, male youth unemployment skyrocketed in the PIIGS countries, since the crisis broke out.

Unemployment female youngsters.
All data courtesy of Eurostat
The situation for female youngsters has always been more difficult in Spain, Greece and Italy with unemployment well above the 25% trendline throughout the years. However, female youth unemployment in Portugal and especially Ireland also skyrocketed, due to the credit crisis.


Unemployment males above 25.
All data courtesy of Eurostat
This chart shocked me as it ruthlessly showed how worse the labor situation for males older than 25 had been in Germany throughout the first decade. Where the PIIGS and the other strong Euro-countries had an unemployment rate of under 7.5%, the Germans scored years of 8+% unemployment. Only in 2010 their unemployment went structurally beneath the upper trend line. The PIIGS plus France, but minus Italy have been hit extremely hard by the credit crisis.

Unemployment females above 25.
All data courtesy of Eurostat
Again there is a different image in the female unemployment. Greece and Spain have been problem zones for female unemployment throughout the years, although the situation deteriorated clearly by the credit crisis. Portugal, however, is a clear victim of the crisis. Germany, an outlier throughout the years with male unemployment, is clearly within the boundaries for female unemployment. 

Tuesday, 29 November 2011

Moody’s: Is your subordinated debt not implicitely warranted by the government anymore? There goes your rating!

Moody’s is on the warpath again. The credit rating agency – together with its competing colleagues S&P’s and Fitch – rather wants to be accused of being (too) early than being too late with their warnings on bad or deteriorating credit. Therefore Moody’s is firing at will at all forms of credit that give the company a hunch of possible deterioration in the future.

Today’s target of choice was subordinated debt held by banks. The victims were 87 European banks, of which six in The Netherlands (click this link for the complete list of banks and debt ratings): ING Bank,  ABN AMRO Bank, Rabobank Nederland, SNS Bank, Friesland Bank and Royal Bank of Scotland.

The debt group referred to as ´subordinated debt´ doesn’t count anymore as Core tier one capital under the new Basel III rules and also the (implicit) government guarantee on this kind of debt is likely to vanish.

In other words: people or companies that bought this subordinated debt cannot assume anymore that the banks that issued it will be saved by governments at all costs, saving this people´s subordinated debt in the process. Therefore Moody’s is intending to downgrade this debt at banks where it was upgraded a few notches earlier, due to the earlier mentioned implicit government guarantee. Banks that cannot use this subordinated debt as core tier one capital anymore might want to get rid of it too and exchange it for normal bonds.

Moody's Investors Service has today placed on review for downgrade all subordinated, junior subordinated and Tier 3 debt ratings of banks in those European countries where the subordinated debt still incorporates some ratings uplift from Moody's assumptions of government support, with the potential complete removal of government support in these ratings.

The review will affect 87 banks in 15 countries in Europe with average potential downgrades of subordinated debt by two notches and junior subordinated debt and Tier 3 debt by one notch.

The greatest number of ratings to be reviewed are in Spain, Italy, Austria and France. For issuers whose ratings were already under review prior to today's rating action, the completion of the existing review will now incorporate these additional considerations for subordinated, Tier 3 and junior subordinated debt.

The review has been caused by the rating agency's view that within Europe, systemic support for subordinated debt may no longer be sufficiently predictable or reliable to be a sound basis for incorporating uplift into Moody's ratings.

This concern is driven by (i) the more limited financial flexibility of many European sovereigns that will increasingly be required to make difficult decisions regarding fiscal consolidation policies; and (ii) the resolution frameworks being discussed by both national and supra-national authorities (for example by the European Commission, which is expected to announce its proposals shortly).

The frameworks have the common objective of reducing very significantly the support provided to creditors and leave subordinated debt holders particularly exposed to exclusion from any support received.


Moody's believes that systemic support for subordinated debt in Europe is becoming ever more unpredictable, due to a combination of anticipated changes in policy and financial constraints. Policy makers are increasingly unwilling and/or constrained in their support for all classes of creditors, in particular for subordinated debt holders. Moody's notes that there have been recent instances where losses have been imposed on subordinated debt holders without any significant contagion to other liability classes (e.g., in Ireland).

Consequently, there would need to be very clear reasons for Moody's to consider retaining an assumption of support in subordinated debt ratings.

For some time, the policy debate and framework within Europe has been moving in favour of imposing losses on subordinated debt holders outside of an insolvency scenario. Proposals and legislative changes to permit this include statutory writedown mechanisms, or mechanisms which enable authorities to either transfer debt between institutions or split up a bank and impose losses on subordinated debtholders.

The decision by Moody´s to downgrade this subordinated debt can be defended very well: governments are not always able and/or willing anymore to save the banks at all costs. Read for this subject Peter Atwater at, as he wrote some fantastic articles on ability and willingness by governments. This puts the subordinated debt in the danger zone when the financial situation of banks deteriorates. Therefore this downgrade makes sense.  

The implications of this decision by Moody´s are clear:
  • Current holders of subordinated debt have a problem as their debt has less net worth than (f.i.) a year ago. This will bring down the sales prices for this kind of debt substantially and it might even bring the whole market for this debt at a much lower speed.
  • Banks might want to get rid of their subordinated debt, as it is more expensive than normal bonds (higher risk premium), but doesn´t count for their core tier one capital anymore. This makes it virtually useless
  • Future subordinated debt will be sold at an even more expensive rate, as the lower credit ratings will be translated in an even higher risk premium.

When does the time come that the best investment seems to be: no investment at all?

PriceWaterhouseCoopers: Fraud and Cyber Crime are increasingly threatening companies currently. Expect this trend to rise further

Today PriceWaterhouseCoopers ( presented its global survey of economic crime and fraud. It seems that the numbers in cyber crime and fraud are rising. This could be as a consequence of both:
  • the increasing interest of people for the yields of fraud and economic crime, due to the credit crisis and the resulting austerity. 
  • the increasing awareness of companies that want to save every dollar and Euro they can.
Here are the pertinent snips of both the international report and the UK report. Both reports can be downloaded via the aforementioned link.

International report

Economic crime does not discriminate. It is truly global. No industry or organisation is immune. We have seen a 13% rise since our last survey and organisations see more fraud ahead.

The fallout isn’t just the direct costs: economic crime can seriously damage brands or tarnish a reputation, leading organisations to lose market share. As society becomes less tolerant of unethical behaviour, businesses need to make sure they are building – and keeping – public trust.

Our sixth Global Economic Crime Survey turns the spotlight on the growing threat of cybercrime. Today, most people and businesses rely on the internet and other technologies. As a result, they are potentially opening themselves up to attacks from criminals anywhere in the world. Against a backdrop of data losses and theft, computer viruses and hacking, our survey looks at the significance and impact of this new type of economic crime and how it affects businesses worldwide.

This year’s global report is divided into two sections:
  • Cybercrime – its impact on organisations, their awareness of the crime and what they are doing to combat the risks.
  • Fraud, the fraudster and the defrauded – the types of economic crime committed, how they are detected, who is committing them and what the repercussions are.
  • Cybercrime now ranks as one of the top four economic crimes.
  • Reputational damage is the biggest fear for 40% of respondents.
  • 60% said their organisation doesn’t keep an eye on social media sites.
  • 2 in 5 respondents had not received any cyber security training.
  • A quarter of respondents said there is no regular formal review of cybercrime threats by the CEO and the Board.
  • The majority of respondents do not have, or are not aware of having, a cyber crisis response plan in place
Fraud, the fraudster and the defrauded
  • 34% of respondents experienced economic crime in the last 12 months (up from 30% reported in 2009).
  • Almost 1 in 10 who reported fraud suffered losses of more than US$5 million.
  • Senior executives made up almost half of the respondents who didn’t know if their organisation had suffered a fraud.
  • 56% of respondents said the most serious fraud was an ‘inside job’.
  • Suspicious transaction monitoring has emerged as the most effective fraud detection method (up from 5% in 2009 to 18% in 2011).
  • Organisations that have performed fraud risk assessments have detected and reported more frauds 
Our survey results show that fraud is persistent, and that organisations need to be vigilant and proactive when fighting economic crime.

‘Traditional’ frauds like asset misappropriation, accounting fraud and bribery and corruption remain the top three that our respondents fell victim to in the last 12 months.
But ‘new’ types of fraud are emerging – cybercrime in particular.

With new ways of doing business, new technologies and changing work environments, come new risks and new ways for fraudsters to carry out crimes.
Organisations need to be aware of these changes and adapt their response mechanisms and detection methods accordingly. This is even more true when it comes to new technologies.

Smart phones and tablet devices, social media and cloud computing all offer a wealth of attractive business solutions and opportunities, but they can also be a Pandora’s box of risks and dangers. Having a smart phone or a tablet device means carrying around your organisation’s sensitive and confidential data in your pocket which without precautions in place, anyone might be able to access sensitive and confidential information and cause considerable harm, both financial and collateral.

A decade on and the fraud risk continues to rise. Despite the effectiveness of risk management systems being deployed, there are always individuals or groups of individuals who are able to spot an opportunity and circumvent or override controls. This is especially true when it comes to cyber security. As headcounts fall in control functions across the globe, we fear more fraud will go undetected. Advances in technology are fast-paced, as are fraudsters, however organisations are often far behind. But organisations often are. It is now essential to ensure that cyber and information security issues have the standing they warrant on an organisation’s risk register. Those organisations ready to understand and embrace the risks and opportunities of the cyber world, will be the ones to gain competitive advantage in today’s technology driven environment. Establishing the right “tone at the top” is key in the fight against economic crime.

UK Report

Our sixth report paints a dramatic picture of UK organisations still struggling in the face of severe austerity cuts. Economic crime has risen by 8 percentage points since our 2009 survey, with over half of respondents reporting at least one instance of economic crime in the last 12 months.

Even more concerning for Senior executives was the fact that 24% of respondents reported more than ten incidents in the last 12 months. Our findings suggest that the combination of rising economic crime in the UK, and widespread austerity cuts that limit the resources available to focus on economic crime, has made today’s business environment altogether more difficult and risky.

Cybercrime has become the third most common type of economic crime, whilst levels of ‘conventional’ economic crime have fallen (asset misappropriation has fallen by 8 percentage points since 2009, and accounting fraud by 5 percentage points in the same period). So we think organisations need to take a fresh look at how they deal with fraud.

In our 2009 survey, the trend was for more middle managers than Senior executives to be the perpetrators of economic crime internally. This shift has accelerated in the UK, with middle managers now responsible for two thirds of internal fraud. The global trend has gone back to the historical norm, where Senior executives are responsible for the lion’s share of offences. For the most serious economic crime experienced by UK respondents in the last 12 months, the profile of the internal fraudster was reported as:
  • male;
  • aged between 31 and 40;
  • employed with the organisation for between three and five years; and
  • educated to high school and not degree level. 
Organisations that have performed fraud risk assessments have detected and reported more frauds. 84% of those who identified an economic crime carried out at least one in the last 12 months. Fraud risk assessments are clearly an important tool in an organisation’s defence against economic crime.

An intriguing difference between the UK and the rest of the world is that in the UK the middle management is responsible for the majority of fraud, while these are the senior executives in the rest of the world.

Expect cyber crime and economic fraud to rise further in the near future. As austerity will continue, the stakes become higher and higher in the coming years. 

Monday, 28 November 2011

Of Sovereign bonds, Euro bonds, Elite Bonds and the Loctite® Super Bond: European Trivia Extravaganza. Don’t get too Moody while you read it!

Elite Bonds and the Loctite® Super Bond

Today was just another day at the European office. The EU, the PIIGS countries and the Euro as a currency are all in desperate need of an integral rescue plan for the Euro-zone and the EU: a kind of Marshall plan for the European Union as a whole. And by the minute it becomes more clear that ‘kicking the can down the road’ and ‘delaying and praying’ is not doing the trick anymore. Now, it is not five, but probably two minutes to twelve on the Euro doomsday clock and there is absolutely no more time to lose.

But that is not how the the European leaders and other EU politicians think about it. These ´leaders´ still shy away from the consequences of such an integral plan and they all do their share of making up suboptimal solutions that serve their purpose and that of their grassroots alone. Angela Merkel says no to Quantitative E(U)asing by the ECB and says 'nyet' to the Euro-bond. Nicolas Sarkozy, however, is a huge fan of Quantitative Easing and ´money printing yourself out of misery´ by the ECB, IMF and whoever wants to take part in the plan. PM Mark Rutte of The Netherlands is busy demanding his special EU commissioner for the budget and other leaders are talking about a new stability pact that is much more stable than the original stability pact.

On top of that, the strong EU countries are now busy forming a kind of ´Frankfurter Tea Party´: a contact group of the strong Euro-countries that might ultimately form an EU within the EU.  In general you could say that everybody is pushing paper from side to side on their desk. But a real, credible solution? No way, José, Joao, Giovanni, Johan and Yorgos!

And the PIIGS and Belgium? These countries just want some money to buy ´a little bit of peace and quiet´ in order to get away from the continuous heat on the financial markets.

The latest ´fake solution to cover up the real solutions´ is the so-called Elite Bond: a bond, reputedly advocated by Germany Chancellor Angela Merkel, that would be issued by the six strongest Euro-countries (Finland, The Netherlands, Luxemburg, France, Austria and Germany).This bond would be the stronger brother of the normal Euro-bond, as the strongest countries of the Euro-zone warrant it.

This Elite bond would be issued, if other plans to reach an agreement within the 27 member states on stricter rules for the Euro-zone’s government budgets, would fail. By the way: the mere existence of a plan to invent the Elite-bonds was later categorically denied by Germany. Please, take note.

What the hell are these guys thinking anyway? The countries that need the yields of the Elite bonds mostly are not the countries that issue it! What problem is solved with these bonds?! The problem is: the more of these ridiculous ideas come to surface, the more the other countries outside the EU, the financial markets and the media think that the EU and the Euro-zone countries totally lost it.

I have a great idea: let’s issue the Loctite® Super Bond.

Loctite is a brand of

This super bond will glue the whole Euro-zone so strongly together that the financial markets cannot tear it apart. How is that for a bond!

The FT and the Euro Doomsday Clock

Talking about the doomsday clock for the Euro and the Euro-zone. The Financial Times was yesterday printing a column by Gavin Davies on what would happen if the Euro-zone would break up disorderly. This is a very legitimate question and I tried to do my share of thinking already two months ago in the article: Will the Euro implode?

Therefore I print some snips of this must-read column:

It has suddenly become respectable to ask the question: what would happen if the euro broke up? Last week’s rise in German bond yields signals that a euro break-up is being taken more seriously by investors. I am told that London law firms are allocating large amounts of time to examining the validity, following a break-up, of cross-border contracts written in euros. And, to judge from my own inbox, asset managers are beginning to ask about the economics of how it could occur.

When the euro was created, the process took many years of careful planning. The ECU, a basket of fixed amounts of national currencies, traded for several years in the foreign exchange markets, before its name was changed to the euro on 1 January 1999. There were no sudden revaluations and devaluations to disrupt economic relationships within the currency zone.

This movie cannot now be run backwards. It is hard to imagine the 17 members of the eurozone going through an orderly, decade-long process in which national currencies would first be reintroduced, then gradually allowed to deviate against each other within narrow bands, then ultimately allowed to float freely. I am not aware of any currency system which has broken up in such an orderly manner. Much more probable is a severe crisis, followed by the reintroduction of some national currencies, after which the “euro” might be retained by a remaining group of its current members, or it might simply cease to exist altogether.

As I said: the question is legitimate and it is a very good column with some very plausible outcomes. And as I told in the earlier part of this column; the EU politicians are still busy thinking of ‘fake solutions to cover up the real solutions´, instead of solving the problem.

But still, as an inhabitant of the Euro-zone, I suspect that the British and American feelings are not always free of malicious delight on this ‘arrogant’ EU, its wild dreams and its stupid single currency.

I heard from several directions that the UK with its massive debt, its massive income inequality and its ‘money-printing press going wild’ is now paying a lower interest rate than Germany and the other strong Euro-zone countries. Just like the US. And not even to mention Sweden. What did I think of that as a Euro-phile?! Hence: the Euro was a bad idea and now it is doomed. 

But I kindly ask you: don’t dance on the grave of the Euro too soon, because the EU might be back with a vengeance when this is all behind us. And yes, I'm still convinced of a happy ending, although the EU doesn't make it easy on me.


Also Moody’s came with a grim warning today. All Euro-zone countries might be downgraded if the Euro-problems are not solved very quickly. Here are the pertinent snips:

The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns, cautions Moody's Investors Service in a new Special Comment. In the absence of policy measures that stabilise market conditions over the short term, or those conditions stabilising for any other reason, credit risk will continue to rise. Moody's new report notes that, amid the increasing pressure on euro area authorities to act quickly to restore credit market confidence, the constraints they face are also rising. While the euro area as a whole possesses tremendous economic and financial strength, institutional weaknesses continue to hinder the resolution of the crisis and weigh on ratings. In terms of the policy framework, the euro area is approaching a junction, leading either to closer integration or greater fragmentation.

While Moody's central scenario remains that the euro area will be preserved without further widespread defaults, even this 'positive' scenario carries very negative rating implications in the interim period. The rating agency notes that the political impetus to implement an effective resolution plan may only emerge after a series of shocks, which may lead to more countries losing access to market funding for a sustained period and requiring a support programme. This would very likely cause those countries' ratings to be moved into speculative grade in view of the solvency tests that would likely be required and the burden-sharing that might be imposed if (as is likely) support were to be needed for a sustained period.

However, over the past few weeks, the likelihood of even more negative scenarios has risen. This reflects, among other factors, the political uncertainties in Greece and Italy, uncertainty around the final haircut imposed on holders of Greek debt, the emphasis in the recent Euro Summit statement on the conditional nature of the existing support programmes and the further worsening of the economic outlook across the euro area. Alternative outcomes fall into two broad categories: those involving one or more defaults by euro area countries (in addition to Greece's PSI programme); and those additionally involving exits from the euro area.

The probability of multiple defaults (in addition to Greece's private sector involvement programme) by euro area countries is no longer negligible. In Moody's view, the longer the liquidity crisis continues, the more rapidly the probability of defaults will continue to rise.

A series of defaults would also significantly increase the likelihood of one or more members not simply defaulting, but also leaving the euro area. Moody's believes that any multiple-exit scenario -- in other words, a fragmentation of the euro -- would have negative repercussions for the credit standing of all euro area and EU sovereigns.

Moody's notes that the situation is fluid and fast-moving. Policymakers are likely to respond to the escalating risks with new measures, the credit implications of which will require careful consideration. In the meantime, new shocks to financing conditions -- whether the announcement of new programmes or simply a further acceleration in the rise of funding cost across the euro area -- are likely to lead to selective rating changes. More broadly, in the absence of major policy initiatives in the near future which stabilise credit market conditions, or those conditions stabilising for any other reason, the point is likely to be reached where the overall architecture of Moody's ratings within the euro area, and possibly elsewhere within the EU, will need to be revisited. Moody's expects to complete such a repositioning during the first quarter of 2012.

Although the language of this comment is somewhat stately, its message cannot be misunderstood: EU, do something about the debt problems now and you will only suffer a moderate amount of financial damage. This amount can still be contained easily. However, if you wait too long the damage for all Euro-countries will be devastating.

I hope this crystal-clear message will not fall on deaf ears, but I’m not so sure about it. Killing the messenger is often the strategy of choice in the EU and the Euro-zone.

Belgium in financial need? Then the Belgians come to the rescue!

Next to all miserable news there was also some good news. From Belgium of all places.

The government called the Belgian citizens to the rescue for their credit roll-over plan and the Belgians ran the gauntlet enthusiastically.  The Belgian newspaper De Standaard ( reports:

Yesterday, Belgian savers subscribed for €34 mln to the 3Y sovereign bond, for €140 mln to the 5Y bond and for €16.7 mln to the 8Y bond.

The sale of special government bonds for savers, the so-called ´Staatsbons´, which had been strongly advocated by resigning PM Yves Leterme, turned therefore into a big success. At the last issuance date early in September, only €77 mln was collected; less than half of today´s yields.

Analysts were criticizing the new saver´s bonds. Although these offer the highest interest rate in three years, their yields are still well below the market rates. Also the recent rate increase was not taken into account.

I really don’t understand the analysts here: normally the Belgian savers, just like savers in other EU countries, receive a pathetic interest rate on their savings´account. Currently between 1.85% and 2.45% (source: 

Now the government offers them between 3.50% (3y) and 4.20% (8y) on a (virtually) no-risk investment. Assuming that access to the normal government bond market is not everybody´s cup of tea, this is a quite fair interest rate. At least this is what the Belgian citizens seem to think about it. And the Belgian government has an affordable way of rolling over some credit.

Anyway, it proves that the Belgian citizens still trust in a happy ending for Belgium. ´And with this positive bombshell, I want to finish this blog´. 

Sunday, 27 November 2011

Macro-economic data for The Netherlands from the Dutch Central Bureau of Statistics: further decline of the economic situation seems ultimate proof of occurring recession

During the last week the Central Bureau of Statistics presented macro-economic data on: 

  • the economy as a whole; 
  • the number of hours worked in temp jobs; 
  • the household consumption; 
  • the housing prices; 
At the risk of sounding like a broken record: All data really doesn´t look good and it seems that the recession is picking up steam now. All forecasts from bank analysts and pundits that the recession will probably be over in the middle of next year seem to vanish in thin air.

Just as interesting as knowing when the 2011 recession will be over, is the question what caused the second recession in three years. The easy explanation would be that this is caused by the lacklustre, ignorant and selfish performance of the European leaders in the Euro-crisis and the enduring problems in the PIIGS countries. And it is definitely true that the Euro-soap had its influence on the economic situation.

My opinion, however, is that the current economic pain is reinforced by the circumstance that the 2008-2009 crisis was over before it really started in The Netherlands. The fact that the first crisis has ´finished´ so quickly, was mainly due to all kinds of government subsidies for companies with excess employees and emergency funds and guarantees for banks and insurance companies. The state paid for everything in 2009 and this helped the economy to recover ´for a while´, together with the circumstance that (still financially healthy) companies were hoarding employees that they actually didn´t need at the time. See: The current recession might have a much bigger impact on employment…

I said this last year when there was hardly any Euro-soap yet and I repeat it now: it is impossible that the biggest crisis since 1930 can end without real pain and bloodshed in the Dutch economy. And the same is true for the German economy and all other strong European economies. So I expect the current crisis to spread out over Europe and last for at least a few years, whether the Euro is saved or not. Although saving the euro is paramount for the European Union as a whole, it won´t help to stop this recession that needed to happen anyway.

Here are the CBS data (

Analysis November:

The economic situation at the end of November was far worse than at the end of October. This is mainly the result of declining economic growth. Almost all indicators showed further deterioration. The heart of the scatter in the Business Cycle Tracer is firmly located in the recession stage. Thirteen of the fifteen indicators are currently below the level of their long-term average.

In the course of November, new data have become available for all indicators. This has resulted in a shift in the distribution of the indicators across the quadrants. Exports and temp jobs have moved from the green to the red quadrant. Labour volume and vacancies have moved back from the yellow to the red quadrant.

The Tracer shows more serious downturns at the end of November relative to the end of October. Within the red quadrant, unemployment, capital market rate and consumption moved considerably downwards.

At the end of November, the heart of the scatter in the Tracer is located in the red quadrant (indicating recession). Twelve of the fifteen indicators are in the red quadrant, one in the yellow and two in the orange quadrant. The growth rate of indicators in the red quadrant is below their long-term average and slowing down. The growth rate of indicators in the yellow quadrant is also below their long-term average, but accelerating. The growth rate of the indicators in the green quadrant is above their long-term average and accelerating. The growth rate of indicators located in the orange quadrant is also above their long-term average, but slowing down. 

Business Cycle Tracer (source:

Decline in number of hours worked in temp jobs

The amount of hours worked in stage A temp jobs was reduced by 3% in the third quarter relative to the second quarter. In the five preceding quarters, the number of hours worked in temp jobs in stage A had grown continuously. Adjusted for seasonal variation, the index figure (2005=100) for the number of hours worked in stage A was 114.6.

Stage A includes people working for temp agencies on a contract basis without regular terms of employment. In stage A, it is easier for both parties – employer and employee – to terminate the contract than in the subsequent stages B and C. The number of hours worked in stage B and C remained stable in the third quarter relative to the second quarter.

The decline in the number of hours worked in temp jobs is consistent with recent developments of other labour market indicators. Unemployment figures rose substantially, the number of job vacancies dropped marginally and the number of jobs of employees remained stable relative to the second quarter.
Hours worked in stage A temp jobs
Hours worked in temp jobs are an early indicator, as changes in the amounts are often preceding serious changes in the state of the economy. But another indicator is the amount of money paid for those hours. Normally this amount should always grow slightly due to inflation compensation. However, in a declining economy companies try to save money on temp hours by renegotiating lower hourly rates.

Therefore I took the index of temp hours worked during the last twelve years and compared this with the index of yields per hour for temp hours and the inflation rate. 

Temp hours worked vs. yields per temp hour and inflation (1999=100)
Source data:

In the chart you see that after a small decline of the worked temp hours and yields in 2003, both the worked hours and especially the yields skyrocketed until 2008. The same happened again (for a short while) since 2010, but now again the worked hours and the yields are declining and this trend will last for a few years, is my assumption. I think that the 2010 low will easily be breached and that even the 2003 low is in sight at the end of 2012.

Household consumption further in decline

Household spending on goods and services in September 2011 was 2.0% down on September 2010. In August this year, household spending was 1.0% down on one year previously. Consumption figures are adjusted for price changes and differences in the shopping-day pattern.

In September 2011, spending on goods was 4.9% below the September 2010 level. Consumer spending on durable goods was 8.5% down on September last year. A decline of this magnitude has not occurred in the past two years. Consumers spent far less on clothing, shoes and cars. Spending on home furnishing articles and consumer electronics was also lower. Spending on food, drinks and tobacco dropped by 0.3%. Due to the mild weather conditions, the consumption of natural gas dropped considerably. Spending on services improved 0.4% relative to the same month last year.

Household consumption change in % year on year

House prices drop 2.8% in October

Prices of existing owner-occupied houses were on average 2.8% lower in October 2011 than in October 2010. According to the price index of existing residential property – a joint publication by Statistics Netherlands and the Land Registry Office – the price drop is slightly less substantial than in September.

All types of dwellings were cheaper in October 2011 than in the same month last year. With 4.0%, prices for semi-detached houses declined most. Prices of flats declined the least (2.4%).

Prices rose only in Flevoland (by 1.4%). Prices dropped in all other provinces, most notably, by approximately 4%, in Friesland and Overijssel.

Prices of existing residential property units declined by 0.4% relative to September 2011. The price drop was marginally smaller than in August and September.

Nearly 9,500 existing owner-occupied houses changed hands in October, almost 5% below the level recorded in October 2010. Over the first ten months of this year, more than 98,000 houses were sold, a decline by nearly 4% from the same period last year.

Prices of existing own homes

Housing prices change in % year on year

After looking at this data, I say the Dutch cabinet of Mark Rutte: wake up and understand that this housing market won’t heal until the prices are more in synch with the income of people. Help people to bring down their mortgage debt.

Friday, 25 November 2011

Dutch Central Planning Bureau: The current recession might have a much bigger impact on unemployment than the biggest recession since 1930 had.

Yesterday the Dutch Central Planning Bureau ( presented a very intriguing report. Intriguing, because it tried to answer the question that has bothered me during the last three years: Why was there not more unemployment during the biggest crisis of the last 80 years?

I looked for the answer to this question in the part-time benefit, the government subsidy to protect jobs that would otherwise be lost. The CPB, however, sought in a different direction: companies were relatively wealthy in 2008 and were reluctant to fire people that they presumably would need again a few years later, considering the relative scarcity of educated and well-trained personnel.

Here are the pertinent snips of the CPB report, but for people that can read Dutch the whole report is a must-read.

After the credit-crisis broke out at the end of 2008, the Dutch GDP dropped by an unprecedented amount. According to similar situations in the past, unemployment should have increased by at least 4%, but it did rise by not more than 1,5%.

The really spectacular decrease of the GDP in 2009 led only to a minor increase of unemployment (
The explanation for this surprisingly little increase was lying largely in the behavior of companies. Companies kept more personnel in service than could be expected, based on development of production. They could handle this financially. The Dutch business community was relatively in good shape when the crisis started; in much better shape than in earlier crises. Profits were high, the net cash position favorable.

It is clearly visible that the forecasted production and 
realized production are severely out of synch here (

On top of that the labor costs could be reduced slightly by reducing overtime and limiting bonuses and profit sharing. Considering both the trouble that companies before the crisis had to find personnel in a very tight labor market and the coming wave of retiring baby boomers, the choice to maintain personnel could be understood.

The experiences of the Great Recession teaches us that the relation between production growth and the development of employment is not necessarily constant, but depends on the economic situation. When companies had trouble to find good personnel during a considerable amount of time, they are more willing to maintain their personnel´s position when the economy deteriorates. Important is also the financial situation of companies. A good starting position diminishes the necessity of quick reaction in a deteriorating economic situation.

What do these lessons mean for the unemployment development in the near future? According to the most recent data, companies in the non-financial industries are still financially healty, their solvability is stable and high from a historical perspective. The productivity per worked hour increased further in 2011.

However, the profitability of production increased hardly after it was almost cut in half in 2009. Besides that, a shortage of staff is currently hardly a setback for production. The latter suggests that companies during a new economic shock would be less willing to maintain non-productive personnel. Reduced profitability offers less room for this too. Therefore unemployment might increase much stronger during a another economic shock

During the last months the unemployment increased. This is not caused by companies firing personnel, as the number of working persons increased actually. However, the number of persons looking for work increased even stronger. It is too early to know what is the exact reason for this increase. It is clear, however, that other factors played a role in the increasing unemployment than in 2009 and 2010.

It was a surprise for me to read that the Part-time Unemployment Benefit did not play a major role for companies maintaining their personnel (this subsidy concerned only 40,000 workers). I think though, that this research of the CPB makes much sense.

I totally agree with their conclusions that the next crisis – that we seem to be in currently – will cost much more people their job than the crisis in 2008-2009 did. And I think that this is an inevitable development, due to the relatively low productivity and profitability that Dutch manufacturing industry currently has.

I want to remind you of one of the charts in my last article, that I print again here:

The new manufacturing orders in the strong Euro-countries
I already pointed in this chart at the relative underperformance of the Dutch manufacturing industry that is  going on for almost 10 years now. The message that is sent from this chart is that Dutch manufacturing is too expensive and that this has a negative impact on the numbers of new orders for the Dutch industry.

This means two things: the production costs must go down and therefore the productivity per employee must go up. And this brings me to the last (red-printed) paragraph. I suspect that the number of people looking for employment increased due to an ongoing influx of workers from Spain, Poland and Romania. These people bring the reduced costs of labor that the Dutch manufacturing industry desperately needs at the moment to increase productivity and reduce costs per unit. This might be harsh for Dutch people working in those factories, but it is a logical consequence of the increased costs of labor in The Netherlands.

The aforementioned chart is a warning of what could happen when this recession picks up speed. The excess personnel that adds too little to productivity will probably not be able again to keep their position in the company, but might be destined to pack their bags. Added to the recent trend of mass lay-offs, we could be in for a nasty 2012.

Wednesday, 23 November 2011

Industrial new orders in Europe fell by 6.4%, last September; recession seems here in the EU. But when the recession is finished, the Euro is the right medicine for quick recovery.

Today, the European statistical office Eurostat presented the latest data on September’s industrial new order portfolio for the European Union and the Euro-zone.

Saying that the figures were disappointing would be an understatement. The industrial new orders dropped by 6.4% for the Euro-zone and by 2.3% for the whole EU.

Here are the most important snippets of the Eurostat press release, followed by my comments and analyses.

September 2011 compared with August 2011

Industrial new orders down by 6.4% in euro area
Down by 2.3% in EU27

In September 2011 compared with August 2011, the euro area (EA17) industrial new orders index fell by 6.4%. In August the index rose by 1.4%. In the EU27 new orders decreased by 2.3% in September 2011, after a fall of 0.3% in August.

Excluding ships, railway & aerospace equipment, for which changes tend to be more volatile, industrial new orders dropped by 4.3% in the euro area and by 2.1% in the EU27.

In September 2011 compared with September 2010, industrial new orders increased by 1.6% in the euro area and by 2.3% in the EU27. Total industry excluding ships, railway & aerospace equipment rose by 2.5% and 3.5% respectively.

Monthly comparison
In September 2011 compared with August 2011, new orders for capital goods fell by 6.8% in the euro area and by 2.1% in the EU27. Intermediate goods dropped by 3.2% and 2.1% respectively. Non-durable consumer goods declined by 2.0% in both zones. Durable consumer goods decreased by 0.6% in the euro area, but increased by 1.1% in the EU27.

Among the Member States for which data are available, total manufacturing working on orders fell in ten and rose in twelve. The largest decreases were registered in Italy (-9.2%), Estonia (-9.1%), France (-6.2%), Spain (-5.3%) and Germany (-4.4%), and the highest increases in Denmark (+14.0%), Latvia (+13.1%), Poland (+5.1%) and the Czech Republic (+4.8%).

Annual comparison
In September 2011 compared with September 2010, new orders for intermediate goods rose by 3.1% in the euro area and by 3.9% in the EU27. Durable consumer goods increased by 1.3% in the euro area, but decreased by 3.4% in the EU27. Non-durable consumer goods gained 0.8% and 0.1% respectively. Capital goods grew by 0.6% in the euro area and by 2.4% in the EU27.

Among the Member States for which data are available, total manufacturing working on orders rose in eighteen and fell in the Netherlands (-4.8%), Italy (-4.3%), the United Kingdom (-3.4%) and Ireland (-1.6%). The highest increases were registered in Latvia (+37.7%), Denmark (+31.2%), Lithuania (+28.9%) and Poland (+18.0%).

The figures for September were very poor and the data for the rest of 2011 promises to be even poorer. It seems that the Euro-zone is hit much harder by these bad results than the non-Euro countries. For the unaware reader the Euro-zone seems a bad deal for the manufacturing industry.

But there is always a story behind the data. Eurostat, just like the CBS in The Netherlands, offers the possibility to dig up online data from many years before today.

I decided to compare the data in the period 2002- August 2011 for four categories of countries: The PIIGS, The strong Euro-countries, The classic non-Euro EU Members and the former Eastern Block. All featured data is courtesy of Eurostat (

September is not processed in this chart, as a number of country didn’t deliver the data on September yet. Inquiring minds will also notice that Finland and Belgium miss in the following data. Belgium doesn’t deliver data to Eurostat and Finland does this only since 2005. Both were therefore left out.

Industrial new orders 2002-2008 per country category.
All data courtesy of Eurostat.
Click to enlarge

In this chart you can see immediately how much better the former Eastern Block performed, compared to all Euro countries and the classic non-Euro countries. It is also visible that the strong Euro-countries had in general a better performance than the non-Euro countries and the PIIGS. This shows that the Euro has been a good deal for the strong Euro-countries.

But I wanted to look further. Of every category I took the detailed chart to look for outperformers and poor performers.

Industrial new orders 2002-2008 for former Eastern Block.
All data courtesy of Eurostat.
Click to enlarge
With Slovenia as a clear exception, all Eastern block countries performed much better than all other countries of the EU, with Hungary and the Czech republic as the relative weakest links. The performance of Latvia and Estonia has been excellent, especially for Latvia. This is the reason that the EU27 performed much better than the EU17 over the years.

However, these figures can be deceiving, as all Eastern block countries have a lot of catching up to do (especially the Baltic states, Romania and Bulgaria that all were trailing by miles).

Industrial new orders 2002-2008 for classic non-Euro countries.
All data courtesy of Eurostat.
Click to enlarge
If you look at the results of the classic non-Euro countries, you see that growth in the pre-crisis years has been mediocre, with a few outliers for Denmark and the UK (IMO probably due to measurement errors). However, during the credit crisis the negative growth was also very moderate for these countries, probably due to devaluation of their national currencies. But since 2010, when the strong Euro-countries picked up steam, the positive growth for the non-Euro countries has also been very mediocre.

Industrial new orders 2002-2008 for strong Euro-countries.
All data courtesy of Eurostat.
Click to enlarge

The strong Euro-countries, however, showed much stronger growth during the pre-crisis years, a much steeper decline during the 2008 and 2009, but again a much stronger growth during 2010 and 2011. Seen from this point-of-view, the Euro is a decisive factor for the competitiveness of these countries. The Netherlands and to a lesser degree France have been negative outliers for new manufacturing orders. This is something that especially the cabinet of Dutch PM Mark Rutte should worry about, but probably won´t.

Industrial new orders 2002-2008 for the PIIGS.
All data courtesy of Eurostat.
Click to enlarge
This chart shows the problems of the PIIGS in one view. After the start of the Euro the PIIGS showed moderate, but steady growth until the credit crisis started in 2008. However, the decline in 2008 was also quite steep, due to the membership of the Euro and (thus) the impossibility to devaluate their currencies. And in 2010 the difference shows between the strong Euro-countries and the PIIGS. Since 2010 the PIIGS showed only poor growth, turning them into the weakest links of Europe.

Summarizing, you can draw the following conclusions:

-      The countries of the former Eastern Block are currently in a class of their own where it concerns industrial growth and might even be the economic motor for Europe in the years to come.

-      In 2008, the Euro made the declines in manufacturing steeper than in the classic non-Euro countries. But in general, the Euro has been a prosperous solution for the strong Euro-countries, as it enabled those countries to recover much faster than the classic non-Euro countries.

-      The PIIGS suffered harder from the economic crisis in 2008, due to their lagging growth in the years before and cannot find the right track since then. In my opinion this should trigger the other Euro-countries to start a Marshall plan for the PIIGS, as this is the only possibility to not only let the Euro-zone survive, but to turn it into the economic motor for the world.

Whatever the UK and US say about the Euro, in theory and partially in practice it is a good solution for the countries that take part in it, with the precondition that countries must be strong and financially solid. And that is where the PIIGS failed, unfortunately.

But now it is time for EU politics to forget about the troubled start of the Euro and to show some courage towards the countries that are the wrong side of the line: the PIIGS. To get there, the Euro-zone has to go together.