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Wednesday, 29 February 2012

The ECB is handing out sleeping pills to the financial markets: ‘sweet dreams, you b*stards…’

Nurse: “Sweet dreams, you b*stard”
Protagonist: “I remember now, I remember how it started”

This evening I was haunted with a feeling that the actions of Mario Draghi and the ECB are very similar with those of the nurse at the start of Queensrÿche’s legendary album ‘Operation Mindcrime’.

For those who don't know this musical masterpiece, here is a synopsis: the 'antihero' is under influence of a mad scientist that wants to start a world revolution in order to throw over the corrupted governments. Things go wrong and the anti-hero is arrested and locked up in a mental hospital. This is were the record sets off.
 Of course this has nothing to do with today's situation.

The story of this record is not important now, but the beginning is: 
while the hero of this true masterpiece album wants to remember what went wrong some time ago and how he came into the mess that he was in at that moment, the nurse in the mental hospital where he was locked up, sedated him with the words: “Sweet dreams, you b*stard”.

The analogy with the financial markets and the ECB is stunning. While the financial markets really want to disclose the problems that the banking industry and the European sovereigns have currently, ‘nurse’ Mario Draghi gives them a shot of €uro-sleeping pills through the banks. After this shot, the financial markets dream on for a month or so.

Today the news was published that the ECB handed out another €529 bln in credit ‘sleeping pills’. It clearly hopes that the financial markets will forget in what a dire situation the large European banks and the Euro-zone sovereigns are, in reality.

The Financial Times wrote a cover story on the renewed ECB lending scheme today. Here are the pertinent snips of this story:

The European Central Bank on Wednesday injected €529.5bn into the eurozone financial system as 800 European banks took advantage of the ECB’s cheap three-year longer-term refinancing operation [...], which offers lenders an interest rate of just 1%. 

The ECB’s first three-year loan programme in December, which saw 523 banks borrow €489bn, was widely seen as a “game changer” that helped to avert a liquidity squeeze in the European banking system. 

Wednesday’s figure included funds rolled from shorter dated operations. About €310bn of net new liquidity was added to the system – much more than in December’s loan auction. “This is at the higher end of market expectations and should have a positive impact on risk assets especially when compared to the €193.4bn net liquidity add that was seen from December’s LTRO 1,” said Divyang Shah, global strategist at IFR Markets.

Suki Mann, head of credit strategy at Société Générale in London, said “You can reasonably assume that any major short-term funding issues have now been alleviated and the market can move on. The fact that more banks participated is a result of the collateral rules being widened.”

Banks, particularly those in Spain and Italy, are thought to have already used the first round of cheap money from the ECB to buy their governments’ sovereign bonds, helping to drive borrowing costs lower. Recent figures from the ECB show that Italian and Spanish banks increased their holdings in sovereign bonds by 13% and 29% respectively over a two-month period between December and January.

Some [people] have warned that eurozone banks risk becoming addicted to the cheap funding from the ECB and that it may not be long before the central bank has to commit to a third LTRO.

However, Mario Draghi, the ECB’s president, stressed earlier this month that the measures were temporary and the central bank would not pre-commit to making them a permanent feature of monetary policy.

And yes, the patients, called ‘financial markets’ are again sound asleep.

As a matter of fact, during the last two weeks Greece is stashed in the mausoleum of the Euro-zone with a sign: ‘small enough to fail’. Nobody cares about this poor country anymore.

At the same time, the banks in the more important PIIGS countries Spain and Italy have again enough financial fire power to force the interest rate of Italian and Spanish bonds down; the proverbial emperor from Hans-Christian Andersen’s fairytale shows his new clothes again and looks indeed magnificent.

And everybody is happily shouting: ‘look how low the interest rates of Italy and Spain are currently. Now the Euro-zone is safe. And Germany finally seems to be going to expand the firepower of the Euro-zone’s bazooka EFSF/ESM (European Financial Stability Facility / ~Stability Mechanism). This will make the Euro-zone a much safer place too’.

But please look at the facts:
  • Greece is –  with -7% negative growth in 2011Q4 y-o-y – going through the heaviest economic contraction in years – maybe even in history
  • Spain, Italy and Portugal are not likely to return to prosperous times soon. During the last year, the focus of the EU and the Euro-zone has been exclusively on financial stability and not on regaining economic prosperity. The results are predictable: negative growth, with Spain as a relative outlier, as this country had ‘only’ negative growth in Q4.
  • Germany seems to head towards a recession with negative growth in 2011Q4, while economic ‘Mighty Mouse’ The Netherlands is already officially in one. France had anemic growth of 0.2%, but was celebrated like a true champion.
  • Of the 18 countries that sent Q-o-Q data to Eurostat, 12 reported negative growth. Of the 9 countries that didn’t report Q4 growth data, at least four will have negative growth, is my assumption.

But the financial markets fall happily asleep and have very vivid dreams with all kinds of colors and shapes. It are the drugs, y’know!

Tuesday, 28 February 2012

What mortgage debt and uncertainty do to people; letters and comments from readers of Ernst’s economy for you

My last article Investigation by Panteia shows: 27% of Dutch people is currently in arrears handled about the indebtedness of Dutch people.

Although the fact in this article were shocking, it is in reality nothing more than cool statistics. Therefore I want to show you the flipside of this story; that of real people that are heavily indebted at this very moment. To show you that the aforementioned title is not about statistics, but about people like you and me.

During last week, I have received not less than three comments from readers of my articles on the Dutch housing market. And coincidence or not, these were all expats from other European countries that had a much too expensive house and an excess mortgage in The Netherlands.

All three people were now worried sick about their enormous debt and all three were already in arrears for a number of periods. Their problem: how to get rid of their house without being stuck with a large residual debt. An almost insolvable problem in the current Dutch housing market.

I want to share these letters and comments (on a basis of anonimity) and my reaction to it for the sake of answering some frequently occuring questions of my readers. If the answer of your question is not in the following information, please write to me at I will do my best to answer all questions within a few days.

And I want to emphasize to my readers: if you are going to be in an arrears situation very soon, if nothing happens, NEVER wait with acting until it’s too late. Be proactive and cooperative towards your bank or mortgage agent. It is often much cheaper and more certain for banks to help you with temporary reduced payments than to let you get in a default situation. So being proactive might save you a lot of financial trouble in these trying times.

“Anonymous” wrote on February 21st:

Hi Ernst.

I found your website by chance, googling about mortgage default in the Netherlands...that's right, I'm another victim!

Perhaps you could give me some quick advice - or at least share some knowledge since is so hard to find information on the subject. I have a house in Amsterdam and due to separation from my ex-partner, the situation now is very different than when we bought it. We're both expats, he still lives in the property but I no longer live in the country. I've been doing my outmost to keep paying my part of the mortgage, hoping the house will sell. It's been over a year the property is in the market with hardly any offers, except speculative ones about 30% less than our asking price.

My question to you would be - what are the consequences of a default in the mortgage? The house's already been for sale for 14 months, so the bank can see we're trying to get the best price. But my main concern is the outstanding debt after an eventual sale does happen. How do banks normally deal with the remaining loss? What are the alternatives for debt relief for a person like me?

Would be great to hear from you and thanks for working on such an interesting blog on the subject. Buying a house in the NL was an emotional move - in the direction of having a home, not an investment in the housing market - but life turned out to take me into a different direction and the current economy doesn't seem to forgive or even allow changes these days! Also, I've read in quite a few places that the expat community, like myself, is suffering with the housing crisis.

My reply:

I am very sorry to read that the two of you broke up. And unfortunately, I don't have an easy advice.

It is still possible to sell a house at the RIGHT price, but alas this is not the price that you want or need to have for it.

If you want to sell your house more quickly, you need to move your sales price closer towards the 'speculative prices' you were talking about, as these are the prices that people are seemingly willing to pay.

If I could give you one piece of advice, it is to talk with the bank that gave you the mortgage. Talk about your situation and about the fact that your house has been for sale for 14 months already. Ask them what kind of arrangements they can offer for a residual debt, when it emerges.

Be proactive and please wait not until the economic sh*t hits the financial fan.

I think that banks appreciate it when you step forward yourself.

One other thing you could do is letting your house for rent, but do this only with a renowned and bonafide mediation bureau specialized in distinguished tenants with short contracts (preferably expats), as tenant protection is very strong in The Netherlands. And don't leave your house empty, because of the 'krakers'.

Unfortunately I don't expect the housing market to recover quickly and I do expect the housing prices to drop for at least another 20%.

But please don't give up and be proactive towards the people that gave you the mortgage.

“Eva” wrote me on February 21st:

Hi Ernst,

I have been reading some of your blog posts on the dutch housing market with interest. You seem to have a great insight into the situation and helpful information.

I was wondering if you had any current updates/ thoughts on the housing market and the negative equity situation so many people are in.

I have an apartment in Amsterdam for which the value is less than i owe and i just can't seem to sell the apartment after 18 months on the market. I desperately want to sell the place and do right by all concerned but i just can't afford to sell lower than i owe yet i also can no longer afford to pay my mortgage and am already 5k in arrears. I pay a sum each month but its approx half of my mortgage and soon i cannot even afford to do this.

What happens to people in this situation? I understand that the default rate is low in NL but surely since 2008 this number is on the increase sharply. I no longer live in NL and its so hard to manage this whole thing and understand the process. I have NHG (national hypotheek guarantee) but A) it looks likely i would no longer qualify under NHG and B) I would still then owe NHG the gap in debt instead of the bank so its all the same isn't it?

I'd really appreciate any advice you have either on the subject or steps to take or even anyone to contact for help.

I replied:

Dear Eva,
I’m afraid that the situation on the Dutch housing market will remain difficult for the coming years, as we are in the middle of a process of debt destruction. And although Amsterdam will always remain an attractive city, the housing prices there have become much too high over the years.

Unfortunately, I don’t have any good news for you on this topic, as I expect the housing prices to take a further dive for at least 20%.

The negative equity situation is widespread and it sure will deteriorate, but the only response we get to it is that our current government ‘assumes the ostrich position’ and hopes and prays for the best.

 I have two advices for you: call the bank that supplied you the mortgage and talk with them about your situation.

And second: if you read Dutch, or know someone that does, please read the information you can find under this link:

 I couldn’t find this information in English, but maybe you could give them a call ( (0900) 11 22 393 (€ 0,35 p/m)). Unfortunately this is a paid phone number that you cannot reach from outside The Netherlands. But you could send an email to the NHG and explain your situation.

And about the NHG, I don’t think that you owe the NHG anything after they stepped in, but I don’t know that as I never had an NHG.

My strong advice: please get in touch with the NHG, the bank and other people mentioned under the link, as they probably can help you further.
I wish you all the best with your situation.

“Kevin” wrote today:

Hi Ernst

In 2005 I purchased a property in The Hague with a 120% mortgage with ‘“###”’. I am an expat and have been working in the Netherlands since 1999. As you rightly pointed out in one of your blogs, the Dutch banks were throwing money at me, so much so that we bought a second property in 2008 with a similar 120% loan this time with ‘“###”’.

The plan was to keep the first house as an investment property and rent it out. Obviously this wasn't the best decision I have ever made considering the current economic climate and housing situation in Holland.

I see that you have posted many blogs dealing with this subject, and I am hoping that you may have some advice for me.

When my tenant moved out just before Xmas, things were a bit tight financially and I became about 60 days in arrears on my mortgage, this obviously raised a flag with the people at “###” and they investigated my situation. Since then, they have contacted me and told me that I am not allowed to rent out my property and that I would have to sell it if I couldn't afford the mortgage repayments. They have been very adamant about this.

What I don't understand is that there is no financial incentive for the bank to do this, they will be losing money by forcing me to do this. I understand that I will still be responsible for whatever short fall is still owed after selling it, but surely its in both the banks and my best interest to rent it out so that I don't fall too far behind on the mortgage payments? I know that you mentioned this to be the ostrich with its head in the sand approach, but I am not familiar enough with the Dutch banking system to see any other way out.

Any comments or advice will be greatly appreciated

I replied:

Hi Kevin,
To answer your question, I must tell you something about the Dutch housing market.

In The Netherlands there are strong laws for tenant protection. It is very hard to get a tenant out of a rental house, if he doesn’t want to move. The law almost prohibits houseowners to take measures against tenants unwilling to leave, like drastic rent increases or (il)legal sanctions. Banks know this very well.

What initially might seem like a smart idea to earn back some mortgage euro’s, can turn into a nightmare when you want to sell the house, but the tenants don’t want to leave it. Almost nobody in The Netherlands wants to buy a house with tenants in it and almost no bank wants to give you a mortgage for it, unless you are a ‘professional’ landlord with multiple houses and a business plan.

Many banks have special anti-tenant clauses in their mortgages and it seems that “###” is no exception.
So while you figure that it is not in the bank’s interest to not allow tenants, SNS sees this different. Your house can be more easily auctioned without tenants in it and it will make a higher yield in case your arrears lasts too long or in case you default in the process. And you will stay responsible for the residual amount anyway, that is unless you go bankrupt.

But if you default on your mortgage and there are tenants in the house, the auction value for your house will be very low and the residual amount will be very high. If you can’t pay this amount back after all, the bank will have to make a huge write-off on your house.

That is the reason for “###” behaving like it does.

My advice: go to the bank, explain your situation and try to find a way out together with them. Be proactive towards them and tell them the truth, the whole truth etc. The more you cooperate and try to find a solution with them, probably the more cooperative they will behave, for instance by allowing temporary lower interest / amortization payments.
Don’t try to outsmart “###”  by letting in tenants in your house behind their back, because the banks have the biggest legal guns and they can ‘shoot’ you without blinking. And you need them more than they need you.

One more time: these are real people with real problems. If you are encountering financial problems on your mortgage yourself , don’t wait, but act! 

Monday, 27 February 2012

Investigation by Panteia shows: 27% of Dutch people is currently in arrears

Today the Dutch research bureau Panteia ( presented its ‘Monitor on Payment Arrears’ for 2011, for which it was assigned by the Dutch Ministry for Social Affairs and Labour. The aforementioned link is courtesy of Dutch news website Here are the most important conclusions from this Panteia report:

  • In The Netherlands there are 2.02 million households with at least one of the distinguished forms of payment arrears. This is inclusive 34,400 households that are currently in an official program, called ‘Debt Reduction for Natural persons’(WSNP):
    • Outstanding arrears for financial reasons (352,000)
    • Credit facilities or loans (1,392,000, excluding mortgages)
    • Payment arrangements (591,000 during the last 12 months and 404,000 as of now)
    • Regular overdraws on the current account (1,134,000)
    • Credit card debt (157,000 with a payment arrangement)
  • Related to the total number of 7.2 million households, this is 27.8% of all households, compared to 26.7% in 2010, 24.8% in 2009 and 27.0% in 2008
Outstanding arrears 
  • 9.36% or 680,000 people had outstanding arrears for financial reasons with minimal one bill.
  • 3% or 213,000 people had outstanding arrears for at least four different types of bills.
  • Outstanding arrears is most often signalled at:
    • Internal Revenue Service bills : 5.6%
    • Healthcare insurance bills      : 5.4%        
    • Mortgage or rent                 : 4.5%
    • Utility bills                          : 4.3%
  • All forms of arrears occur more often in 2011 than in 2010
  • 57% of households, or 201,000 has less than €2000 in outstanding arrears
  • 26.2% or 92,000 has between €2000 and €10,000 in outstanding arrears
  • 11,2% (against 4% in 2010) has an outstanding arrears of more than €10,000.
Loans and overdraft credit lines
  •  2.7% of all households has more than one loan or credit line at the time.
  •  The average size of a loan or overdraft credit is €13,800
  •  The average size of educational debt is €15,000
  •  People that borrowed money from their family (5.8%), borrowed in average €9,400.
  • The number of all kinds of loans rose in 2011, compared to 2010 and 2009.
Payment arrangements
  • 5.6% of all households (404,000) is currently paying back goods or services delivered through a payment arrangement. This was 2.6% in 2010, 2.2% in 2009 and 6% in 2008.
Current account overdraws
  • 7.1% of all households (515,000) overdraws its current account on a regular basis
  • 8.5% (619,000) overdraws its CA often.

Credit card payment arrangements

  • 2.17% or 157,000 households has currently a payment arrangement on its creditcards. This was 2.75% in 2010, 1.6% in 2009 and 2.67% in 2008. 
  • These 157,000 households have an average credit card debt of €1,856.

These are shocking data and it proofs that, after a brief 2y period of debt destruction, people are rebuilding their debt to the 2008 level. This is a very dangerous development, as I suspect that the 2011 debt rise is not caused by debt-creation as a consequence of excess consumption, but by people filling one pothole with another.

Consumption and especially consumer confidence dropped strongly in 2011 and then it doesn’t make sense that people would have taken more loans and credit lines out of luxury. There is one category of debt that is actually lower than last year and that is credit card debt in the form of payment arrangements. This also seems to point in the direction that current debt rise is not a result of excess consumption and ‘spending like there is no tomorrow’.

Also the huge amount of €15,000 in educational debt shocked me. And moreover, it is impossible to see the development of educational debt loose from the desire of the government to make higher education (colleges and universities) more expensive, more efficient and less dependent on government budgets. This neoliberal policy is turning around years of social-democrat policy where studies should be accessible for everybody. Whether you agree or disagree with this policy; an undeniable fact is that is spurs indebtedness among students.

And don’t be mistaken about educational debt; it’s nothing less than a disaster for drop-out students that flunked their exams and thus have to accept a lower paid job, but even for successful students that do find a well-paid job, €15,000 is a lot of money to pay back.

All in all, there is a lot of debt in Dutch society. According to the CIA World Factbook, the total amount of private debt in The Netherlands in 2011 was 376% of GDP. And it seems that this amount of debt is starting to choke people in The Netherlands. Read the other stories on indebtedness, using my search engine.

Therefore the conclusion must be that there is a big chance that the double dip-recession that started in 2011Q3, will continue and deepen in 2012. Facts like the rising unemployment, the rising indebtedness of Dutch citizens, the maintaining problems on the Dutch housing market and the all-time low consumer confidence cannot be denied anymore. Therefore fasten your seatbelts, because 2012 might be a very bumpy ride. 

Thursday, 23 February 2012

The Netherlands blames the PIIGS for not being financially sound, but it is on the run with their tax money.

In my SMS from Ernst (25) I wrote about the Portuguese anger towards The Netherlands for being a tax haven.

The large Portuguese supermarket chain Pingo Doce and its holding company Jeronimo Martins have used The Netherlands as the European country of choice to pay their withholding tax and corporate tax. They did so for a very good reason:

The Dutch government concluded bilateral tax treaties with almost all countries in the world. These treaties state among others that when a company pays its corporate and withholding tax in The Netherlands, it doesn’t have to do so in the counterparty country. And The Netherlands with its (extremely) low withholding tax rates and its soft regulation for transfering money to other tax havens is therefore the favorite country for Jeronimo Martins and many other firms. 

In this SMS I wrote:

Although Dos Santos does the right thing from his own point-of-view, I´m strongly against this kind of tax evasion by the extremely wealthy citizens of a country. When the rich citizens don´t pay taxes in their own country, why should the average citizen do so.

This behavior can have a very negative influence on the tax paying morality in a country that is already at the brink of defaulting. And when Portugal defaults, this would have devastating effects on the Euro-zone that is already in a very dire situation.

Of course, my opinion on this usage of The Netherlands as a tax haven was conflicting with the opinion of Finance Minister Jan Kees de Jager and other politicians in The Netherlands, which is summarized:

We are very glad that these large companies and famous artists, like the Rolling Stones and U2, come to our country in order to pay the least corporate and withholding taxes possible.

These activities bring highly-demanding accountancy and legal services jobs, opportunities and a little bit of tax money to The Netherlands. We don’t care that, by doing so, we steal tax money from countries that need it much more than we do. We were smarter than they were and beat them in the process”.

Today it was emphasized once more that not only Portugal suffers from this Dutch policy, but the whole PIIGS-zone (minus Ireland). Het Financieele Dagblad (, the Dutch financial newspaper wrote again a story on this practice of tax evasion via The Netherlands. Here is the largest part of this story:

The Netherlands is increasingly becoming fiscally attractive for companies from South-Europe.

With one or two financial holdings in The Netherlands, it is possible for multinationals to reduce their tax pressure by up to 10%.

Were it only a few companies that used The Netherlands in the nineties, today large multinationals from the PIGS-countries (Portugal, Italy, Greece and Spain) choose massively for a Dutch holding for fiscal reasons.

“Companies from Italy and Spain and to a lesser degree Portugal and Greece have operated much more internationally during the last decades”, is stated by Wiecher Munting, tax advisor from the Rotterdam-based firm OHP. 

“Because of the language and shared history, these operations are often situated in Latin-America and also in Africa. But these companies are also active in Western Europe quite often”, according to Munting who has followed this development closely as a former head of the Tax Rulings department of the Dutch Internal Revenue Service. In order to prevent that the holding’s profits are taxed more than once, these companies try to come to an agreement with the revenue services in the countries where they are active.

At that moment The Netherlands steps in, states Munting: “The Netherlands concluded taxation treaties with almost all countries in the worlds. This makes cash flows to The Netherlands very predictable.” Secondly, the Dutch Internal Revenue Service and tax advisors enjoy ‘a splendid reputation’ internationally, Munting knows. “Advisors can explain what can and cannot be done. Tax inspectors can give security in advance on uncertain international transactions. And predictability is crucial in the international business.” Finally, Munting thinks that the strategic position and good infrastructure make a difference for choosing for The Netherlands.

Fiscally of the utmost importance is that profit of a foreign subsidiary is not taxed again in The Netherlands. “Not all South-European countries allow this exemption from taxes”, according to Munting. “That is why so many international enterprises establish a Dutch (intermediate) holding in which they receive their foreign profits”.

Recently another reason emerged. At the beginning of this year Alexandre Soares dos Santos caused a lot of commotion in Portugal, by openly stating that he moved his 56.1% interest in Jeronimó Martins from Portugal to an Amsterdam-based holding. He stated ‘to fear that Portugal would leave the Euro’. “I have the right to defend my property”, according to Dos Santos.

Portugal counts nine enterprises with revenues above €2 bln, six of those let their cashflows run via The Netherlands. Of the 39 Italian enterprise with revenues above €2 bln, 20 have a holding in The Netherlands. Of the 28 large Spanish enterprises also 20 use The Netherlands.

From this FD article you would get the idea, that the motives of these companies are pure and justified: 
  • companies don’t want to pay taxes twice on the same profit 
  • The Netherlands has the most professional internal revenue service and tax advisors.
  • Companies and people want to protect their money from countries stepping out of the Euro-zone. 

However, that the truth might be somewhat more prozaic and even uglier is disclosed by the following older article (October 14, 2011) from daily newspaper De Volkskrant (

The Netherlands is the second most important tax haven for large enterprises. This comes forward from an investigation into the hundred largest multinationals on the London Stock Exchange.
These companies from all directions have combined 8,492 ventures and joint-ventures in tax havens, of which 1,330 in The Netherlands. Only in the American state Delaware, there are more.

ActionAid, a world wide aid organization states that, next to defraudation of tax, also tax evasion via complicated Special Purpose Vehicles must be battled. Many developing countries lose three times more money through tax evasion than they receive through development projects. ‘Without the tax evasion all millennium goals would be achieved without any problem whatsoever’, is the conclusion of the investigation. The American IRS alone loses $100 bln through tax evasion.

Especially the usage of tax havens by western companies has reached epidemic proportions. ActionAid found out that 98 of 100 FTSE companies have direct or indirect ties with tax havens. Shell and BP alone have more than 100 ventures in the Caribbean, where not a drop of oil is to be found.

Tax havens attract companies in various ways. Jersey, the Cayman Islands, Mauritius, Ireland and Hong Kong ask hardly corporate tax: respectively 0%, 0%, 3%, 12.5% and 16.5%. Switzerland still allows anonymous numbered accounts, while Delaware allows companies to keep their financial statements a secret.

In The Netherlands royalties earned outside the country’s borders are tax-free. The Netherlands is also used as an intermediate station, where companies can transfer large amounts of money to real tax havens with no questions asked. In 2009, Dutch letter-box subsidiaries for foreign enterprises moved €8 trillion per year, about 10% of total world trade.

It this smart business for companies and The Netherlands? Probably, the answer is yes!

But is it morally justified? No way!

Dutch Finance Minister Jan Kees de Jager who is 24/7 ready to blame other countries, like Greece, for the things they do wrong, should end this immoral usage of The Netherlands as a tax haven.

Paying taxes to the countries where you earn most of your money is a moral duty for all companies, including the multinationals. The situation in the PIIGS and in other countries would not be so awkward when multinationals, other companies and wealthy citizens realized that.

I know this is a moralistic view, but almost any ‘race to the bottom’ is an immoral event with dramatic consequences for all parties involved, whether it concerns cheap labor, low production costs or tax evasion.

Dutch people borrowed more money in 2011, using more expensive ways than in the past. This is a bearish signal!

Today, the Dutch Central Bureau of Statistics ( presented the research results for 2011 on private debt in The Netherlands. 

The results were surprising and partly shocking. Dutch people not only borrowed more money in 2011, but they also borrowed it in a much more expensive way: by increasingly using credit card debt and by overdrawing their current account. Both ways of borrowing are extremely expensive with interest rates ranging from 11%-17%.

Here are the pertinent snips of the CBS report:

In 2011, Dutch consumers entered into new consumptive loan contracts to an amount of €9.7 bln. That is €0.5 bln more than in 2010. The increase is attributable to a strong increase in credit card loans. Dutch consumers are also increasingly overdrawing their current accounts. This is part of a trend in which consumers use more flexible, but much more expensive types of lending.

After two years in which the Dutch used less credit, 2011 showed increased credit usage, compared to one year earlier. However, the amount of €9.7 bln is still much lower than the €10.9 bln of 2008. In 2011, €4.5 bln in credit card loans has been supplied. That is €0.5 bln more than one year earlier. On the other hand, the amount of overdraft credit decreased by €0.2 bln.

For the first time more credit card credit has been withdrawn than overdraft credit: €4.5 bln against €3.9 bln. Since 2008, the withdrawal of overdraft credit has been decreasing, while withdrawal of credit card credit lines has been increasing. This is caused by the tightened conditions for overdraft credit, while conditions for credit card debt and overdrawing the current account have softened.

Also in 2011, consumers have been increasingly overdrawing their current accounts. For the first time the threshold of €10 bln has been passed. The share of current account debt in the total consumptive debt increased to 37% in 2011, from 31% in 2006. Total consumptive debt, including current account debt, amounted to €27.5 bln last year; €0.2 bln more than last year.

While perma-bulls might see these figures as bullish, for me this is a very bearish signal. In combination with the Dutch consumer confidence that is almost at all-time lows and the fact that consumption in The Netherlands has been lagging last year, it means in my opinion that people are filling financial potholes by creating new ones.

A disturbing trend here is that the access to relatively cheap credit, like overdraft credit, is hindered by new, tighter lending rules that are set by the Dutch Authority Financial Markets (AFM) and the banks. Although these AFM rules by themselves make much sense, they pinch off the cheaper credit lines, while the floodgates for extremely expensive overdrawing debt and credit card debt are wide open.

The interest rates for both overdrawing a current account and using credit card debt are in most cases between 11% and 17% annually. This will reinforce the debt problems that are already widespread in The Netherlands. And whether this credit usage is out of necessity or to ‘keep up appearances’ doesn’t matter much. It is a worrisome development.

I took the consumptive lending data for the last ten years from the impressive CBS online database Statline ( and created two charts with it.

The first chart shows the development of the outstanding amounts for various kinds of loans, while the second chart shows the development of overdrawing current accounts. Both chart amounts are in millions of euro's:

Outstanding debt per loan type in The Netherlands 2002-2011
Data courtesy of: 

Current account debt in The Netherlands 2002-2011
Data courtesy of: 
All in all, it is very worrisome data that has been supplied by the CBS today. 

It means in my opinion that the financial health of the Dutch consumers is deteriorating at the moment. This is a very bearish signal for 2012.

Update February 23, 2012

Dear Reader,

Mea Culpa, I have made a mistake by being naive on the quality of the CBS data and press releases, which is mostly flawless, but not yesterday.

Today, the Dutch daily newspaper "Volkskrant" wrote a snappy article on yesterday's CBS conclusion that credit card debt had increased since 2008, while the first chart in my article clearly shows that it didn't at all. I should have seen it myself, but I failed to do so. 

I feel sorry for this mistake, but I want to share it for the purpose of being transparent.  

There has been a clear increase in the amount of credit card debt, but that was in the period 2002-2006. After that period, credit card debt has been extremely stable over the years.

The Volkskrant went even further by also questioning the increase in people overdrawing their current account (see chart 2). The Dutch national bank De Nederlandsche Bank (DNB) had supposedly stated to the Volkskrant that it had no knowledge of such an increase.

I don't know if this is true, but in this case and based on the second chart, I have no reason to doubt the otherwise reliable CBS.

I hope that this incident helps me to be even more sharp next time.


Friday, 17 February 2012

Greece will be excluded from the Euro-zone after the French elections! This is stated by Russian Newspaper Izvestia

Breaking news! The Russian newspaper Izvestia ( stated tonight that Greece will be expelled from the Euro-zone right after the French elections.

During the 7 years that I have been married to my wife Olga, I’ve learned to respect the journalism and scoops of the Russian newspapers. This might sound strange for Western readers, but many times news was published in Russian newspapers first that could only be read in the Western press hours or days later. Therefore I take this news message in the Izvestia very seriously and show an almost integral version of it.

The news message is translated by Google Translate and refurbished / interpreted by me. I do not take any responsibility for flawed translations / interpretations:

The European authorities have taken the final decision to expel Greece from the euro zone. This was stated to "Izvestia" by sources close to the Russian government, who participate in the international financial institutions. The matter is not discussed openly, as it remains difficult to solve several technical and legal issues. On top of that, both the sources stated to "Izvestia" that this information may influence the elections in France, one of the key EU countries.

However, the news seems credible: hints of such a radical event have been repeatedly heard from the lips of European politicians. Last week for instance, with the unequivocal statement that Europe is now much more willing to accept a Greek default than two years ago. This was stated by the German Finance Minister Wolfgang Schäuble. 

After Schäubles statement, the leader of the European conservatives in the European Parliament, Martin Callanan said that the summit of March 1-2 in Brussels will be used to discuss the plan for the withdrawal of Greece from the eurozone.

Earlier during a meeting of Finance Ministers and Ministers of Economic Affairs of the G20 member countries in Washington, Finance Minister Luc Frieden of Luxembourg made the following statement: Greece will probably be excluded from the euro zone, when it doesn’t keep its promises once more and infringes again the austerity measures that have been established by the troika of IMF, ECB and EU. And in 2010 German Chancellor Angela Merkel took an initiative that makes it legally possible, to exclude countries from the EU that are unable to cope with their obligations.

It is one thing to talk about an event like this, but it is something different to make such a decision in reality. After all, even when the European decision-makers are mentally prepared for such a radical event, they are still faced with the necessity to clean up the inevitable mountain of financial and political problems.

The legal mechanisms for the exclusion of a country from the eurozone are not really developed yet. Formally this would lead to an exit from the European Union too. This development could have unpredictable consequences in the coming years. 

A complicating factor is that there will be elections for the French presidency very soon (2012), as well as for the German chancellor (2013). In both cases it is questionable if the current rightwing leaders will win the elections. If the social-democrats would win in both countries, this does not necessarily mean that they will stick to the idea of a more unified European Union.

‘Whether Greece will leave the Euro-zone or will stay in it, does not change the challenges very much’, according to the chief-analyst of Gazprombank Anna Bogdyukevich. The Greek economy counts for less than 3% of the Euro-zone’s economy. But it could work as a precedent: if Greece would leave the Euro-zone, this could lead to increased pressure by the financial markets on other PIIGS-countries, like Spain and Portugal. This could eventually threaten the very existence of the Euro-zone.

After leaving the euro zone and subsequently the EU, Greece will face a new reality in the form of trade and currency wars. It is questionable whether it can exist as a self-sufficient state with an independent economy. Therefore, most likely, the country would have to seek a new coalition. Which coalition is of course the million dollar question under the current circumstances.

Alexander Osin, Finam’s chief-economist believes that the formation of a Mediterranean Union would be a good way out. But the region is now so weak that these countries could not give each other anything else than mutually felt problems.

And if a strong Germany decides to disassociate itself from troubled neighbors, then it is not smart to wait any longer, according to Osin. 

However, stepping out of the EU has a lot of complications for all participants. But the parties that propagate to get rid of "ballast" from the Euro-zone, believe that maintaining the current arrangement of the Euro-zone carries more risk than the separation of countries that can not and do not want to help themselves.

This is the news that I read in Izvestia today. As my regular readers know, news like this does not make me happy or relieved. I wish with all my heart that Greece and the other PIIGS countries could stay within the Euro-zone.

But unfortunately, it could very well be that once the wheels are in motion for exclusion of Greece, the process cannot be stopped anymore. And then it makes sense that neutral and distant Russian officials are the bringer of the news. And I print it for the sake of being complete and to the point.

Of course there is also a chance that Russia plays the 'divide and conquer' strategy, trying to alienate Greece from the rest of Europe. This possibility cannot be excluded totally. But why would Russia if The Netherlands and Germany do such a fine job with that already.

Unemployment soars in The Netherlands in January and reaches an average of 6% from 5.75% in the previous month. The 3-4% higher that I predicted for Dutch unemployment in 2012 seems well within grasp.

Today the Central Bureau of Statistics ( in The Netherlands presented its unemployment figures for January. Like I expected, the figures were not good and they seem to be an omen for the rest of 2012. Here is a large part of the press release by the CBS.

• Unemployment in January exceeds peak of February 2010
• Increase young job seekers registered at UWV
• Nearly 22,000 WW benefits more than in December

Unemployment adjusted for seasonal variation increased by 18,000 in January 2012 to 474,000, i.e. 6.0% of the labour force, according to the most recent figures released by Statistics Netherlands.
Figures presented by the Institute for Implementation of Employees’ Insurances (UWV) show that the number of job seekers registered in the UWV database as well as the number of unemployment (WW) benefits have risen in 
January 2012.

January’s unemployment figure exceeds the peak recorded in February 2010.

The male unemployment rate is 0.5% higher than in February 2010. The female unemployment rate is approximately the same as in early 2010. Unemployment among women is still higher than among men.

Although youth unemployment grew in January, it is still below the level of
nearly two years ago. Unemployment among over-25s, on the other hand, is
still higher than in early 2010.

The number of unemployed job seekers registered in the UWV database grew by 1.3% in January 2012 relative to December 2011 to 479,000. Proportionally, the largest increase was recorded among under-25 job seekers (+2.6%). The number of job seekers also increased considerably among people in lower-level jobs in engineering (+3.9%), transport (+3.1%), secondary-level care (+2.6%) and administrative jobs (+2.4%).

The number of current WW benefits rose by 8% in January relative to December 2011 to 292,000. In the first month of this year, 56,000 new WW benefits were granted, a 29% increase from December. The number of benefits terminated in January was 34,000, an increase by nearly 10% relative to one month previously. The number of benefits terminated due to work resumption grew above average (+33.1 %).

In general all figures mentioned above are quite bad, except for one. It is good to read that the number of people that found a job rose above average. But all in all the presented figures are in line with my prediction that the Dutch economy is still deteriorating and will further deteriorate in 2012.

In my Outlook for 2012 (part II), I made a prediction on the development Dutch unemployment rate in 2012:

I’m very clear about unemployment. In 2012, I suspect it to rise by at least 3%-4% in The Netherlands and by about 2% in Germany. Rising unemployment will probably even be higher in the other Euro-zone countries, where the PIIGS will probably be the negative outliers; not only in sheer numbers, but also in the percentage of increase.

Although 2012 is still very young, the unemployment development in January is fully in synch with my prediction. And I suspect that the coming numbers during the first half of this year will be much worse.

Now I want to zoom in at the unemployment figures, based on the data in the CBS Statline Database:

Data courtesy of
Click to enlarge
The general unemployment data (for workers from 25-65 years) shows that the development of male unemployment since 2005 has been far worse than the development of female unemployment.

Since December 2011, male unemployment has surpassed both the 2005 and the 2010 peaks, while female unemployment is still 1.6% shy of 2005’s peak. The unemployment rates for both males and females are strongly correlating since May 2011, which points to both an improving number of (typical) women’s jobs since 2005 and a loss of (typical) men’s jobs since then.

I would not be surprised at all if men’s unemployment would exceed women’s unemployment in the coming months, especially as the number of engineering jobs and transport jobs seem to decrease, which are typical men’s jobs. 

Although manufacturing is not mentioned in the aforementioned CBS overview, I suspect that unemployment will be soaring in this industry in the coming months, due to the now inevitable mass lay-offs at manufacturing companies like NedCar and Tata Steel. And these are also typical men’s jobs.

Data courtesy of
Click to enlarge
In contrary to men’s and (to a lesser degree) women’s unemployment in the age group 25-65 yrs, the youth unemployment is still much lower than the peaks of 2010 and 2005. Reason for this could be that youngsters more often  work in the ICT industry than older people. The ICT industry was in a much worse shape in 2005 (after the dotcom bubble bursted) than nowadays, when there is still sufficient work.

Another reason could be that youngsters are mostly working under flexible labor contracts, instead of fixed contracts. And the flex-labor market is still quite healthy at the moment. But it is my strong belief that also the flex-market will deteriorate quickly in 2012, which will have a heavy influence on youth unemployment.

Wednesday, 15 February 2012

The Finance Ministers of the European Union keep Greece ‘hanging on’ until the next elections.

Set me free, why don't you babe?
get out my life, why don't you babe?
'cause you don't really love me
but you keep me hanging on

Today, there was another episode in the continuing story concerning the €130 bln emergency aid package that had been promised to Greece, when the country would carry through €3.3 bln in additional austerity measures. I have been angry about this deal at ‘gunpoint’, as it would choke the Greek economy in an economic coma.

And I was further outraged by the fact that the “leading” Euro-countries Germany and The Netherlands (definitely not leading by example) didn’t want to approve of paying the first tranche of the aid package, before they had a signed contract of the parties that form the current Greek cabinet and a majority vote of Greek parliament.

Let me be clear: Greece made a lot of financial/economic mistakes in the past and has been totally wrong by sending in fraudulently altered statistics that strongly exaggerated the economic health of the country in order to enter the Euro.

But still the country doesn’t deserve to be treated like a pariah state. And the Greek people don’t deserve to be starved into an economic coma.

However, instead of helping this country to get on its feet again economically, this is exactly what the European ministers are doing. And that’s a real shame.

But today, everything bothering the German, Finnish and Dutch minister seemed out of the way and everything looked to be clear for paying the first tranche, when Greek Finance Minister Evangelos Venizelos promised that the missing €325 mln in austerity measures had been covered today and all autographs would be put under the austerity contract tonight.

Indeed, everything was clear… until German Finance Minister Wolfgang Schäuble and Dutch Finance Minister Jan Kees de Jager pulled another rabbit out of the hat. While everybody expected that the first tranche of the emergency package would be approved tonight, these ministers of the strongest Euro-countries stated, that they would like to postpone the emergency aid until after the Greek elections.

Greece would receive just enough money to ‘stay alive’ without defaulting and when the elections showed the right result, the first tranche of the €130 bln package could be paid. It looked like the beginning of a soap opera that puts ‘the Bold and the Beautiful’ in the shade.

Here are the pertinent snips of this story from Het Financieele Dagblad (

Germany, The Netherlands and Finland pressed the Euro-group to postpone payment of the promised €130 bln in emergency aid until the Greek elections in April.

This was stated by the press agency Reuters, based on anonimous sources in Brussels. The Euro-countries are considering to delay the support to Greece and to pay only the amount deemed necessary to avoid a Greek default.

A sources stated to Reuters that especially Germany, Finland and The Netherlands are steering towards postponement. Just like the other Euro-countries, they are not convinced at all that the Greek leaders are dedicated enough to carry through the promised austerity measures after the elections have been held in April. They are still awaiting the leaders of the largest Greek political parties, that should sign the promise to carry through the austerity measures also after the elections.

A conference of the European finance ministers, planned for Wednesday afternoon, was canceled because Greece didn’t meet all obligations for the emergency package yet. Apart from that, however, the leader of the Greek conservative party, Antonis Samaras, stated that he signed the contract to carry through the €3.3 bln in additional austerity measures.

Greece was not amused to say the least, when it learned from the European attempt to postpone the emergency package for Greece. Greek president Carolos Papoulias reacted furiously in the direction of Germany, Finland and The Netherlands. Here are the pertinent snips from a story in Het Algemeen Dagblad (

Greek president Carolos Papoulias ranted in outrage at the German Finance Minister Wolfgang Schäuble. Schäuble would have acted derogatory upon the heavy strains that the Greek population must do to stay in the Euro-zone. Also The Netherlands and Finland received a rant.

“Who is Herr Schäuble to act arrogantly upon Greece. Who are the Dutch and who are the Finns?”, according to the 82 year old President. The three countries are very sceptical about the Greek promises to reform the country in exchange for more financial aid and would aim towards postponement of the next emergency package. Schäuble stated at the radio that Greece threatens to become a 'black hole' for emergency aid.

Papoulias reacted furiously and said that he wouldn’t accept such language of the German minister.’We have always fought proudly in order to not only defend our own freedom, but also that of the rest of Europe’, he stated during a visit to the Greek Defense Ministry.

But a few hours later another episode in the soap opera was broadcasted. Chairman of the conference of Finance Ministers and Luxembourg Finance Minister Jean-Claude Juncker stated that an agreement on the Greek emergency package was close. Again Het Financieele Dagblad (

An agreement on the second Greek emergency package can be finished next Monday. The Euro-group of Finance Ministers received on Wednesday-evening the necessary guarantees of the Greek leaders and a fulfilment of the missing austerity measures of €325 mln

Besides that, there is an analysis on the sustainability of Greek debt after 2020, which gave chairman Jean-Claude Juncker the trust that ‘the Euro-group will be able take the necessary decisions on Monday February 20.

However, according to Juncker there are ‘further considerations necessary’, concerning the mechanisms to reinforce Euro-zone control on observance and execution of the negotiations made.

Phew, that is a relief. Now everything with the Greek emergency aid package is hunky-dory. Or isn’t it? I won’t believe this until the first money from the €130 bln emergency aid has been transfered. Also the Euro-zone can’t be trusted anymore, as it seems to change the conditions for Greece on the fly…

Today, the news was also published that the Greek economy contracted by an annual rate of 7% in 2011Q4. And the situation in 2012 might be far, far worse. It is really disgusting what happens to Greece currently and I want to repeat my words from the earlier mentioned article:

…personally, I get more and more haunted by the feeling that the (uncontrolled) default might actually be better for Greece, than the austerity measures that have been forced upon Greece: at least as long as Greece can stay in the Euro. Leaving the Euro would almost turn the country in a third-world country within Europe, with a currency that nobody wants and nobody trusts.

A default would be terrible for Greece, but than the country would know what it was up to and could start to move forward.

Now, Greece is treated like the girl in the aforementioned Kim Wilde / Diana Ross song. The Euro-zone doesn’t really love the country, but it just keeps it hanging on. In the meantime, Greece shows resemblance with a man with a rope around its neck, who is still standing on a wobbly stool, knowing that it could fall any minute by the hands of Germany and The Netherlands.

Worse than the forced austerity measures on Greece are the sneering remarks of the Dutch and Germany Finance Ministers. Two true hypocrites that act like the most well-behaved children in the international Euro class-room, but worry on their increasing budget deficit (especially Jan Kees de Jager has things to worry about), their dropping exports and their contracting economy in the meantime. And let’s not forget that Germany was one of the first countries to infringe the European Stability and Growth pact.