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Sunday, 6 May 2012

A new coalition and elections in The Netherlands…

The last two weeks in The Netherlands and Europe in general have been a rollercoaster ride:
  • A fallen cabinet VVD-CDA(-PVV) in The Netherlands, planned elections on September 12, 2012 and a new coalition formed within three days by CDA, VVD and three other parties that were the total opposite of Geert Wilders’ populist-conservative PVV;
  • Elections in France on May 6, offering a substantial risk that sitting président Nicolas Sarkozy will suffer a scornful defeat against François Hollande; The same François Hollande that is seen by many Anglo-Saxon commenters as the socialist ‘antichrist’ that will put the Euro-Zone into ruins;
  • A renowned English blogger in the Financial Times, Peter Mandelsohn, who writes that the UK should consider entering the Euro-zone after all (!!!); 
  • Unemployment in the Euro-zone breaking yet another record, with especially Spanish and Greek unemployment rising from ‘desperate’ to ‘out of this world’, especially among youngsters (more than 51% in both countries); 
Normally these are the kinds of stories that I like to bring to you on a daily basis, but I didn’t do so lately and I couldn’t. I suddenly was struck by the consequences of too many 12 hour working days during the last year, so I had to step on the brakes and take a two-week break from my blog. I truly regret this, but that is the way it is.

From this position I have to show my deepest respect to Mike ‘Mish’ Shedlock, who is not only one of the smartest bloggers around, but also one of the steadiest; he writes every day of the week during summer, winter, rain or shine and in times of happiness and hardship. And he already does this for many years now. Read him, because he is worth it!

Now for something completely different.

The Netherlands that initially suffered from a fallen cabinet on Monday April 23, went through a period of very rapid changes during the last two weeks: Especially the CDA (Christian-Democrat party) showed once more its talent for being totally spineless and abolished since last week every legislative measure brought in by the PVV, that it had been ‘applauding’ before during the last one-and-a-half years. The VVD (liberal-conservative party) of the crashed-and-burned PM Mark Rutte, whose only true achievement seems to be the new 130 kph speed limit on the Dutch highways, is counting its blessings and keeps a very low profile until the elections in September.

However, that was not all that happened. The Dutch Finance Minister Jan Kees de Jager had the demands of the European Stability and Growth Pact (SGP) hanging like a millstone around his neck: The Netherlands must reach a 3% budget deficit in 2013, while the current forecast shows a 4.6% budget deficit for that year. In order to meet this SGP demand in time, the Dutch government had to deliver a new budget plan to the EU before April 30 that would show a roadmap to this 3%, or else it would risk a penalty of more than €1.2 bln.
As De Jager and Rutte banged the drums on the budget deficits and the state debt in the PIIGS countries on numerous occasions, De Jager couldn’t simply go to Olli Rehn and say: ‘Well Olli, about that 3% deficit?! We’re not gonna make it’.

The indefatigable Jan Kees de Jager (CDA), who already had to be considered ‘the man with the plan’ in the fallen cabinet, rose to the occasion and took the bull by the horns in those turbulent days after that memorable April 23. He spoke and negotiated with several political leaders from the whole political spectrum on the Dutch budget for 2013 and achieved the impossible.

On April 27, within four days after the cabinet fell, there was the unexpected formation of a new pseudo-coalition, existing of the VVD, CDA, ChristenUnie (Christian-Democrat), D66 (liberal-progressive) and GroenLinks (Green party). These last three parties can be considered to be the total opposite of the populist-conservative PVV: pro-Europe, pro-change, where it concerns social security and labor law and very liberal indeed. This coalition offered in a narrow-squeak its budget forecast for 2013 to the European Commission. This just-in-time delivery caused a sigh of relief within the European Commission and on the financial markets  and earned the respect of many financial newspapers all over Europe.

Many financial and political reporters were just too relieved to notice that the plans of the new center-leftwing coalition weren’t anything more than an ordinary, visionless cheese-slicer operation (as it is called in The Netherlands): no real economic and social security reforms and bold plans, but just ‘slicing together’ billions in austerity measures.

These are the most important measures:

  • The high VAT-rate will be increased to 21% from 19%
  • The personal liability on the healthcare insurance will be increased to €400 per person, from €200.
  • The tax-free compensation for traveling expenses for workers will be totally abolished
  • Dutch civil servants will be subject to a zero wage increase policy
  • The first six months of Unemployment Benefit will be paid by the employer, instead of the government.
  • The excise duty on tobacco, alcohol and soft-drinks will be increased.
  • New mortgage loans will only enjoy Mortgage Interest Deduction when they are based on an annuity loan with monthly redemptions.
  • The retirement age will increase to 66 and 67 one year earlier than in last year’s pension agreement, starting with one month/two months per year from 2013 on. This means that retirees in 2015 will have to work at least three months longer than retirees in 2012.
  • The law on job termination will be changed soon.
The aforementioned measures are only the ones adding to austerity.

Of course there is also some pork in it to lure the new parties in the coalition:
  • no cutbacks on development-cooperation; 
  • Lower VAT-rates on solar panels and performance arts 
  • a 2% conveyance duty for the coming years, instead of the normal 6%

However, it remains questionable whether The Netherlands will reach the 3% budget deficit in 2013 or not:

  • The increased VAT-rate of 21% will further diminish the consumer confidence and spending desire in The Netherlands.
    • The abolished tax-free compensation on traveling expenses means that people will have even less money to spend on consumption
    • The zero wage increase-policy for Civil Servants will have the same effect of reduced consumption
    • So will the increased excise duty on alcohol, tobacco and soft-drinks.
  • Lower consumption will inevitably mean less tax income and fewer jobs and economic growth.
  • The €400 personal liability on healthcare might initially reduce healthcare costs, but this could change eventually as people that initially wait with visiting a doctor, might be confronted with much higher healthcare bills, due to more expensive treatment.
All these measures make it quite uncertain that the demands of the SGP will be met in 2013.

However, what makes things worse is that there is neither a solution for the hopelessly locked-up Dutch housing and Commercial Real Estate (CRE) market, nor for the bad financial situation of many pension funds.

  • The reduced MID-measure is only for new mortgage-loans; the current redemption-free jumbo loans will enjoy MID until eternity. This means that it becomes even more unfavorable to enter the housing market now.
    • The current mortgage-owners stay put when they can, while starters on the housing market don’t have a level playing field at all. The consequences will keep the housing market locked. How is that for kicking the can down the road?!
  • The CRE building frenzy in has hardly stopped in The Netherlands and until this day billions and billions of Euro’s are locked in useless real estate that might be vacant for years to come.
    • Billions that are desperately needed by banks, pension funds, investment companies, project developers and insurance companies that have large CRE-portfolio’s, but that are as accessible as the goldsupply at Fort Knox.
    • The only thing that could really help the doomed building and construction industry is a shakeout in which the weaker companies would default, letting the strongest companies survive.
    • The government could speed up this process, by offering special subsidies for B&C companies that would voluntarily stop and subsidized rehabilitation courses for the many (independent freelance) workers in this industry.
  • The government still increases the retirement age at a very low speed, instead of using the crisis to increase the pension age to 67 at once, cold turkey. This would be harsh for the current prospective retirees, but much fairer to the youngsters that have to work until 67 or older anyway.
  • Also nothing has been done about the utterly stupid 2011 pension plan with its ‘mirage’ of calculating with prospective future profits to hand out excess pension payments to today’s retirees. This plan should be dead-on-arrival and it’s a disgrace that it isn’t yet.
Main conclusion: although the new agreement seems an instant success for the new coalition, in reality it remains a bitter disappointment when it comes to really necessary reforms.

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