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Wednesday, 19 June 2013

The 21st Century’s great depression: Has ‘the great reset’ in The Netherlands finally begun? Pt II

[This article continues the first article that has been printed here]

In the European Council and Commission, nothing serious had been done about the euro-crisis, besides from a number of pseudo-solutions that were all meant to gain time, as the real solution would be too painful for every party.

Domestically, in The Netherlands, nothing had been done about the housing and Commercial Real Estate (CRE) markets. These markets suffered from a serious failure in demand and - subsequently - a strong decline in housing and CRE rental and sales prices.

Painful, but curative measures for both markets where pushed aside by the politicians, as these measures would harm certain influential interest groups among their grassroots. Deploying measures, like the following, would probably diminish their chances for re-election:
  • Abandoning the mortgage interest deductability through a 5 – 10 year transitional phase; 
    • People with excess mortgages would be gently forced to diminish their debt, by using the current tax deductability amounts as a special subsidy for ‘mandatory’ mortgage amortization;
  • Declaring a building stop for new CRE-projects, coming from central and local governments, which didn’t come with contracts or ‘letters of intention’, signed by the future owners or tenants;
    • Enabling the deployment of refurbishing or demolition projects for structurally vacant CRE;
  • Enabling firm reorganizations among challenged companies in the Building and Construction industry, thus reducing the excess capacity in this industry and giving healthy companies a better chance for survival;
    • Starting retraining projects for excess workers in the B&C industry;
Instead the Dutch politicians decided to combinedly kick the can down the road, with a long series of non-effective measures, merely meant as a smoke-screen to distract attention and gain valuable time, hoping that the crisis would "magically" disappear.

Also in other industries the problems had been mounting: the retail industry suffered from a structural excess capacity in shops and shopping space, while at the same time many local governments persevered in building extra shopping centers. On top of that, the uniformity and dullness of almost all shopping centers, in combination with the soaring parking costs, made these centers less and less attractive for fun-shoppers.

At the same time, the Dutch people held their hands firmly in their pockets, both risk-averse and worried as they were for their own future and that of their employers.

Important industries, like the ICT-industry, the trade industry, the business and facilitary services industries (cleaners, maintenance people, waste processing), the Transport & Distribution industry and the financial industry suffered from a structural excess capacity, as these industries were still adjusted to the ‘exuberant days’ of 2007.

At the same time a higher percentage of jobs in these industries were fulfilled by less expensive workers from low wage-countries, like the Eastern European countries, India, China and African countries, like f.i. Nigeria. Both circumstances worked like a double whammy towards the more expensive, Dutch workers in these industries.

Also industries which historically had been dependent from exports to the other (peripheral) countries in Europe, showed in general disappointing results: suppliers of raw materials and semi-finished products, the agricultural industry, the manufacturing industry and (again) the transport & distribution industry.

These circumstances, in combination with the enduring uncertainty within the Euro-zone, caused that – after a quite promising start – 2011 ended in misery. On top of that, 2012 and 2013 became even worse, when it came to mass lay-offs, bankruptcy cases, rising taxes, rising unemployment and pessimism among consumers and employers.

In my opinion, the great reset in The Netherlands has indeed begun in 2011!

I dare to say that that the 2008 recession is now turning into a full-blown depression. To put it even stronger: this recession had the brand ‘depression’ written all over it from the beginning: the structural imbalances everywhere on the globe had just been too large to be straightened out by a simple three year ‘bread and butter’ recession.

Nevertheless, it would be too easy to declare that the Dutch government – although the various cabinets have been generally weak over the last 10-15 years - is mainly responsible for the build-up of this depression in The Netherlands. 

The influence of most governments on the economy – especially in a small country, like The Netherlands - is quite limited. Even the European council and commission could not have preserved the European economies against this recession-turning-depression.

If I would have to point at the single most important factor for this huge crisis, the words would be ‘ubiquitous debt’: private debt, public debt, sovereign debt and corporate debt, as a consequence of nearly 'free' money.

And if I would have to blame a few persons for this massive occurance of excess debt, it would be the reckless people that tried to stop healthy recessions from emerging, by lowering the interest rates to the bare minimum: especially Alan Greenspan of the Fed and his peers all over the globe are at my crosshairs in this matter.

Remember the analogy of the forest fire from the first part of this article: as a consequence of their activities as fire extinguishers during the last ‘designated’ recessions (i.e. Russian currency-crisis, the dot-com crisis), they were able to stop those recessions in the cradle. However, they ultimately caused the massive forest fire that we are in, right now, by lowering the costs of borrowed money and by destroying the sense of risk in the financial world! The reckless lending and borrowing within the Euro-zone to countries that couldn't afford it, did the rest!

The one and only big advantage of this massive forest fire is that it burns away all the waste and combustable material, that was laid upon the financial/economic soil. 

When this crisis is finally over, all exuberance, reckless building up of debt and conspicuous consumption among people, who cannot afford it, will be over. This is a tough, but eventually very healthy proces.

If you think that I am too negative, then let us take a look at a few snips from a recent report from the research bureau Motivaction ( and a few data and charts from the Dutch Central Planning Bureau (, the Central Bureau of Statistics (

Dutch people increasingly accept the diminished prosperity and the new austerity of today. More than one third of the population (34%) voluntarily chose to lead a life of more sobriety, according to the Mentality Monitor of research bureau Motivaction.

Fifteen years ago, this percentage was 23% and the society as a whole was much more materialistic than today.

Possession became less important. Sharing a car or other material items became more and more common. Making choices and doing more with less money is one of the trademarks of this time, is one of the conclusions of this investigation.

The number of Dutch people that adjusts to this new reality increases rapidly. A bigger self-responsibility and a smaller dependency upon the government is endorsed by 43% of the population.

And here is the Central Planning Bureau with their June, 2013 forecast of the Dutch economy for 2013 and 2014:

The Dutch economy this year is projected to fall by 1%. For next year, a slight recovery is projected, leading to a 1% increase in GDP. The budget deficit by 2014 is expected to be 3.7%. This is the second forecast made in 2013.

Household consumption in 2013 will decline, due to lower disposable income levels and decreasing house prices, while public spending also will continue to decline as a result of ongoing spending cuts. The slight recovery projected for 2014 is related to Dutch exports benefiting from recovering world trade. 
Domestic spending levels will hardly contribute to next year's growth.

The situation on the labour market is bleak. Employment will drop this year by 1,25% and in 2014 by 0,5%. At the moment, unemployment levels are rapidly increasing. In 2012, the average unemployment level concerned 5.3% of the labour force. In 2013, this will grow to an average 6,75% and in 2014 to 7%. 

This weak labour market has a downward impact on wage levels. Contract-wage increases in the market sector are expected to lag behind inflation, for both these years. In the public sector, they will lag behind even further in 2013, as wage levels in this sector have been frozen.

The economic decline in 2013 will dampen tax revenues and increase unemployment benefit payments. However, as a result of sizeable spending cuts and tax increases, the government deficit is still projected to decrease, from 4.1% of GDP in 2012 to 3.5% this year. Further increases in unemployment benefits are projected for next year, which will contribute to the government deficit increasing to 3.7% of GDP in 2014.

In my opinion, this forecasts by the CPB is still overly optimistic, as the CPB forecasts have often been during the last years. Still, they are a tell-tale signal of the current depression.

Want more?! Here is the Dutch Central Bureau of Statistics:

In May, 796 businesses and institutions (excluding one-man businesses) were declared bankrupt. This is the highest number since the time series started, in 1981. In April, 694 businesses and institutions were declared bankrupt.

In May, the most substantial increase was recorded in the sectors trade and business services. In the construction sector, on the other hand, the number of bankruptcies hardly changed.

The three-month moving average was 733 in May, compared with 721 in April. In March, the three-month moving average was 734. This, too, is the highest level since the beginning of the time series in 1981.

10% of large companies in the Netherlands moved business activities to another country in the period 2009-2011. Lower wage costs were an important factor in this respect. In the space of three years, 18,000 jobs have been relocated abroad.

The main motives for relocating business activity are to reduce wage costs and strategic decision by the parent company. The latter relocations are undertaken by subsidiary companies at the behest of the Dutch or foreign-based parent company. Another important reason reported by companies was cost reduction other than wages

The volume of exports of goods was 2.7% lower in April than twelve months previously. Exports decreased for the first time since October 2011. The volume of imports decreased by 0.2% in April; this is in the same order of magnitude as in March. Volume figures are adjusted for the number of working days.

The value of exported goods totalled 34.6 billion euros, 1.9% down from twelve months previously. The value of imported goods decreased by 0.7% to 31.1 billion euros, resulting in a trade surplus of 3.5 billion euros, a decrease of 0.4 billion euros compared to April 2012. These value figures have not been adjusted for the number of working days. April 2013 had one working day more than April 2012.

Turnover in the Dutch car and motorcycle trade was almost 17% down in the first quarter of 2013 compared with the same period last year. Similar developments are being observed in neighbouring countries. Businesses in this sector expect the decrease to continue into the second quarter.

The decrease of nearly 17% in the first quarter of 2013 is the largest turnover fall in the car and motorcycle trade since the second quarter of 2009. No branch within the sector  managed to escape the economic malaise. Turnover of companies active in trade and repairs of both cars and motorcycles dropped sharply.  The falls of 17 and nearly 20% respectively, were the largest ever measured in these branches by Statistics Netherlands. Car importers, too, faced lower turnover levels: 23% down on twelve months previously.

Figures released by the CBS today show that Dutch retail turnover was 0.6% lower in April 2013 than in the same month last year. The volume of sales fell by 2.7%, retail prices were 2.1% higher.

This 0.6% figure is not very impressive. However, it gets more impressive when you reckon that sales prices increased by 2.1%.
And if this crisis enforced two developments in the Dutch retail landscape, it would be these:
  • Outlet’ turned from a fashionable buzz-word in 2003 into an ubiquitous presence in the Dutch retail landscape. People go for bargains in almost every part of the retail market. 
    While a happy few still spends loads of money in the expensive flagship stores of the famous luxury brands, Jan Modaal (the Dutch Joe the Plumber) spends his hard-earned euro’s in the outlet and bargain stores, irrespectively whether these are online or brick-and-mortar stores: buying more for less. Consequently, there has been tremendous growth in the amount of outlet and bargain stores everywhere.
  • Especially the fashion and footwear retailers got into a situation of “sales throughout the year”. The large retail stores try to smoke the small retailers “out of their holes”, by quicker replacing their collections and putting the old ones in the sales. The small retailers can’t do anything, but reluctantly follow, while they see their margins go up in smoke.

Please be aware that these data is all from the last two weeks.

All these data combined, in combination with the soaring Dutch unemployment and the accelerated drops in housing and CRE prices, show no signs whatsoever that the depression will be over soon.

To the contrary, it will presumably gain momentum this year and especially in 2014: the Dutch government is planning an extra €6 billion in additional taxes and austerity measures for 2014, in order to meet the 3% threshold in the European Stability and Growth Pact, which is yet again advocated by European Budget Commissioner Olli Rehn. A ‘mission impossible’ as you might understand.

Of course, there still are a number of green shoots in the Dutch economy, just like an Italian bowl of tomato soup often contains leafs of basil.

However, just like with the Italian soup: when you look at it from a distance, the Dutch economy looks very red indeed!

1 comment:

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