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Friday, 20 September 2013

“Light at the end of the tunnel”: the crisis is almost over! The question is only: exactly WHAT crisis?! Part II

Yesterday, I published the first part of this short article series. Today is the second episode, about the question ‘exactly WHAT crisis is almost over’.

The euro-crisis

The tranquility on the financial markets, concerning the Euro-zone, is deceiving.

Since the president of the European Central Bank, Mario Draghi, told the financial markets in July, 2012 “that he would do whatever it takes to save the euro”, it seems that the euro-crisis has finally slowed down.

The interest rates in Italy, Portugal and Spain seem reasonably under control and even the message from the German finance minister Wolfgang Schäuble and chairman of the Euro-group Jeroen Dijsselbloem, that Greece would need another rescue package in the near future, seemed to have fallen upon deaf ears.

But is the euro-crisis really over?
  • Did something significant happen with the financial/economic malaise in the PIIGS countries?
  • And with the skyhigh unemployment that has been rocking these countries?
  • Or with the political leaders losing their authority and credibility in the eyes of their voters: not only in the PIIGS countries, but almost anywhere in Europe?
  • And also with the fact that so many banks in the PIIGS countries are blatantly underfunded? 

The coming weekend, there will be elections in Germany. And in contrary to what many people (myself included) thought in advance, it will definitely not be a walk-in-the-park for CDU chancellor Angela Merkel, in her battle against SPD (i.e. social-democrat) candidate Peer “Stinkefinger”(i.e. stinky finger) Steinbrück.

In spite of his ‘middle-finger-ish’ photo-blooper (warning: slightly NSFW content), Steinbrück yet seems a dark horse for becoming chancellor, after eight years of Angela Merkel.

During the last days of Steinbrück and Merkel’s battle for the voter or even in the aftermath of the Bundestag-elections, we might after all hear the nasty details concerning the euro-zone, which had been swept under the rug in the build-up for the German elections. So everything is quiet currently, but I really doubt whether 2012 was indeed the last leg of the Euro-crisis.

The banking crisis

When I lately asked former president Nout Wellink of the Dutch national bank DNB, whether there are zombiebanks in The Netherlands, he didn’t answer me that there weren’t any!

His answer was in fact quite intriguing: Wellink: When I would answer such a question, then you would draw your own conclusions upon individual banks. These are good and interesting questions and many analysts are looking at this topic, but it is not opportune for me, as an ex-supervisor, to answer this question.

This was about as close to a full-blown ‘yes’ as someone in his position could be. As a matter of fact: it is my firm opinion that almost all large Dutch banks have a lot of dead bodies floating in the assets of their balance sheets:
  • vacant, depreciated commercial real estate;
  • overpriced residential RE;
  • underwater mortgages in arrears, which probably won’t be paid back;
  • sovereign bonds of problem-countries, which are not priced ‘marked to market’, but are kept at a ‘fantasy rate’;
  • collaterized debt obligations (CDO) and Mortgage-Backed Securities (MBS) in any kind against historic values;
  • derivative trades, which are sometimes at the brink of going awry. 

When it comes to the balance sheets of banks, in my humble opinion the ‘modus operandi’ is ‘don’t ask, don’t tell’.

It is saver for everybody not to tell that ‘the emperor might not have any clothes on’. So everybody keeps quiet: not only in The Netherlands, but everywhere in Europe.

The labour crisis

Today, we celebrated a Champagne-moment in The Netherlands: after almost 24 months of continuously soaring unemployment and youth unemployment, unemployment finally dropped in August 2013. According to the Central Bureau of Statistics, youngsters were almost totally accountable for the drop in unemployment.

Before you put your Halloween-costume on and start to dance to the music, it is good to look at some circumstances:
  • In August and September is always the start of the school and university year: many youngsters might have chosen after all to (re)start a higher vocational or university education, after they failed to find a job in summer. Officially, they are not unemployed anymore in such a case.
  • Other unemployed youngsters might have started a life as freelancer, to simply not be unemployed anymore. Also in this case, they don’t count anymore in the official unemployment rates. 

Yes, this is speculation on my behalf, of course. And perhaps, this favorable CBS data could indeed be the start of a changing trend, when it comes to unemployment. But before I declare the labour crisis finished, I want to see at least three months with diminishing unemployment.

And there is still the remaining problem of the freelancers and the suppliers of business, financial, facilitary and ICT services. These persons and companies are squeezed by their (large) principals, in order to force their hourly rates down to levels that are barely enough to exist from and absolutely not enough to build a pension and contingency fund upon.

All these unemployed people and underpaid freelancers are not the people who will spur consumption in The Netherlands. Neither will the people that still do have a (sometimes lesser paid) job.

And although exports are very important for The Netherlands, it is almost impossible that the economic crisis in our country will finish during a periode of high unemployment and very limited consumption. That dog simply don’t hunt!

The housing and commercial real estate crisis

The vacancy rate of Commercial Real Estate in The Netherlands is the highest in Europe, according to a study of the Twente University and the Vrije Universiteit Amsterdam.

This is “Damocles’ Sword” for the large, Dutch banks and municipalities, who financed these buildings and the ground that they are built upon.

The latter also explains why the Dutch building frenzy continued up to this very day – albeit in a limited state –, while everybody and their sister already saw years ago, that building companies have only been delivering CRE for (structural) vacancy.

Even today, officials are making up the weirdest plans in order to spur renewed production and refurbishing of CRE, in order to save the excess jobs in the building and construction industry. Nevertheless, it remains ‘hoping against better judgment’.

In the past months, both Rabobank and ABN Amro declared independently that the Dutch housing market has hit rock-bottom lately. 2014 might be the year when the phoenix finally rises from its ashes.

You should remember, however, that no structural measures have been taken by the Dutch goverment to do something about:
  • the enormous amounts of houses, which are underwater in The Netherlands: close to one million;
  • the destructive influence of the poisonous cocktail of extremely low interest rates and the mortgage deductability, which led to blatant overcrediting of millions of households;
  • the enormous void between the low- and mid-priced houses, which are in demand by the Dutch people, and the luxury houses that have actually been built by the municipalities, project developers and the building & construction industry;
  • the people and families, who are officially ‘too rich’ for social rental houses, but still too poor for rental houses or owner-occupied dwellings.

With this information in the back of your head, it still seems quite awkward to declare an end to the Dutch housing crisis.

The governmental crisis, the social crisis and the crisis of trust

Is there a governmental crisis in The Netherlands? I would say yes!

The PvdA (labour) and VVD (liberal-conservative), which form Cabinet Mark Rutte II, are under normal circumstances both popular parties in the centre of the political spectrum. Both parties have normally broad grassroots among all layers of the Dutch population.

However, the current situation is not normal:

During the last months, the Cabinet Rutte has been clutching at straws, as it lacked a majority in the First Chamber (the Dutch senate). Consequently, the cabinet closed on a number of agreements-without-value with almost every organization and pressure group in Dutch society: the employer’s organizations and the labour unions, the healthcare industry and many, many other societal organizations. At the moment when the ink of the agreement was barely dry, the conditions and policies of the cabinet had already changed.

In the meantime, the flip-flopping of both the VVD and the PvdA became so unbearable, that the Dutch citizens seem to have lost their last amount of confidence in their government. Although both parties entered the Second Chamber with a not-too-narrow majority of 79 (of 150) seats, their current polls point at a staggering loss of 47 virtual seats, only leaving 32 virtual seats behind.

All these virtual seats have gone to parties at the edges of the political spectrum:
  • the rightwing PVV of Geert Wilders (i.e. Party for Freedom), who is currently in the crosshairs of Marine Le Pen for pan-European cooperation;
  • the leftwing Socialist Party of Emile Roemer, who seemingly wants to bring the state of the social security back to the level of the sixties and seventies: noble, but probably devastating for the country; 

The results of these failed policies are clear: there is an almost ubiquitous consumer strike in The Netherlands and everybody who still has cash, is hoarding it for a rainy day, in spite of the insulting interest rates at the banks.

The social crisis also lingers on in The Netherlands…

People are afraid for their jobs  and do everything what the boss demands, or else…

Their employers often want to pay their personnel less money, when possible, and the simultaneously rising demands towards the same personnel have been causing increasing amounts of pressure: people are paid less for doing more and more difficult work in lesser time.

The ample availability of inexpensive low- and high-qualified labour from the East-European countries and India, enhances the pressure on the personnel. ‘If you don’t want to do more work, there are dozens of people who would like to take over your job’.

The visible results of all this (although I can’t prove it scientifically) are:
  • an increasing number of burn-outs among people (especially youngsters), who can’t handle the pressure anymore;
  • growing distrust and anger between people and politicians at one hand, but also between population groups, who accuse eachother of sponging on society or stealing eachothers jobs;
  • an increased number of family-dramas, where mothers or fathers murder their spouses and/or children, before committing suicide;
  • increased aggression towards government officials, like politicians, policemen, firemen and medical emergency personnel and towards other people; 

Concerning the soaring aggression and open distrust against government officials, there is this heartbreaking story of a policeman: a motorized police agent, who had the grim task of guiding two parents in their car towards their dying child, along a heavy traffic jam.

During this ride, the agent and the parents were cursed by people, who got stuck in the same traffic jam, and treated with so much disrespect, anger and mistrust that it made me really sick:

Various car drivers, who were standing outside their vehicles, were looking angrily at the vehicle, with in it the parents of the victim. The words that these people used, were way below the belt. Then we couldn’t drive further.

A car-driver, who tried to make a U-turn, stepped out of his car and wanted to spill his guts about the long traffic jam and the fact that the police did nothing about it.
I neither had the time nor the desire to start a discussion and demanded him to remove his vehicle, in order to let us drive by.

Initially he refused, because he wanted to know why this vehicle was allowed to follow me and whether these people were perhaps my family, being helped to pass the traffic jam. Did these people have more rights than he did?!

[…] I took myself together and demanded him one more time to go away, as these people had to go to this accident urgently. Utterly slowly, he went to his car, while saying ‘yeah, right!’

This whole sad story is an absolute must-read and it makes you wonder about the blatant crisis of trust which is going on currently. Again, the economic crisis will not end if this crisis of trust and confidence doesn’t end before that.


I let my final conclusion explain by my ‘old sage’ Todd Harrison of Minyanville, as he can say things like nobody else can:

The old saw is that social mood and risk appetites shape financial markets—the Great Depression caused the stock market to crash, not the other way around—but a wide chasm remains between the two, at least thus far.  And much like the stretch leading up to the first phase of the financial crisis, a variant view to the upside skew is being ignored, if not openly mocked.

On this, the five-year anniversary of the financial abyss, we should appreciate how far we've come yet not forget where we've been.  Pundit after politician after corporate chieftain is uniform in their view that blue skies and clear sailing await; that proved true for a significant stretch coming out of 2009, but it's far from certain given the run we've had and what continues to percolate under a seemingly calm financial surface. 

Please watch that surface, before you declare the crisis being over!

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