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Wednesday, 30 March 2016

Is Tata Steel already anticipating towards a Brexit by abandoning its British subsidiaries, formerly known as Corus Steel United Kingdom?

Yesterday, the British Financial Times printed an article that probably shocked many workers in the British steel industry.  

In this article the FT stated that the Indian steel giant Tata Steel officially confirmed rumours in the market, that it is planning to sell its British subsidiary, formerly known as Corus Steel. This will without a doubt mean trouble for the more than 15,000 workers in the British steel industry, as the British branch of Tata Steel has been loss-bearing for years and will be extremely hard to sell without serious job-losses.

The following snippets were printed by the Financial Times:

Tata Steel has confirmed today that it plans to cut 1,050 jobs in the UK, including 750 at Port Talbot which is the UK's biggest steelworks.

The British steel industry suffered a severe blow as Tata, the Indian steel giant, confirmed fears that it was about to put its UK business up for sale. Late on Tuesday the Indian group said it was “looking at strategic alternatives” to the current ownership “to explore all options for portfolio restructuring, including the potential divestment of Tata Steel UK, in whole or in parts”.

Earlier, union sources had revealed that the company was poised to announce the sale of its British steel operations, plunging several plants — at Port Talbot, Rotherham, Corby and Shotton — into uncertainty. Steel workers had been waiting for days for a decision to be made by the Tata board 4,700 miles away in Mumbai over the fate of Britain’s steelworks.

Stephen Kinnock, Labour MP for Aberavon — who had joined Community union officials in Mumbai to try to persuade the Tata board to keep Port Talbot, Britain’s largest steelworks, open — told the South Wales Evening Post that the company intended to sell the steelworks.
Instead of the hoped-for approval of a rescue plan, Tata is intent on selling its UK businesses in a move that will come as a hammer blow to the remnants of one-time British Steel.

Tata painted a stark picture of the prospects for its UK business, saying that trading conditions in the UK and Europe had rapidly deteriorated recently due to “structural factors” such as global oversupply, increasing imports, high manufacturing costs and weak domestic demand. These were likely to continue into the future and had “significantly” affected the long-term competitiveness of its UK operations.

In comments that may damp hopes of finding a buyer, the company’s board concluded that the turnround plan for the Port Talbot was “unaffordable”, the assumptions behind it “very risky” and the likelihood of delivery “highly uncertain”. 

Tata revealed that it had been in talks with the government, seeking support for the UK business — within the scope of European state aid rules — and that these would continue.

Earlier in the evening, the government had denied a claim that it was on standby to part-nationalise Port Talbot.
Amid repeated rumours that the state could step in to rescue the industry, one official said the government was “looking at all viable options”. Asked whether that included part-nationalisation, he said: “Not to my knowledge.” Ministers are open to providing support, for example loans or loan guarantees or through further help with procurement. But a private sector sale is the preferred solution, not least because taking responsibility for the steel plants could leave taxpayers on the hook for large losses and invoke EU state aid concerns.

Port Talbot is heavily lossmaking, reflecting the troubles faced by British steelmakers. A combination of high costs and low steel prices on the international market has severely damaged the sector, leading to thousands of job losses over the past year.

In recent weeks concerns had grown that Tata Steel had cooled on further large investment into its UK operations. The company has poured £3bn into its European operations since acquiring Anglo-Dutch steelmaker Corus in 2007 for £6.2bn.

Insiders might have a ‘deja vu’ feeling, when they hear bad news about the British steel industry.

In contrary to some of the boasting done in the full FT article, in which it is suggested that Port Talbot – as a poster example for Tata Steel UK – “is only half a chance away” from returning to profitability, the British steel industry has been a problem child for the last twenty-odd years and perhaps much longer.

The following snippets come from a (translated) Dutch Wikipedia article about Tata Steel and especially its Anglo-Dutch predecessor Corus Steel, which was formed during a merger of Dutch steel company Hoogovens (i.e. currently the Dutch part of Tata Steel) and British Steel (i.e. now the British part of Tata Steel):

On the European ranking of steel producers, the British company takes a fourth place, while Hoogovens is the current number eight with 6.7 million tonnes. Hoogovens is producing much more efficient, however; with only 20,000 workers the company booked a sales of NLG 10.8 billion, while the 50,000 employees of British Steel only realized NLG 21 billion in sales. British Steel suffers from the expensive Pound Sterling, which makes it much harder to sell its products outside the United Kingdom.

At the end of 2002, the industrial council of Corus The Netherlands administered a negative advice with respect to the intended sales of the (ex-Hoogovens) aluminium plants. Also the Supervisory Board of Corus The Netherlands resisted against this sales. President-Commissioner Leo Berndsen stated that Corus in the United Kingdom should reorganize more vigorously, in order to prevent that ‘the loss-bearing British steel plants would drag down Corus IJmuiden on their way to the gutter’.

In the seven years that Corus existed, the first four years showed substantial losses [see the following table - EL]. The large loss in the year 2000 was the result of a one-off reorganization provision of £ 1 billion.

Overview of the profits of Corus Steel,
since it took over Hoogovens IJmuiden
Data courtesy of:
Click to enlarge
In those days, the word on the street in The Netherlands about Corus United Kingdom was “that the very efficient and profitable steel plant, as well as the plants specialized in other steel products and metals (a.o. galvanized steel, aluminium, stainless steel and other, tailor-made steel products) in IJmuiden, The Netherlands, were abused in order to cover up the enduring losses of the inefficient and unprofitable British plants. Thus, the company not only depleted the profitability of their Dutch branch, but even dismantled the production facilities of Corus IJmuiden, as these were sold over the years to cover up for the British losses”.

This was what I heard about Corus United Kingdom and the Corus General Management in those years. Whether those accusations were true or not, I don’t know. 

Of course, there might be some nationalist feelings involved in there, but the fact was that Corus IJmuiden (aka Hoogovens) had been much more successful in the past than British Steel, with their ‘made to measure’ steel, their aluminium plants and their ‘immersing-galvanization’ plant that produced steel for the booming car industries in Europe. And even though the profitability of Corus UK – and later Tata UK – might have improved indeed over the years, many Dutch steel workers probably still feel that Corus had been the worst thing that could have happened to them.

Recently Tata Steel has not been on my radar anymore, so it is hard for me to say anything about the current profitability ratio of Tata’s Dutch steel plant versus the British plants. Nevertheless, I get the impression from this Times article that the British plants are still heavily loss-making and can still not compete against their more efficient competitors all over Europe.

On top of that, there is the current situation that China is allegedly dumping steel on the international (and thus European) markets, according to various news media, like the EU Observer here:

Representatives of the steel industry warned that the EU Commission “massively underestimates” the effects of Chinese dumping on jobs, growth and investment in Europe.

“China is financing overcapacity, which leads to overproduction, which leads to selling below reasonable prices, below the cost of production. Nobody can compete with that,” said Milan Nitzschke, spokesperson for Aegis European alliance of about 30 European industrial sectors.

A letter sent to the EU Commission earlier this month by seven ministers from Germany, Italy, the UK, France, Poland, Belgium and Luxembourg underlined anxieties about Europe’s steel industry. The ministers urged the EU to step up action to help the ailing steel industry and stop cheap imports from China and Russia.

When China is indeed dumping steel on the European markets, this makes it even more difficult for the British steel plants to become profitable again.

Yet, except for the Chinese dumping of steel products, all these facts about the profitability of Corus United Kingdom and their enduring headwinds were probably known by heart among the Tata management. 

Therefore I am dead certain that the Indian company Tata knew extremely well what it entered into, when it took over Corus, including the plants in the United Kingdom. I also presume that Tata took that decision based on rational key data and sound prognoses of future profitability and not either based upon irrational romanticism or out of sheer rancour against 'its former colonizer'.

Therefore there might be another elephant-in-the-room that urges the recent fire-sale plans of Tata United Kingdom these days, of which the FT reports. Not only China...

In my humble opinion, that elephant might be the more than average chance for a Brexit within the next few months... When the Brexit takes place indeed, it will be even harder to sell British steel to the European continent at competitive prices and against a decent profit.

In the first place, the United Kingdom will have to renegotiate all pan-European contracts, rulings and subsidies that are now implicitely offered by their membership of the European Union, as after a Brexit the country will stand on its own two feet. 

Further, the abandonment of the European Union could lead to a situation of enduring political instability within the United Kingdom itself, as Scotland and Wales might see this as a good moment to leave the United Kingdom themselves. The damage of such a destructive political process might be immense and that risk could be much too substantial for Tata headquarters.

On top of that, the stability of the Pound Sterling – being the British currency – could get under serious jeopardy as a consequence of the Brexit, as many countries could consider to divest in the UK territory. This makes it even harder for the British steel mills to make a decent profit, as all raw materials have to be bought against then soaring Euro and Dollar prices.

All in all, the situation for the British steel industry looks extremely dire, with no easy Plan B available. One can’t really blame Tata for trying to sell an already enduringly unprofitable, loss-bearing complex of steel mills in the United Kingdom, under the immense pressure of the Chinese steel dumping and the looming Brexit.

A re-nationalization of British steel – as mentioned in the full Financial Times article – could be an option, but this option will probably fall on deaf ears with the Tories, who seem still to be clueless about the immense changes possibly coming from a Brexit.

And the chances that another large party will purchase the obsolet-ish and unprofitable British steel industry, seems close to nought in my humble opinion. 

That is bad news for the 15,000 workers in the British steel industry, for which I feel really sorry. Nevertheless, this could be the real reason behind Tata's firesale of Tata United Kingdom!

Wednesday, 23 March 2016

Prime Minister Mark Rutte in his weekly press conference at the refugees: “Don’t come to us. It’s too dangerous. All doors are locked for you within Europe. Stay there where you are now!”

Personal note to this article by Ernst Labruyère:

A large part of this article has been written before the gruesome and sickening attacks in Brussels yesterday and I consider the content to be interesting for my readers after all. That is the reason that I have decided to finish this article first.

Yet, I will definitely come back to that terrible and sad attack in a separate article, in order to express my concerns and worries about the currently emerging situation in the heart of the European Union. I was deeply shocked and saddened to hear about that attack in Brussels.

I really can’t understand how groups of misguided youngsters and religious fanatics can abuse their religion and their fundamental beliefs, in order to believe that what they are doing is both right and justified: either as an executioner or as a (silent) endorser of such attacks. This goes for Brussels, for Paris, for Moscow, for New York and of course for Istanbul or elsewhere in Turkey or the whole Middle East, as a matter of fact. What happened in Brussels, Paris and Istanbul simply isn’t right and it should not be done this way or any other way whatsoever.

In the aftermath of the Brussels and Paris’ attacks, louder and louder voices will be heard that want to change the EU in Fort Europe: an impenetrable and unbreakable bastion of freedom, wealth, (social security) and justice for all for a largely white, Christian and rather wealthy majority... on an island in an endless ocean of war, terror and violence.  A bastion in which is no place for refugees and no place for other – economic – immigrants, people with other religious beliefs and minorities from Africa and the Middle East.

It will be impossible and – as far as I’m concerned – totally undesirable for the EU to become Fort Europe. We are unfortunately lying in a very explosive and uptight part of the world and we have to cope with that as good as we can, but not by abolishing everything for which we stood and still stand.

We must stop terrorists and violent, religious fanatics, but we must also take away the breeding ground in which apparently normal youngsters turn into blood-thirsty killers of many, many innocent people.

We cannot do that be shutting the door for refugees or people with other religions than Christianity. And we cannot do that by cursing and shouting at religious minorities within our countries, cities and neighbourhoods or by laying pigheads within their vision. Those minorities are here and they will never go away anymore. Therefore we must find a way to co-exist in peace.

Perhaps many people think that I am soft on... anything, but few enemies have ever turned into peace-loving and law-obiding friends by the use of violence, brutal force, internment and social exclusion. So let’s take on the discussion and let’s see how we can end these terrible tragedies from now on: inside, but also outside the European Union.



The voice of heartless reason is a seductive voice,
as it makes you think that doing the wrong thing
is right and doing the right thing is wrong...
Ernst Labruyère – March, 2016

After reaching an agreement in principle with the Turkish government on behalf of the European Union, the Dutch Prime Minister and current chairman of the European Union Mark Rutte held a press conference. In this press statement, Rutte spoke about the measures that the EU and Turkey agreed upon, against the influx of Syrian and other refugees in the European Union. Mark Rutte also spoke briefly about the current refugee situation in Turkey and Greece. 

This press statement caused quite some commotion, due to what PM Rutte said with respect to the illegal influx of refugees and their chances for getting asylum in the European Union. But perhaps the words that Rutte said in this press statement were not half as interesting as what he didn’t say.

The following link contains the video broadcast of this press statement; very interesting stuff for everybody who masters Dutch. 

Here below, there is a translated version of PM Mark Rutte's statement to the press, accompanied by my comments:

Mark Rutte: Turkey takes back all irregular immigrants. This happens based upon a Greek-Turkish return transfer agreement, on which the international legislation is fully applicable. This plan starts on Sunday, March 20.

My comments: This paragraph is full of wishful thinking, in my humble opinion.

First, I don’t really expect the Turkish government to take back all irregular immigrants; especially not when these immigrants' whereabouts and their country of departure are not crystal clear.

Second, I can’t believe that this return transfer agreement [I don’t have a better translation for this expression – EL] is really fully compliant to international legislation and treaties, with respect to refugees. 

I think that the Prime Minister hopes(!) that this is true indeed, but my gutfeeling is that many lawyers cannot wait to start a test case in court, in order to find out whether this return transfer agreement is indeed legal or not.

Mark Rutte: Everybody who enters in Greece from Sunday, March 20th on, will be subject to this return mechanism. In return, the European Union is prepared to welcome one Syrian refugee from Turkey, against every illegal refugee that is taken back from the EU by Turkey, provided that he or she did not enter the EU earlier.
The relocation of these Syrian refugees takes place based upon earlier agreements between member states. We  as The Netherlands  will deliver our proportional contribution in this proces.

The message to refugees, who are willing to make the cross-over between Turkey and Greece: "Don’t do it!!! You pay a lot of money, take life-threatening risks and you will end up in Turkey eventually, where you will reside at the bottom of the list of refugees with access to the European Union!"

The message to the people who now reside at the borders between Macedonia and Greece: "go away there. Seek for refuge in the camps that Greece offers; not at the border where the humanitarian situation is awful, but in the special camps that have been arranged for that, as the route through the Western Balkan has been closed down!"

My comments: Roughly translated, this message from the Prime Minister and current chairman of the EU means: “We don’t want insubordinate refugees here. Actually, we only want to receive as few refugees as possible and than even less. We don’t care about what they are escaping from. IT’S THEIR PROBLEM AND NOT OURS. Let them stay at home or in Turkey and mind their own business, for crying out loud!!!

And so every refugee, who is willing and desperate enough to take the future for him and his family in his own hands at the risk of losing their lives, will be put at the bottom of the list as a punishment for his indecent behaviour.

Only refugees that ‘sit up and obey to their new bosses’, might get an invitation to enter the EU once... at our and Turkey’s discretion! 

They must wait and wait and wait in a country like Turkey, which is not per sé friendly territory to them, and must survive the hopelessness, boredom and despair of a refugee camp, without having an outlook towards a proper future. The EU doesn’t want people that are willing to fight for a future for themselves and their kids. It wants obedient refugees who stay in Turkey until eternity.

And then the things that the Prime Minister did not say:
  • He did not say anything about HOW to return these disobedient refugees to Turkey: by boat or by airplane and with or without the usage of (brutal) force?! Who knows?!
  • He did not mention anything about refugees from Egypt and Libya: will these also be “returned” to Turkey, even though they did not come from this country? 
  • Rutte did not mention anything about how the EU would help to solve the various problems of Greece, even though that country has been an economic mess for the last decade and currently has to deal with loads of refugees that have nowhere to go to, now that the borders of the Western Balkan route have all been closed. He didn’t talk about offering the Greeks some leeway; 
  • Rutte didn’t talk about the fact that closing down the borders between the Schengen states is wrong from an European point of view and that the Balkan bunch and Austria are playing the NIMBY game at the expense of Greece... And that these border close-downs are probably a violation of the Schengen treaty.
    • By simply ignoring this fact, Rutte actually supported this NIMBY behaviour by this group of countries, at the expense of Greece, and became partially responsible for the increasing loss of solidarity within the EU; 
  • He did not state whether the European Union – and ALL its member states – will indeed give refuge to the Syrian people that are handed over by the Turkish government, as part of this deal.

    Those earlier agreements were not exactly ironclad and the Eastern and Northern European countries are probably not willing to fulfil their part of the deal!
  • What Rutte only said was that The Netherlands would offer refuge for its proportion of the European deal; that is probably a quite limited percentage of the total number of incoming refugees. What happens with the rest? Who knows and who cares! 

On top of that, this deal leaves the refugees to the arbitrariness of the Turkish government: a government that has not exactly excelled in a humane treatment of all groups of people living in Turkey and Syria lately. Think about the recent Turkish bombardments of the Kurds in Syria and South-East Turkey and (probably also) their hostile stance against groups of people, who were originally behind the policy of Syrian president Bashir al-Assad. 

And what about refugees originating from Iraq and Afghanistan, with respect to entering the EU?! Have they suddenly become ‘fortune seekers’ without any right of being a refugee whatsoever? Or are they still genuinely fleeing from the mess that the Western armies and Russia have created over the last 25 – 35 years in their home countries, as war refugees?!

Mark Rutte: Irregular and uncontrolled sea crossings must be halted, so that the business model of human trafickers is demolished.

However, this returning of immigrants puts pressure on Turkey, as this country already offered refuge to many refugees during the past months and years. So next to the earlier agreed €3 billion in expense  payments to Turkey, the European Union is willing to make another reservation of money in 2018. 

That money won’t go directly to the Turkish government, but it will be put in projects and programs that will achieve that the accomodation issues for these refugees will actually be met: think about the UNHCR and the World Food Program, but also various other organizations.

My comments: I agree about the first sentence of Mark Rutte, as the business model of human traffickers and the gruesome loss of lives on the Mediterranean Sea is also something that I would like to stop.

What Mark Rutte does not tell, however, is HOW he wants to achieve that, other than hoping that the EU’s bribery of Turkey will achieve ironclad sea border controls in that country and a total dry out of the influx of refugees in the EU over the seas or via the Georgia / Russia route. That is wishful thinking at its worst.

And must we really believe that Turkey will wait until 2018 with collecting the next European payments (allegedly another €3 billion)? And that Turkey itself will not get one cent from this money, but that every cent will be handed over to the UN? Does PM Mark Rutte really think that the European community is that naive?!

Mark Rutte: We have spoken with Turkey about the liberalization of entrance visa for the EU and about reopening the negotiations regarding the accession criteria for a Turkish EU membership. We talked about speeding up this process, but that does not mean at all that these negotiations will be ‘smoothed out’. Turkey is in the driver’s seat with respect to necessary reforms. This means that this speeding up process requires additional efforts of Turkey.

The reopening of the negotiations upon the Turkish accession criteria with respect to the EU, does not mean that these negotiations will be ended successfully.

With these agreements with Turkey, the joint approach for the spring of 2016 is finished. Agreements have been made along the whole refugee route: Turkey, Greece and the Western Balkan... Based upon the key words: border control, good registration of refugees and ‘shelter in the region’.

My comments: This was the end of PM Mark Rutte’s brief press statement. ‘Everything is fine. We have it all under control! Please continue sleeping!’

Especially his fixed mantra of ‘offering shelter in the region’ has been thrown in yet again. Libanon, Jordan and Turkey are already bursting under the pressure of millions of Syrian, Iraqi and Afghan refugees, but who cares about that?! NIMBY-PM Mark Rutte has everything being taken care off!

And with these last statements Mark Rutte is either fooling Turkey or fooling the citizens of the European Union:
  • Either the Turks are allowed to run round in circles with the European Union membership as the proverbial carrot on a stick, dangling before their noses.

    A membership for which they are virtually without a chance actually , as the rest of Europe and especially Greece and Cyprus are not in favour at all of a Turkish membership;

  • Or the European citizens are subject to an enormous sham, in which the Turkish membership of the EU is already a done deal and the European leaders are just going through the motions, regarding the investigation into the current Turkish, political situation and the execution on the agreements with respect to the accession terms to EU membership. 

Please pick a side...

Perhaps, there is even the third way in which the EU and Turkey both know that an EU membership for Turkey is a dead end road, but both keep up appearances for political, domestic purposes. Possible?! Perhaps! Hard to believe?! You betcha!

Everybody knows that Turkey is turning more and more into an ‘enlightened(?) dictatorship’, instead of an increasingly democratic republic. Turkish President Recep Erdoğan has the country firmly in his grasp and has an increasingly tight grip on the opposition and the (religious) minorities in Turkey: in daily life, as well as politics and media. 

While the moral majority is strongly in his favour, growing groups are suffering from his harsh politics and the atmosphere of war and terrorism that is clouding the Turkish daily life since a few months.

President Erdoğan is not the man to openly run after the European carrot, as he seems both too intelligent and too proud for that (and perhaps too vain). 

Besides that, Erdoğan knows that he has Europe by ‘the nuts’, as Europe and the EU need him much more – in order to solve the refugee crisis – than he needs Europe or the EU himself. Turkey has a pivotal position between Europe and Asia (i.e. the Middle East) and it is the single access point to the Black Sea. 

So either Rutte is not telling the whole truth in his statement about Turkey, or Erdoğan is easily seeing through his sham and tries to treat the European Union as a big, fat, milky cash cow: only €6 billion in refugee payments and no money for Turkey and the Turkish government? Really?! Are you that naive?! 

At least a lot of Turks will be happy with the upcoming visa liberalization, as that makes it much easier for Turkish people to visit their family in Germany, France, The Netherlands and Belgium. But whether that is enough or not for President Erdoğan to be satisfied with this deal?! I have serious doubts.

Saturday, 19 March 2016

Mark Zuckerberg and the Law of Unintended Consequences: when you are a (thought) leader, you lead by example... whether you want it or not. How to avoid becoming a propaganda tool?

Everything that an important person does, matters... And often it matters most in the way and direction that this person did not intend...
Ernst Labruyère – 2016

It is a quite anachronistic picture: a man – with the carved out smile and the somewhat untrained and slightly too elastic tread of the successful manager, leading by example – is running on Tiananmen Square. The peculiar event takes place, right before the wall of the Forbidden City at the Gate of the Heavenly Peace in Beijing, under the watchful eye of Mao Zedong, the Great Helmsman of China...

Mark Zuckerberg running on Tiananmen Square
Picture copyright of: Mark Zuckerberg via Facebook
Picture for illustratory purposes.
No copyright infringement intended.
Click to enlarge
The protagonist of the picture is followed by an odd-looking flock of subordinates (and probably bodyguards), who carefully beware of passing their boss during his running practice. “He is the boss and we don’t want to be fired”, is what they seem to think during their cautious tread, following in his footsteps.

One can immediately distinguish the protagonist from a professional runner, as everything that the latter one does is meant to save energy for later, in the last few hundred meters before the finish of his marathon or cross-country run. This man, however, is here with a goal. He is the man in charge; so much is clear...

His spotless, dark-grey (anthracite-ish) T-shirt reveals that this is Mark Zuckerberg: the man that blessed (or punished) the world with his Facebook application and became the youngest self-made billionaire in human history. 

According to Algemeen Dagblad, the Dutch newspaper that printed this picture, Zuckerberg is involved with his project “A year of running”. And his subordinates? They follow him for as long as the bells of their bank accounts chime... at a cautious distance of the boss.

The picture caused quite some emotion in China and no..., not because it was an insult of the Great Helmsman or the Communist Party of President Xi Jinping.

No, it caused commotion because neither Zuckerberg nor his assistants wore a face mask, even though the general air pollution and air quality in Beijing are sometimes about as bad as they have ever been measured. 

As a Western guy, I am often puzzled by the Asian habit to wear a face mask under virtually all circumstances, but not in case of the air pollution in Beijing.

Even though Helmsman Mao is probably not more than 30-50 meters removed from Facebook’s immortal leader, the polluted air clouds his ‘larger than life’ picture on the wall and makes it already quite hard to read the left part of the aphorism on the wall. The rest of the picture is akin to a city during the emergence of sea fog, with trees and buildings that vanish at the horizon. It seems like a good place indeed to wear a face mask and probably all visitors do so. But not Mark Zuckerberg...

And that was not to the amusement of some of the Chinese readers, who watched this harmless looking picture in mounting amazement and anger. The Algemeen Dagblad:

The Chinese are puzzled about Mark Zuckerberg not wearing a face mask. The level of air pollution in Beijing is fifteen times higher than considered ‘safe’. Inhabitants of Beijing wonder whether this gesture by Mark Zuckerberg is the umpteenth attempt to please the Chinese authorities, who state that they are slowly winning the fight against air pollution.

The Chinese journalist and adamant runner Peng Yuanwen jokingly stated that the lungs of Zuckerberg single-handedly filtered the pollutive particles out of the air of Beijing. “The human vacuum cleaner is obviously better, when American-made...’, he wrote.

What also surprised the Chinese was that Zuckerberg was obviously able to post a message on Facebook, where this is impossible for Chinese citizens, as their Facebook accounts are blocked by the government[...].

Others were offended by the location of the picture: at Tiananmen Square, where countless insurgent students were murdered in 1989 during their protests for democratic reforms in China[...]

And so a picture, which should radiate success, independence, optimism and power/strength as key points for the protagonist, has suddenly turned into a political hot potato, as a result of the “Law of Unintended Consequences”:

Everything that an important person does, matters... And often it matters most in the way and direction that this person did not intend...

Normally, the impact of such a picture will blow over in a couple of days, as things normally do. I have little doubt that this particular picture soon will also become nothing more than a small pebble in a large pond. It is a relatively harmless picture that only offends genuine insiders in the Chinese matters and history and leaves most other viewers indifferent, after the hype has gone.

Nevertheless, this picture is a clear political lesson for Mark Zuckerberg and other people ‘of good conduct and great power and integrity’: in China and numerous other countries, everything is political. This is especially true for countries with powerful, but vain leaders of questionable repute, who are looking for worldwide influence, recognization and admiration.

Dutch king Willem-Alexander and president Vladimir Putin
having a cosy beer together at the 2014 Olympic Games in Sochi
Picture copyright of: EPA
Picture for illustratory purposes. No copyright infringement intended.
Click to enlarge
The Dutch king, Willem-Alexander, drinking a (harmlessly looking) beer with Russian President Vladimir Putin? After the Russian occupation of Crimea and the downing of the MH17 airplane, it became a huge political statement that brought substantial harm to the position of the king and the Prime Minister of The Netherlands retrogressively.

Two prominent European politicians, Hans van Baalen and Guy Verhofstadt, cheering and addressing the crowd at Maidan Square in Ukraine? Blink twice and there can be a civil war underway with tens of thousands of casualties.

European heads of state and government leaders shaking hands (in the past) with people like Moammar al-Qaddafi or Bashar al-Assad?! Be careful with that: most government leaders never saw it coming at the time these two guys fell from grace in their home countries. And then THEIR name was mentioned as one of the contagious, former friends of the now hated old leader and (thus) enemies of the new people in charge.

Where political leaders and heads of state play a distinguished and also unavoidable role in keeping up relations with other countries and heads of state – even the not very democratic and sympathetic ones, as a consequence of strategic interests – this is much less so in the case of Mark Zuckerberg, who is 'just' an influential business-man.

We can only hope that Zuckerberg is AWARE of the terrible events happening on Tiananmen Square in 1989... and of the fact that a lot of Chinese people CAN’T use his tool Facebook, due to the current account blocks and other, more opaque boundaries that the ubiquitous Chinese government has raised in order to silence the possible protesters and dissidents within their country.

And does Zuckerberg UNDERSTAND that Beijing is one of the most polluted cities in the world, in which many people die well before their time, due to exhaust gas poisoning? And that this very edition of his daily run in Beijing, being executed without-a-face-mask, might look like grotesque, Chinese government propaganda on behalf of president Xi Jinping?!

Social media, like Facebook, Twitter, Blogger and Instagram have interconnected the world in a way still deemed impossible in the Nineties of last Century. They, however, have also brought forward a generation of thought leaders (i.e. the founders and chairmen and -women of these companies), who have far more influence through their words and actions than they might understand themselves.

When these thought leaders use their influence for benevolent causes and positive political influence, this is fantastic and it can work wonders. When they become the subjects of propaganda from questionable leaders and countries, on the other hand, they can damage everything for which they stood initially.

So please, Mark Zuckerberg, feel free to run in China, but don’t do it on Tiananmen Square anymore! And when you realize that people actually die from the levels of air pollution in Beijing? Wear a face mask;  just to be on the safe side of life.

Monday, 14 March 2016

Mario Draghi, the bankers and the Week of Money in The Netherlands: a modern conversation!

Good morning, Jan. How are you? How was your weekend?

-      It was fine, thank you, Mark! Great weather. I had a firm walk at the moor near Hilversum with Sanne and the kids yesterday.

Ah, that’s great! And what are you up to today? Do you have a couple of meetings to attend? Like every darn Monday?!

-      No, not at all! Didn’t you hear it? Today is the start of the Week of Money in The Netherlands. I am going to primary school Het Spectrum this afternoon, here in Almere. To teach children about the value of money and the importance of saving. It will be great. I love children. They are always so enthusiastic and they believe everything that you say!

That’s fantastic! Well, I am curious whether they indeed buy your stories. Those kids are so smart and streetwise nowadays. They watch the Youth News on television and read the children's news messages on the internet every day. And I don't have to explain yóu what happened with the ordinary savings’ accounts, right?!

-      Oh sh*t. Thanks to that moron Mario Draghi, with his quanta... quantiti... – Oh, I hate that expression... –  quantitative easing program, the official interest rates on savings’ accounts are nearly touching the 0% at our bank. We pay those poor kids a token 0.25% interest, but it is rather charity than that we really need their money. We can borrow it for free, for crying out loud... for free!

Can you believe it?! I can’t believe that people buy this crap. When nothing changes, those kids can better spend their money on candy and toys than bring it to the bank. Really!

Yeah, it is crazy indeed. Yesterday, I read in Het Financieele Dagblad that some smart-ass economists are thinking about helicopter money. Y’know, they hand out €10,000 euros to everybody and their sister. For free. I’m convinced that some of those rich slickers will find a way to get a little more, but heck!

Y’know, when you give something away for free, it loses its value. Those economists, and especially Mario Draghi in his ivory tower in Frankfurt, hope to spur inflation with it, right?! They hope that people start to spend their money again. But why would you spend all your money when the authorities have gone bonkers?! It... just... doesn’t... make... sense...

And what are you going to tell those poor kids today anyway?! That saving is good? Sh*t!

Y’know, when I was young... in the eighties, it was really worth my while to save. My nest egg, which my parents started saving for me when I was six years old in 1972, paid out in 1982: it was a special government-endorsed savings' account. 

I believe it was called 'De Zilvervloot'[i.e. a rather nationalistic reference to the famous Dutch 17th Century Lieutenant-Admiral Piet Hein and his conquest of the Spanish Silver Fleet - EL] in those days. That account paid out around 8.5% interest per year at the time and an additional 5% savings' premium at maturity date, coming from the government. Those were the days....

Heck, we had around 7% of inflation in those days, but I didn’t care. My parents entered 1000 guilders themselves into this nest egg during these ten years: 100 guilders per year. Still, with the mounting interest on interest and the government premium, I ended up with NEG1,888 (Dutch guilders) in 1982. And subsequently, I started a 5 year closed deposit with this money, which paid 11.2% interest per year. Can you believe it?! In 1987 I was paid back NEG3,209. I wasn’t rich, but at least I had a nice start. That’s for sure!

But now? With the current interest rates, I would have ended with NEG1,014 in 1982 [based on 0.25% interest on a typical savings’ account – EL] and €1,089 in 1987 [based on 1.45% interest on a five year closed deposit – EL ] after 15 years of hard saving. It is legalized robbery. Even the banks themselves are complaining about losing their interest margin nowadays.

-      Don’t feel sorry about the banks. You saw the profits, didn’t you?! Everybody is doing fine! They borrow the money almost for free and hand it out at 3 -5 % interest per annum on mortgages, investments and even in the form of SME loans with ironclad collateral and pawn. After lending the money, the mortgages are collaterized and sold to large investors and pension funds. Safe as h*ll! Same with the investments. Virtually no risks at all and still a decent profit.

And believe me, the SME companies that receive the lending money, are definitely worth it. And even if they default, we are always first in line to collect our debt. That’s the law!

And look at Silicon Valley. Every guy with a bright idea and a couple of young programmers is worth a billion dollars or more nowadays. Can you believe it?! Look at Instagram, look at Uber, look at AirBnB, look at Zalando and a dozen other companies that you haven’t even heard of. What are their names again. Oh yeah, I've got them here: Spacex, Zenefits, Xiami, Palantir... 

    I heard about those guys at RTL Z, the new business TV channel, from some trendwatcher. Do you know what those guys in Silicon Valley are doing anyway?! I don’t! But still they are worth more than 1 billion dollar. It is madness!

Most of these guys didn’t make one cent of profit yet and some of them won’t ever do so, but when you are on top of the food chain as an investor, there is virtually no risk at all. The muppets at the bottom must foot the bill eventually, but than the big investors already earnt back their initial investments tenfold. It is so easy to be an investment banker or a venture capitalist today. You sell promises for gold nowadays. If I only had the money to start a hedgefund myself...

Yeah, you are absolutely right indeed. But I still have worries. What are the bosses going to do with a few old geezers like us?! Everything is “online”, “virtualized” and “in the cloud” nowadays. There are hardly any real customers in our bankshops anymore, except for a few old ladies. But we don’t earn one cent from those old ladies, so the banks are trying to softly push them away, actually.

”Go visit the online channel, madam. Learn how to use the internet, so that you can handle your banking affairs 24x7 and you are not dependent on our opening hours anymore. Our helpdesk can help you with that... for free!”. That is what they say. They close one bank shop after another and many office clerks, and a lot of private bankers as well, have been fired, except for a few bankers that work on the really wealthy customers.

-      Don’t tell me about it. Between us, I am looking for a new job, but it is oh so hard, when you are close to fifty. Well, at least I have those kids at Het Spectrum today. That will be a lot of fun.

I know... I wish I could join you today. Just to be out of the office... But what are you going to tell them?!

-      I stick to the script. That saving is good and that it will help them to build up a financial future. And that they should put half of their weekly pocket money in their piggy banks. That than they will own a lot of money when they are eighteen. Well, you know the drill... I know it is probably not true, but I don’t want to disappoint those lovely little kids, by telling them the truth. They are so sweet and so full of confidence in people. I hate to spoil their party.

You’re definitely right. That is what I tell my children too. I hope that this zero interest rate and helicopter drop madness is over soon. And that we will receive a few percents of interest on our savings' accounts again, within a few years. 

Otherwise my retirement plans for 2028 go down the drain and I won’t be able to send my children from my second marriage to university anymore.

-   Retirement? In 2028 ?! Are you not going to work until 68 or something like that?! You know that the government wants us to do that?!

Me? No way! Astrid and I have bought a small cottage in Calabria, Italy, a few years ago..., after my mother had passed away. During our holidays we are refurbishing it and turning it into a small family dwelling, where we can stay all year long. It is really beautiful there. As soon as I’m 62, I am off!

-      Oh yeah, I know it. Sanne and I are also thinking about that. But saving is a real drag these days. 

You’re right, Jan. Darn, you are right! 

Factory Outlets: Are the big brands cannibalizing on their own distribution networks? At least the city councils should know better than developing yet another factory outlet centre, like the one planned in Assen...

Almost everybody in Western and Southern Europe and the United States knows them probably: the factory outlets (or fashion outlets) where eager shoppers can get their favourite brands of clothing, shoewear and other gear, against an attractive discount.

Nike, Adidas, Levi’s, Hugo Boss, Calvin Klein, O’Neill and Ralph Lauren are only a few of the brands that are presents at such factory outlets and all these brands do their best to attract customers, by selling articles that are just not up-to-date anymore at discounts of 35% or more.

It seems like a win-win situation: the brands can sell their obsolete articles and slightly outdated collections to eager customers, instead of having to take those back to the factory and destroy them. And the customers get a great bargain and have the chance to buy clothes of expensive brands for prices that fit well within their budget. There are even rumours that some of the brands and store chains at such fashion outlets put collections together of slightly lesser quality, but at a much lower price, in order to attract customers.

But not everybody is happy… especially not when one owns a fashion store in a regular shopping centre, close to such a factory (fashion) outlet.

Such factory outlets are often large shopping malls with a nearly complete assortment of fashion, shoewear, sportswear, furniture and small household appliances, for sale in more than 100 or 200 stores. They mostly include a number of food and hospitality units and they are generally situated at locations just outside the centre of nearby towns and cities: in general near highways and local auto routes, making them very easy to reach and leave again.

And where the shopping centres in the heart of normal cities are seldomly worth a special visit due to their dullness and monotony (i.e. the Blokkerization that I described in this older article), having the same few store chains over and over again, such specialized factory outlets attract visitors – both from close by and far away – like lemonade attracts wasps in the summer.

Due to their smart location, their extensive collection of famous brands all combined in one small area, their bargain prices and their general attractivity towards the customers, they draw a lot of attention away from the shops in the shopping centres in the hearts of nearby cities and towns.

And where the residents of these nearby towns and cities do regularly visit the fashion outlets in their region, instead of visiting ‘their own’ shopping centres, the opposite does hardly happen at all: tourists from outside the region who make a special trip in order to visit such a fashion outlet virtually never go to the centre of the cities close to this fashion outlet (unless such cities have some attractions of their own). The consequence is that there is absolutely no win-win situation here for the shops and store chains in the heart of the cities involved.

On top of that: the stores in the centres of the nearby cities and towns often sell the same brands and nearly the same collections, but they are not able to sell these brands at the same bargain prices as the factory outlets do. They are mostly “forced” to sell the latest collections of these brands at the normal sales prices. This means that there is a substantial difference in prices between the regular shopping centres and the fashion outlets.

This particular circumstance is hard to explain to the traditional customers of the regular shops in the common shopping malls: why is a typical Levi’s or Calvin Klein jeans for sale for over €75 in the regular shop and can almost the same jeans be bought for only €45 in the Levi’s or Calvin Klein fashion outlet store?! And why is that Lacoste polo shirt 30% cheaper in the fashion outlet store than in the regular fashion store?!  The differences in quality between the outlet fashion and the regular shop fashion – if any – are very hard to discover for Joe Sixpack when he visits the fashion outlet, so he doesn’t bother and buys his stuff for the lowest price... in the outlet store.

This proves to be a double whammy for the storeowners in the regular shopping centres and non-outlet shopping malls. These must buy the latest collections of the famous brands at much higher purchase prices, in order to not lag behind and keep attracting customers to their regular stores, situated in often dull and monotonous shopping centres. At the same time, they are under crossfire from the same famous brands, as these brands sell nearly similar gear at much lower prices in their own brand stores in the fashion outlets.

You could justifiably state that with their fashion outlet stores these famous brands are cannibalizing on their regular, independent retail sellers; these retail sellers can’t and won’t charge the same prices as the outlet stores do, except during the ever longer sales periods. On top of that they can’t offer the same shopping experience and the same collection of famous brands in a limited area as the fashion outlets can.

I really can’t tell exactly why these famous brands are cannibalizing on their existing distribution channels, but I presume that these brands are trying to integrate their total hierarchic structure, in order to save costs and earn even more money on their products. 

The fashion, shoewear and other gear of these famous brands are produced at absolute bottom prices in Eastern Europe or the Far East and these are subsequently distributed through their own network of brand stores and fashion outlets, thus minimizing the profits for third parties involved and maximizing their own profits. The independent retail distributors of these famous brands, with their unbranded stores and their collection containing other (competing) brands, feel probably like a hassle on the road to total integration of production and distribution, through brand stores, fashion outlets and flagship stores.

This makes the motives of the famous brands at least understandable, even though I don’t sympathize with them.

Many city councils and municipalities, however, had only €uro-signs in their eyes and showed no restraint at all when it came to the development of new shopping centres and shopping malls within their boundaries. Consequently, they grossly neglected the unhealthy development of their existing shopping centres and malls and focused exclusively on the new shopping centres-to-be. This led to the soaring shop vacancy, as well as the dullness and monotony of the existing shopping centres in the hearts of the cities, towns and neighbourhoods.

For many cities and municipalities nowadays, the development of a large fashion outlet feels like the holy grail of shopping, of which they hope that it puts their city finally on the map, where older and more common shopping malls failed to do so. That such fashion outlets blow the competition in the older shopping centres away in the process, does not bother them at all. 

This is the reason that there is currently a high-rising conflict between the owners of established shops in the centre of the Dutch city Assen and the council of this city, which plans to establish a new fashion outlet at the outskirts of Assen. Even though the city council of Assen reassures the regular shop owners that the Fashion Outlet Centre will “only” lead to a 5% loss of sales in the regular shopping centres, the shop owners know better and fear the worst (i.e. a loss in sales of at least 10 to 20%).

Personally, I sympathize with the regular shop owners in the city centres.
In the times that the shopping malls were developed and that they purchased their shops, they were often lured with stories about greatly developing, beautifully maintained and enduringly interesting shopping centres lying in the hearts of lively neighbourhoods, with extraordinary shops that would attract thousands of tourists from outside their cities and neighbourhoods. And with stories of enduring sales and profit growth.

Instead, they became the victims of the economic crisis, but also of flawed town planning and extremely poor shopping mall management, soaring parking fees and a soaring number of vacant shops, that drag down the shopping mall as a whole.

And as icing on the bitter cake, their customers are lured away by the tinsel and unspoken promises of the fashion outlets with their famous brand stores, their never-ending sales periods and their somewhat cheesy, but nevertheless attractive appearance.

No, it is not easy at all to be a successful, independent retailer in the 21st Century...

Tuesday, 8 March 2016

A Brexit could be particularly bad for Spain. “How bad?” is the question that I try to answer here!

Although most people realize that the chance of a Brexit is above average at this very moment, it is less known what the consequences of such a step will be for the countries within the Euro-zone.

There have been messages of doom and gloom from some insiders inside the EU and the United Kingdom, while others kept their cool with a ‘who cares’ glance in their eyes?! I am somewhere stuck in the middle.

Last weekend I had one of those typical, pleasant Twitter discussions with @WEAYL – we follow each other – about the consequences of a Brexit for say... Spain.

Twitter discussion that I had with
@WEAYL about the consequences of a Brexit
Picture courtesy of Tweetdeck
Click to enlarge
His statement was that a Brexit could cause Spain a lot of pain; especially for the tourist industry and the real estate market at the costa’s. Actually, I thought that @WEAYL made a good point, when he reckoned with considerable damage for Spain after a Brexit would have occured.

All depends, however, from the nature of the consequences of a Brexit for the United Kingdom and the European Union, as both partners in this marriage going awry. And that is not known yet...

Will it be a friendly divorce in which both parties do their best ‘to save and protect the children’ (i.e. to preserve the good relations and economic bonds between both parties)?

Or will it be a hostile divorce in which both parties do their best to aim at each other where it hurts most?! For instance, by imposing all kinds of import and export duties, service levies, trading and transaction taxes, tourist taxes, visa duties and other measures meant for ‘tormenting and revenge’? In other words: will the Brexit become a divorce battle?

This is a question that Spain did not dare to ask itself officially yet, as far as Pablo Rodriguez (aka @Suanzes on Twitter), the savvy correspondent of El Mundo in Brussels, was concerned. One thing is clear, however, and in that sense @WEAYL was right yesterday. The United Kingdom is an important factor in the Spanish economy.

Two of the Spanish industries hit most by a hostile Brexit, would be a. the Spanish tourism industry and b. the Spanish Residential and Commercial real estate industry.

Here are some data:

According to the EU ObserverOne million British citizens live in Spain, of which 400,000 pensioners’.  And according to another quote in the same issue ‘The government reply indicates the real numbers could be higher, due to “a high evidence of non-registration” in France, Portugal and Spain’.

On a Spanish population of in total 46 million, it would leave a significant scar in the Spanish economy when a significant share of these 1,000,000 + British citizens felt forced to leave and sell their Spanish homes and appartments for one reason or another.

And there is more: no less than 12 million Britons visit Spain as tourists every year, according to the Daily Mail. Combined these Britons spend €7.58 billion, or 21% of the total tourist spendings in Spain, according to this article in The Local:

Spain has received a record number of tourists so far this year at 37.9 million, who have in turn been spending record amounts of cash each day - dropping on average €113 per person daily.

And each tourist spent nearly a grand - €978 - over the course of their vacation under the Spanish sun.

Tourists from the UK lined the coffers of Spain’s tourism industry the most, spending a total of €7.58 billion. But although one in four tourists you may see poking around gift shops hail from the British Isles, the British only contributed a fifth of the total tourist spend.

The Distribution percentage of tourists in Spain,
as of  July 2015
Picture courtesy of
Click to enlarge
The Spanish online website El Cinco Dias had a more elaborate article from August 2015 about the importance of the (British) tourists for Spain, which I translated to English:

Between January and July 37.9 million foreign visitors came to Spain, a rise of 1.7 million year on year. When all forecasts are indeed confirmed, Spain will beat the last record of 2015 regarding the number of visiting tourists. The objective for 2015 is set with 68 million tourists, which seems plausible when we look at the number of tourists visiting Spain during the first seven months.

The statistics of the tourist industry reveal a varied behaviour between the three greatest emitters of tourists to Spain (the United Kingdom, France and Germany), which deliver more than 55% of the total number of tourists. The British market, stimulated by the appreciation of the Pound Sterling against the Euro, has flourished and maintained its position as most important market, with 8.7 million visitors year-to-date, or a market share of 23%.   

All these data show that especially a hostile Brexit would do much harm to the Spanish economy, as it would put fierce pressure on the already very fragile Spanish Residential and Commercial Real Estate market (RRE & CRE).

When a hostile Brexit would lead to a diminished number of British tourists to Spain of for instance 9 million – instead of 12 million – this could easily mean that f.i. 10 – 15% of the Spanish hotels, appartment complexes, bars and restaurants with a mainly British tourist base could get into dire straits. This is because of the simple fact that such hotels and catering companies cannot totally earn back their constant costs anymore within the tourist season and get stuck with more debt than they can bear.

This would deal an enormous economic blow to Spain again: a country that already suffered from poor economic development during most of the crisis years and still massive unemployment.

On top of that, it could lead to more negative price pressure on the Spanish Commercial Real Estate market, as defaulted hotels, appartment complexes and restaurants need to be sold again, in order to earn back some of the outstanding debt for the Spanish banks and large investors.

The fact that the most important tourist groups do traditionally flock together in a limited number of hotels, appartments, hotels, pubs and campings within the holiday hotspots does not help here to prevent damage to the tourism industry.  For this is the following reason: British tourists are mainly booked in ‘British’ hotels and appartment complexes and they are pushed to visit ‘British’ pubs and restaurants, just like French, German and Dutch visitors have their ‘own’ hotels, appartments, restaurants and pubs. This phenomenon is spurred by both the travel organizations and the local authorities.

The former enter into massive contracts with such hotel(chain)s, restaurants and pubs, out of cost efficiency, to have a good position for negotiations and in order to get a fair share of the sales revenues from these companies; especially the pubs and restaurants, which almost have a guaranteed number of visitors per evening, due to such business cont(r)acts.

The latter want to separate the most important tourist groups, in order to prevent from large brawls and arguments on the streets of the tourist hotspots, as the British and the Germans or the French do not always go together alright (too much alcohol, love interests, football and the Second World War are still reasons for massive battles on the nightly streets of Spain).

Although this is a sensible policy in general, it would play out particularly badly in case of a Brexit. Instead of all Spanish hotels and other food and hospitality companies carrying the burden of the Brexit combinedly – leading to a manageable loss of sales revenues for all companies involved – the full burden would be carried by a limited number of companies, that see a large share of their sales revenues evaporate.

And things would even become worse when say 30% of the 1,000,000+ British inhabitants in Spain would sell their (second) home or appartment, as a consequence of their need to apply for a visa or to pay strongly elevated tourist taxes and other costs emerging from their country’s Brexit. Such an one off event would litterally flood the RRE market in Spain with houses, kicking the Spanish economy back into a deep recession.

Thinking about a Brexit that way, shows that there is a lot at stake for Spain in the British referendum; perhaps even more than for the other European countries, which are not so much dependent from tourism as a source of income and employment. Unfortunately, this will not change the short-sightened attitude of many Britons, who are in favour of the Brexit and accuse the EU of everything that is bad to their eyes.

What both the EU and the United Kingdom CAN do in case of a Brexit, however, is trying to go for the ‘friendly divorce’; in this situation both parents respect each others interests and privileges, in order to make the separation easier for each other.

One thing must be clear for the Britons, however: once they have left the European Union, there is probably no way back anymore. Simply too many feelings get hurt in a divorce: friendly or not friendly.

One can count on it that Spain will spill its share of tears in case of a Brexit. So let the Britons make the right choice, for heaven’s sake!