Search This Blog

Sunday, 31 January 2016

Many large, modern companies are in danger of losing their collective memory when their temporary consultants are walking out of the door for good, leaving their principals in a state of shock.

It is the common modus operandi of many large, modern companies. They virtually stopped maintaining their own large staff departments, in which a majority of workers exists out of own staff with fixed contracts. 

Instead, these companies turned to outsourcing of strategic activities, in combination with large-scale hiring of consultants, who are brought in to execute and finish their project and move on afterwards.

Such strategic decisions are often taken with the arguments that costs need to be minimalized – in order to stay ahead of the competition – and that it is much more efficient to work in such a way than to maintain these old-fashioned staff departments with their tens or hundreds of workers with their fixed contracts and all the drawbacks of having a lot of personnel.

And as a matter of fact: it is the way in which I make my living...

As a ‘gun for hire’ in the ICT industry, I do my best on a daily basis and deliver functional testing services and scrum knowledge to banks and other institutions in the financial industry and beyond. And when the job is done, I’ll pack my bags and move on... ready and willing for the next customer: with a bag full of experience and a head full of memories about the people that I just said ‘goodbye and farewell’ to. Just like numerous other consultants in the ICT industry.

Irrespective whether they are from The Netherlands, Germany, the UK, Eastern Europe or India, the ‘ICT nomads’ will be ready and willing to execute every project that comes on their way, inside or outside their country of residence. 

Every Friday and Monday, numerous planes between the UK and the European continent are populated with ICT consultants returning to respectively their homes for the weekend and their principals for the next working week. And so are the trains and planes towards the east of Europe.

Amsterdam, as capital of The Netherlands, hosts large populations of Indian and East-European knowledge workers, who came for a job half a decade ago and received a new life in a new country instead. While there are some drawbacks with respect to being a real part of the company where one works, the life of consultant is a generally good life that I enjoy until this very day, 17 years after starting it.

Yet, many companies should ask themselves the question, whether this modus operandi of hiring almost solely external consultants for the execution of strategic projects is really in their own interest eventually? A modus operandi, often forced upon the company by management books, modern company leaders, impatient shareholders and/or their competitors from inside and outside their line of business.  

Companies should ask themselves, whether the price they have to pay for it, is not called “losing loyalty” and “losing collective memory”?!

To give you an example: at many companies in the financial industry, the central and local governments and the commercial services industry, there is nowadays a habit of executing strategic, extremely complicated and very radical projects with large groups of small, independent teams of – mostly – hired consultants, also known as agile/scrum teams.

These teams try to execute their tasks in the shortest possible time and they try to live to the regulations that have been written down over a decade ago in the following Agile manifesto: 
  • Individuals and interactions over processes and tools
  • Working software over comprehensive documentation
  • Customer collaboration over contract negotiation
  • Responding to change over following a plan

While these regulations by themselves contain good handles for proper software development, they underestimate the power and importance of having good software documentation.

Under the impulse of Agile / Scrum much new strategic software is developed at a blistering speed: 
  • Software that has changed f.i. the banking industry beyond belief in only a couple of years; 
  • Software that enabled handling banking affairs 24x7 from all around the world at the blink of an eye. 
  • Or software that has turned the government from a distant, ignorant and bureaucratic monster into a full-service organisation that is ready for its citizens at all times.

The question is, however: what happens with the Scrum teams, when they have done their job and their project is finished and ‘ready for production’?

In-house, tailor-made software – and the ICT industry in general  is already very vulnerable for both the costs of “cutting-corners-in-order-to-get-the-desired-results-faster”  and the ”non-heritable ingenuity” of the most brillant minds in the business.

On top of that, this process is “helped” by the phenomenon that Agile / Scrum puts ‘more weight on working software and interactions than on processes, tools and comprehensive documentation’.

Too often, the departure of key players in a project or scrum team means that irreplaceable  knowledge and experience will leave the company. When this happens too often, it could lead to the situation that:
  • Nobody knows anymore HOW strategic software was designed and written and how it can be maintained and altered in a proper way, without excess outage and incidents;
  • Nobody knows anymore WHY strategic software was written the way it was and what were the underlying strategic decisions to come to this very design.

In other words: the software is there and it works more or less, but don’t ask why and how. And don’t try to change anything about it or you will pay the price dearly, in the form of outage, fatal flaws and angry articles in the leading press.

In several companies that I knew very well, it happened that key-players in a project were either turned into ‘kings within their own kingdom’ with all the accompanying privileges or that they left the company, leaving it in an utter state of shock, clueless about how to move on from there. 

And too often, these key-players had been ‘guns for hire’ that could leave the project at one month’s notice alone.

As a freelance testing consultant I therefore emphasize companies to think about a few things, in spite of the fact that it might not so much be in my own interests after all:
  1. How healthy is it for the collective memory of companies and the government to execute projects with methods that emphasize working software above good documentation; too often translated into ‘more or less working software, but no proper documentation at all’?
  2. How healthy is it for companies to execute strategic projects with a vast majority of guns for hire, who could leave the company at one month’s notice, leaving the rest of the company in (sometimes) a state of shock?
  3. How smart is it for companies to take all kinds of measures that scare away fixed workers and that deprive freelance workers from expensive, but nevertheless hard-earnt cash, when this means that loyalty for the principal/employer is virtually non-existent and key-players could run away as soon as a better offer emerges?
  4. Why don’t companies strive for a mix of 75% fixed, loyal workers with prosperous fixed contracts and only 25% in flexible consultants to fill in the potholes of daily business and as an overflow for extra work?

When companies not start to live more according to these concepts and start to appreciate and cherish their fixed workers, instead of seeing them as a large source of expenses, they could end up being abandoned by their key-players, absolutely not knowing what to do and where to go.

Leading politicians should act independently within their given mandate... and stand for what they do in actions and decisions, instead of blowing in the cutting winds of their most radical grassroots.

People in Europe are increasingly complaining that ‘politicians don’t listen to them anymore’. Protests against the powers-that-be are soaring and the tone of voice and actions of these protesters become more and more violent. The question is, however, who is to blame for that.

Do politicians indeed not listen enough to their grassroots? Or did politicians in the past just make the undesired impression that politics is a full-service restaurant in which everybody can order what he wants, while shouting in anger when he does not receive exactly what he ordered?!

The political and societal climate in countries like The Netherlands, Germany and Sweden is becoming more and more bleak. Protests against the soaring influx of refugees is mounting and these protests become more violent by the day.

People have been laying down pigs heads and/or pig blood at existing asylums for refugees in The Netherlands, while one existing refuge in Germany even narrowly escaped from a deadly attack with a hand grenade. In Sweden, protestors threatened to seriously harm refugees on the next encounter, after a refugee worker had been stabbed to death at a refuge.

Angela Merkel, who had stated the brave and vigorous ‘Wir schaffen das...’ (i.e. ‘we can do this’) a few months ago when it came to welcoming and accomodating the enormous influx of refugees from Syria and other countries in distress, is now cursed, burnt and ridiculized by the European media, a large part of the German population and a lot of politicians in Eastern Europe. And that for something that was principally a brave display of keeping one’s back straight in spite of the mounting resistance.

This process of cursing and burning Chancellor Angela Merkel was of course reinforced by the horrendous New Year’s events in Cologne, which by itself – just like the Swedish events a few days ago – was a proof that not all refugees are “cuddly toys without a dark side”. How can they be, as they are more or less normal people – but from a widely different culture – who went in many cases through a truly horrific war and now need to adjust to a different life in a new homeland with different mores and with still a lot of uncertainty to cope with. And that in countries that are polarizing at blistering speed.

This is absolutely not meant to talk their actions straight – I condemn such aggressive actions by refugees in the strongest way and think that all perpetrators should be punished appropriately – but things like that happen unfortunately and are by itself not a reason to dismiss all refugees. The trend emerging ever since to condemn all refugees for these Cologne events could unfortunately be expected, but was horrendous in its own right. And so are the Swedish violent threats.

And of course this all is “grist to the mill’ for all right-wing, populist parties, who abuse such events as in Cologne and Sweden for stigmatizing all refugees as possible rapers, murderers, crooks and villains.

Expelling refugees and inventing ridiculous plans to remove them is cool and keeping one's back straigth on behalf of the refugees is seriously uncool. Winners of the last half year: people like David Cameron and Geert Wilders. Loser of the last half year: undoubtedly Angela Merkel.

When cities and municipalities in The Netherlands want to organize a debate about the establishment of a new refuge within their boundaries, such debates are disturbed by  increasingly violent protests from pressure group. At one of such debates, the ‘local population’ (i.e. real locals, but also ‘professional rioters’ coming from outside the village)  had a very violent fight with the ME (i.e. the Dutch riot police), that could have ended with very serious injuries at both sides.

In order to protect a public ‘townhall’ about the establishment of a new refuge within the municipality’s boundaries from violent protests, the mayor of Luttelgeest – a small town in the Dutch Noord-Oostpolder region – decided to not only forbid such protests in advance with the help of the riot police, but even decided to expell journalists from the perimeter. The latter led to public outrage about such ‘governmental arrogance’ against the free press. Well, you know the drill.

In the same week, chief whip Diederik Samsom of Dutch labour party PvdA drafted an utterly ‘dead on arrival’ plan – together with Dutch PM Mark Rutte who was smart enough to name this particular plan “Plan Samsom” – to start a special “ferry service” between the Greek islands and Turkey, with the obligation to return boat refugees to Turkey, the minute that they arrive in Greece. And this in exchange for accepting a few hundred thousand extra refugees within the Europe Union and (perhaps) a shedload of extra money for Turkey.

Suffice it to say that both Turkey and the European Commission wondered what the hell Samsom and Rutte had been smoking, when they minted this ridiculous plan. Most astonishing fact was that Samsom and Rutte were actually astonished that their plan was shipwrecked within a day. 

And so it happens that politicians act more and more as servants for their most radicalized grassroots, under pressure of the public opinion and the below-the-belt attacks of the right-wing populist parties all over Europe, which are gaining momentum by the day. Nevertheless, one of the most heard complaints these days is that “politicians are not listening to their grassroots anymore”.

People complain that politicians totally ignore the 'moral majority’s' reservations and reluctance against decisions made with respect to the European Union, Ukraine (as an example), (religious) minorities within the European countries and – now especially topical – the way to deal with refugees from outside the European Union.

And in spite of the fact that the political parties – virtually ALL political parties – have become much more populistic in their approach and in the way that they have dealt with the refugee problem (see Diederik Samsom’s plan as a blatant example), the complaint remains the same or even worsens in time and it is brought to the public’s attention in an increasingly violent way.

Personally, I don’t think that politicians are not listening enough to their grassroots.

I rather think that some voters have adopted the false idea that national politics in The Netherlands is “a full-service restaurant” for angry citizens: they can order what they want, while bluntly refusing everything that they not have ordered and what they order should be served immediately! On...the...double!

Politicians cannot be blamed for not listening enough to their grassroots, but they – especially the populist ones – can be blamed for giving their grassroots the idea that ‘their wish is the politicians’ command’. As in the aforementioned full-service restaurant...

Politics can’t be a full-service restaurant, as politicians must be there for all their countrymen and not only for the angriest ones with the biggest mouths and the biggest display of aggression.

Therefore in many situations politicians should have the spine to ignore the desires of their loud and aggressive ‘moral majorities’ and act as a defender of their vulnerable and/or more quiet grassroots. And act in the interest of their whole country, which inevitably should lie in a strong EU, instead of being a desolate island in a hostile stream.

In a time in which politicians only listen to the loudest voices in their country, the interests of the quieter voices will be violated in the most brutal way. That is an experience that we learned from a dark, European past.

Every four-odd years all Dutch elected politicians receive a mandate to act as they deem best in the interest of their country and all their citizens. They must use this mandate in their decisions and actions the best they can. 

They should not bend and blow in the cutting winds of their most radical grassroots, as the price for such submissive behaviour will be extremely high.

Wednesday, 27 January 2016

“J’accuse... Vice President of the European Commission Frans Timmermans of deliberately making a largely incorrect statement about refugees“

I accuse Vice President of the European Commission Frans Timmermans of unjustifiably reinforcing an atmosphere of resentment against refugees, by deliberately making a largely incorrect statement “that about 60% of the refugees which enter the EU are in fact economic refugees and no victims of war”.

By doing so, Frans Timmermans helped to spread a false picture that a 60% majority of the refugees are ‘economic fortune seekers’, which are not entitled to seek refuge in the European Union.

Timmermans’ statement was based on December 2015 data of Frontex alone, which has not been published yet and therefore cannot be checked by the general public. Even though Timmermans’ interpretation of the Frontex data could theoretically be true, it is absolutely not in line with data that has been published earlier by Frontex, regarding Q2 and Q3 of 2015. And even though it is in line with the Frontex data of Q1, the influx of refugees during this particular quarter was minute, in comparison with the later quarters of 2015. Therefore it seems that Timmermans’ statement is not true and thus unjustified and needlessly polarizing.

In the current explosive atmosphere of (violent) resentment against refugees in The Netherlands, Germany and many other European countries, such an incorrect statement is obviously condemnable and dangerous.

Two days ago, the Dutch European Commissioner and prime Vice President of the EC Frans Timmermans made a bombshell statement in an interview with the Dutch public broadcast organization NOS, as he stated: “More than half of the people now coming to Europe come from countries where you can assume they have no reason whatsoever to ask for refugee status. More than half, 60%”.  

The following snippets come from DutchNews:

60% of refugees are economic migrants: Dutch EU commissioner Europe

More than half the asylum seekers coming to Europe are not fleeing from war and northern Africans in particular are leaving their home countries for economic reasons, the Netherlands’ European Commissioner has told the NOS.

Frans Timmermans, who is the commission’s first vice president, told the broadcaster in an interview: ‘More than half of the people now coming to Europe come from countries where you can assume they have no reason whatsoever to ask for refugee status. More than half, 60%.’ In the main they are people from Morocco and Tunisia who want to travel to Europe via Turkey, NOS quoted him as saying. Timmermans bases his claim on the latest figures from European border agency Frontex which have not yet been officially published.

Many public media and newspapers printed this news unthinkingly and without checking this particular statement, as it was an important statement – a genuine bombshell – made by one of the highest ranked persons in European government circles.

I, however, had serious doubts about the figures mentioned in this message by Frans Timmermans, as a number of 60% of refugees being economic refugees seemed much too high. Therefore I checked the latest available data by Frontex, which happened to be the 2015Q3 data (later dated data is not yet obtainable).

This delivered the following Frontex data from the Q3 report:

Table of the recently published Frontex Q3 report
regarding the influx of refugees
Data courtesy of:
Click to enlarge
Using this available data of Frontex over 2015, I made a calculation based upon the mentioned countries in the Frontex data. In this calculation, next to Syria, Iraq and Eritrea as obvious war-struck countries, I also reckoned Nigeria and Afghanistan to be zones of war / massive public unrest. This, due to the extremely unstable situation in these countries with respectively Boko Haram and the Taliban planning and executing massive, bloody attacks on civillians. Therefore I consider people fleeing these countries as refugees of war and not as economic refugees.

Calculations based upon the statistics
in the Frontex Q3 report
Table created by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
In Q1 of 2015 24,000 of the 62,000 refugees came from countries that I consider as war-zones, or 39%. In other words: 61% of refugees can be considered economic refugees, which is in line with Timmermans’ statement.

However, in Q2 of 2015, more than 116,000 of the 170,000 refugees (or 68%) were refugees of war zones, of a total number of refugees that was three times as high as in Q1. In Q2 Timmermans’ statement was obviously not true.

And in Q3 of 2015 a staggering 450,000 of 617,000 (!) refugees were refugees of war zones, or 73%. Only 27% can be considered as economic refugees. This sheds a very unfavourable light on Timmermans’ statement.

Russia Today, the Russian international TV-station, claimed that 1 in 3 of Syrian refugees had in fact a fake Syrian passport and came in reality from another country.

Although I show this fact from the point of transparency, I personally doubt whether this can be true at all. This would mean that in Q3 alone more than 100,000 people would have obtained a fake Syrian passport (“just consider the sheer numbers of fake Syrian passports being around” – EL) in order to cross the European borders as fake Syrians. And it would mean that the falsifications would be so perfect that the Frontex officers would not be able to recognize those, which again seems very implausible.

However, even when this Russia Today news would be true indeed, the number of war refugees for Q3 would still be around 56%, which is still much, much higher than the 40% that Frans Timmermans claimed.

Still, the December data of Frontex, that Frans Timmermans claimed to know, could indeed confirm the statement of this prime vice president of  the European Commission after all. However, over the first nine months of 2015, more than 57% of all refugees were refugees fleeing for war in their home countries and not economic refugees. This 57% is not even close to the 40% that Timmermans claimed.

Therefore I accuse Frans Timmermans of a. deliberately spreading a doubtful picture of the refugee situation in the European Union and b. of doing so in a time in which the (sometimes already violent) tensions regarding refugees are mounting in many European countries, including his home country The Netherlands.

Whether this statement was made out of personal vanity and urge to score a bombshell statement in the leading European newspapers or out of real concern about the refugee situation, is not important in this matter. It is a false picture and therefore I condemn his statement.

One day later, the spokesperson of European Commissioner Timmermans more or less admitted that Timmermans’ statement had been unjustified in an article in Algemeen Dagblad (AD):

Frontex does have data about 2015: 880,820 migrants came to Europe via ‘the Eastern Mediterranean sea route’ (i.e. via Turkey with a boat to Greece). The Top 3 of nationalities:  Syrian (494,103), Afghani (212,721) abd Iraqi (90,917). Countries in which there is (partially) a war. In December 2015, 108,000 migrants came to Greece, according to Frontex, but this figure cannot be divived into nationalities yet.

The IOM, the world’s biggest organization regarding migrants, does not recognize the picture of Timmermans regarding December. As a matter of fact, IOM possesses data over January: “ Between 1 and 25 January, 45,361 migrants arrived in Greece. The largest groups: 16.318 Syrians, 9825 Afghans, 4801 Iraqis and 1140 Iranians“, according to a spokesperson. On request he looks at the number of Moroccan and Tunesian refugees: 104 and 105. The IOM receives the data from the Greek authorities.

Timmermans’ spokesperson reacted: “The prime vice president of the European Commission wanted to make a point that Europe should increase its actions towards a fair ‘return policy’ [for economic refugees – EL ]. On many occasions Timmermans made the point that support [of the general public – EL] might be withdrawn, regarding the refugee problems, when people without a fair entitlement for European protection are allowed to stay within the EU. And:”It seems indeed that the trend is changing again in January, so no conclusions should be drawn upon the data”

This statement by Timmermans’ spokesperson is as close to telling ‘that Frans Tîmmermans made a mistake without really telling that Timmermans made a mistake’ as humanly possible.

My personal take is that Timmermans blatant vanity and scoring instinct forced him to make an unjustified and foolish bombshell statement that could easily be debunked by just checking the available Frontex data. 

That many Dutch media failed to do so, because this statement by Timmermans confirmed their own prejudices and opinions, is at the expense of those media alone. I, as publisher of Ernst’s Economy for You, rather let myself being led by the sheer data.

Sunday, 10 January 2016

Brick & Mortar shops do definitely have a chance in The Netherlands, at the premise that cities and municipalities stop with their Kamikaze strategy of building more and more shopping centres.

When we look at the Dutch shopping landscape with an uninformed eye, it seems that the time of the Brick & Mortar (B&M) stores is finally over. 

Large store chains, like a.o. DA drugstores, V&D department stores and the MacIntosh shoe stores Manfield, Invito, Scapino and Dolcis, all are heading for the gutter with hardly a chance of getting out of it again. The prices per square meter of shopping space are dropping once again and it seems very hard to turn the tides against the online shops.

However, there might be a glimmer of hope for the B&M stores in The Netherlands in the form of independent retailers and their different, ‘non chain-store’ shops; that chance exists, provided that the Dutch cities and municipalities quit their Kamikaze tactics of opening more and more new shopping centres. The latter proves to be a longshot, unfortunately.

While the independent DA drugstore owners tried to cope with the initial bankruptcy and overnight takeover of their central DA headoffice by Holland Pharma, the situation for the V&D department stores and its personnel seems even more desperate: there is interest from Canada-based retail chain Hudson Bay to take over the V&D properties at their absolute A-locations within the large Dutch cities.

As the V&D premises are not owned by V&D itself anymore, but by independent commercial real estate (CRE) owners, there is a considerable chance that the CRE owners choose for the fresh and promising option of Hudson Bay and abandon V&D as a ‘blast from the past’, with no future in The Netherlands anymore. That would be the end for one of the oldest and most-respected department store chains in The Netherlands.

And as far as the store chains of the MacIntosh retail group are concerned –
Manfield, Invito, Scapino and Dolcis – their definitive end seems inevitable now, when we look at the current situation in the Dutch shopping landscape.

In an article of exactly two years ago, I put the problems, which caused so many headaches for Dutch store owners, in a bulleted list. While looking at this list, it seems still extremely topical:

During the last decade, there have been six important factors for the retail industry:
  • The soaring costs for car parking in the cities and villages, which turned fun shopping into an expensive pleasure;
  • The unstoppable development of the online sales channels in The Netherlands;
  • The aging population, which diminished the need for shops, as older people buy and consume less goods than younger people;
  • The soaring shopping space, as a consequence of the mindless building frenzy that had so many city centres in its grasp, and the overkill in stores that was the result of this frenzy;
  • The piranha behaviour of the large retail chains, which have first eaten away the necessary margins for the independent shopowners and subsequently for the franchise holders of these large chains themselves;
  • The increased austerity among the Dutch citizens since 2008, as a consequence of the economic crisis.

These first three factors have diminished the numbers of visitors and fun shoppers at shopping malls.

At the same time, the last three factors have eroded the margins for the shopowners so much, that many shopowners perished during their struggle for survival. Many other shopowners are currently clinging on to life by the skin of their teeth.

The municipal greed and the structural exaggeration of sales opportunities and growth prognoses, maintained by the large shopping space operators, have dealt blow after blow to the poor (independent) shopowners. These people often invested their life-savings and – on top of that – high bank loans and credit lines into their shops, only to battle for survival each year.

On top of that, the Dutch people became bored with seeing the same shops and store chains over and over again in whatever shopping centre they visited. The same HEMA’s, Blokker’s, V&D’s, Scapino’s, Kruidvat's, C&A’s and whatever other store chains there are in The Netherlands. As a consequence, the Dutch shopping centres offered as many pleasant surprises for the Dutch fun-shoppers as the annual letter from the Internal Revenue Services for a hard-working American.

That many of these problems have not been solved, in the two years that passed since that article was published, becomes clear in the following two articles, by respectively BNR News Radio and De Telegraaf. Here are the pertinent snippets of these articles, accompanied by my comments:

In 2015 the rental rates for stores in The Netherlands have dropped for the sixth year in a row. In average the rates dropped by 2.1%, according to CRE-advisor Jones Lang LaSalle (JLL) last Saturday [Saturday, December 26th – EL].

In the large majority of the shopping streets the landlords felt the need to further decrease the rental rates. This happened in spite of the clearly growing economy and the improved consumer confidence of 2015. The rental rates of store space dropped slightly less strong than in the previous year [2014 – EL]. In that year JLL still signalled a rate drop of over 2.5%.

Exception was Amsterdam, where the average rates in 2015 increased(!) by 2.6%. Especially in the famous P.C. Hooftstraat, the prices soared by 10% to €2,200 per square meter.

So the fact is that the absolute Triple-A locations (i.e. ”Amsterdam, Amsterdam, Amsterdam”) show rising (or even soaring) rental rates, while the rest of the country still has to cope with dropping numbers of shop visitors and consequently dropping rental prices. 

Even though it becomes clear that the economic crisis indeed starts to fade, many Dutch people are still very reluctant to spend their money in the B&M stores or rather do their shopping on the online channel, where the discounts are often much higher. One of the undeniable reasons for this could be that the Dutch average wages have hardly risen for over 10 years (charts!):

This news from CBS about the structural decoupling between productivity growth and wage growth in The Netherlands is not surprising by itself. Yet, it is a tell-tale signal about how wage restraint and its ugly brother wage reduction, as well as the ubiquitous flexibilization of the labour market have nibbled away purchase power from the Dutch middle class and lower class workers.

In spite of their annually increasing productivity since at least 2002, the workers mostly did not received the justified remuneration for this.

As a matter of fact, for younger workers the fixed job contract has nearly been sacrificed in favour of payrolling, temporary labour contracts, temporary assignments through temp agencies, zero hour contracts and freelance contracts. These are all contracts that all offer only a little amount of security for the workers and – on top of that – make it very hard for young workers to demand higher wages, as the CBS press release already stated.

This situation is far from unique for The Netherlands; to the contrary, this phenomenon can be seen everywhere in Europe.

To these eyes, this flexibilization of the labour market and the decoupling between productivity growth and wage growth are two of the reasons that it seems impossible to bring the inflation back to the “close to, but not quite 2%” inflation as desired by the ECB. Therefore both circumstances lay considerable downward pressure on the inflation rates.

This enduring situation will continue to last for a long, long time when large and small companies do not decide to structurally raise the wages of their (temporary) personnel and freelancers by at least 2% per year for a number of years in a row. The ten years without serious wage increases in The Netherlands, in combination with the ever greedier central and local governments, have steadily empoverished the Dutch middle and lower classes and took away their urge for consumption.

Nevertheless, it seems that the Dutch cities and municipalities have yet again failed to learn their lesson, hungry as they are for more real estate sales, tax and parking euro’s.

This becomes clear from this Telegraaf article:

Building for vacancy

The current carnage among store chains does not withhold cities and municipalities from developing on a large scale plans for new shops and shopping malls. Currently there are plans for new shopping space to the tune of almost 1.2 million square meters, according to retail organization Detailhandel Nederland.

In advance of the defaults of department store chain V&D, drugstore chain DA and the shoe stores Manfield, Invito, Scapino and Dolcis, the average vacancy rate in The Netherlands was already 7.5%. The effects of these recent defaults on the national shopping space vacancy are yet unknown. Real estate owners and retailers are outraged by the excessive ambitions of municipal authorities and fear that the new shops will cannibalize on the existing ones.

This outrage of the existing shopowners is so logical. Too often they have been pushed around by city officials and too often they have been promised mountains of gold, only to remain stuck with enormous debt and too little customers

In at least one case it even seemed that a city tried to double-cross its existing shop owners, by promising that a new, to-be-developed shopping centre would be a specialized centre, that would not cannibalize on the existing shops. When the plans for this new shopping centre were closely inspected, however, it became clear that it contained exactly the same shops as in the already existing shopping centres of the city. When this shopping centre would indeed have been developed, it would definitely have cannibalized upon the existing shops in the other shopping centres.

On top of that: everybody in their right minds should know that there is a substantial excess in shopping space and that there is no reason whatsoever to further increase this number by 1.2 million square meters. Therefore the Kamikaze strategy of Dutch cities and municipalities 'to build shops until they drop' must come to an immediate end. Such plans are really outrageous and dangerous nowadays.

To the contrary, the only way to remove the overkill in shopping meters would be to demolish old, ugly and/or increasingly impopular shopping malls, in favour of other shopping centres that are already reasonably successful. 

By redividing the store owners of the to-be-demolished shopping malls over the vacant shops in the more successful shopping malls, this plan offers for everybody a decent opportunity to benefit from such an operation. Only with a dramatic reduction in shopping space, the Dutch brick & mortar shopping landscape could become healthy and flourishing again. 

However, this will be a bitter pill to swallow for many municipalities and cities in The Netherlands, as many shopping centres are monuments for the egos of city officials, who all want to leave their own landmark in their cities and villages.

I want to finish this article with a glimmer of hope; something that could turn out very good in the end. The following snippets are from De Volkskrant:

The ‘chain store-ization’ of the Dutch shopping streets – with from a distance ever the same, dull store chains – seems to have come to a stand-still and is even cautiously declining. In the most expensive shopping streets the leading store chains are still in the lead, but in the surrounding of these streets, more and more independent entrepreneurs open a shop.

One store chain after another defaults. That is not bad, as a matter of fact, as a visit to shopping centre In De Bogaard in Rijswijk (a town close to The Hague) learns [there is a separate article for this behind the link - EL].

Gertjan Slob, research director of Locatus, expects that the decline of the number of store chains will continue in 2016. “The world gets more and more dynamic. Individual retailers can act faster to imminent change than the sluggish store chains can”.

The number of chain stores declines especially in the less popular streets and in the small cities and villages, according to Slob. ‘In the leading streets, the chain store-ization continues unabated. There is even an internationalization going on overthere, due to the establishment of popular foreign store chains in The Netherlands. 

Yet, on B and C locations, there is a genuine renewal of the supply in stores going on. Due to the considerable vacancy of store space, it is easier for entrepreneurs to find new shopping space, although the rents do not decline impressively yet.  

This is a very good development indeed. New shops can introduce new shopping formulas and crazy new ideas. They might pleasantly surprise the fun-shoppers and take away much of the boredom that the well-known store chains brought to the regular shopping centres. Many of those new shops will perish perhaps, but the best might introduce the shops of the future.

And also these new, original shops bring back some of the dynamics that shopping in The Netherlands traditionally had. They often share bright, new ideas with a keen eye for the needs of the customer, in combination with a desire ‘to try harder’ than their chained competition.

In my humble opinion, the most successful future shops could be the ones that are really different and fill in a void in the market; eventually in combination with an online store.

Shops with for instance old-fashioned wooden toys or with high quality electronic toys and appliances from Germany. Or shops with tailor-made clothing or with artisanal products than can’t be purchased anywhere else.

My best guess: as a long-term avid music-lover and audio addict, and while looking at the recent trends on Youtube, I would open a vinyl record store(!) with – perhaps even – a production facility for top-notch, small edition vinyl records of impeccable quality. 

It seems that an increasing group of people is getting fed up with ‘online’ and ‘virtual’, when it comes to music and increasingly choose to have a large, clumsy vinyl record in their hands, that they play on a beautiful turntable and a high end hifi set. 

Perhaps it will become one of the leading trends in 2016 for people to return to ‘real’, ‘tangible’, ‘artisanal’ and ‘original’, instead of mass-produced, virtual, online and ‘part of a large chain’. You know where you heard it first!

“No, Jean Claude Juncker, a Dutch vote against the EU-Ukrainian Association Agreement will not lead to a continental crisis in Europe. The current, utterly lack-luster guidance of the European Union might, however!”

In other to discourage The Netherlands from administering a negative vote in its dreaded “anti-Ukraine” referendum, the President of the European Commission Jean  Claude Junckers turns to good, old fearmongering. By warning that a Dutch ‘No’ against the Ukraine-EU  Association Agreement might lead to a continental crisis , Juncker hopes to turn the tides in favour of the Yes-voters .

I totally disagree with Juncker’s fearmongering, and think instead that the lackluster European Commission and Council and the total lack of fundamental unity and fresh, new ideas within the EU are much more dangerous for the future of the EU than this Ukraine-EU Association Agreement being abolished eventually.

“The European Union is perhaps the best crafted product ever...
With currently the poorest marketing department in history to advertize it”
Ernst Labruyère  – 9 January 2016

These are populist times, there is no denying it. Every proposal that is made and every decision that is taken by the ‘powers that be’, is regarded with the utmost distrust by large parts of the population and by radical politicians who gain influence from the current pandemonium in the political arena’s of Europe.

The European Union and its predecessors, bedrock of Western European stability for so many years since the 2nd World War, are currently like the ugly duckling in a beauty contest: everybody is aware that it could become a swan one day, but for now we look rather at its ugly appearance and its obvious flaws.

And these flaws are not very hard to find, unfortunately. In spite of the fact that its total leadership has been renewed less than one-and-a-half years ago, the EU operates seemingly more lackluster than ever. The ‘new’ leaders Jean Claude Juncker – as ‘Chief Commissioner’ – and Donald Tusk – as President of the European Council – fail blatantly in their battle against the lack of new, fresh ideas and totally absent pizzazz in the EU. And now the EU almost falls apart under internal conflicts and quarrels based on self-interest of the different member states.

As a provisional low we might look at the current Chairmanship of the European Union, filled in by The Netherlands. The Dutch PM Mark Rutte gets a leading role in trying to guide the EU through arguably the toughest time of its sheer existence.

In spite of the undeniable qualities of Rutte as ‘shopkeeper’ and ‘manager’ of the EU, he even boasts about having no grand vision and no important ideas about what the EU should become in the coming years and decades. While PM Rutte thinks that having such a grand vision is only detracting from the tasks that lie ahead, the Union as a whole almost falls apart, because of the fact that citizens in every country think they are better off without the interventions, vast tax-expenditure and meddlesomeness of the EU.

In 50 years, the EU has turned from a ‘bond of archenemies-turning-into-close-collaborators’ into ‘a bureaucratic, self-reinforcing monster and prestigious-job-machine for overdue politicians’, seemingly without a clear ‘raison d’etre’. And still PM Mark Rutte thinks that it is dangerous to have a ‘grand vision’ and a dot on the horizon to travel to in the near future.

And now there is the Association Agreement of the EU with the Ukraine, that should take away trade barriers and other bureaucratic thresholds in the trade between the EU and Ukraine, thus enabling easier traffic of people, goods and services, as well as creating a bigger cooperation and understanding between all the countries involved. Although it is widely denied that this is the first step towards a full membership of the EU for Ukraine, there is little doubt that the Ukraine does see this Association Agreement as such anyway.

This association agreement was at least one step too far, according to the right-wing multimedia and lobby platform GeenStijl (i.e. litterally ‘no style’, but also ‘not fair’ in daily speech), that likes to throw a large stone in the pond and does not scare away from a mild dosis of populism and guerilla journalism, against whoever p*sses them off at a certain time.

Associate journalists of GeenStijl started a national lobby for a Dutch referendum under the moniker ‘GeenPeil’ (i.e. ‘no gauge’),  in order to mobilize a firm ‘No’ against this association agreement, instead of the hammer-beam-ish ‘Yes’ that would otherwise have been administered by the Dutch government.

GeenStijl/GeenPeil managed to collect 427,000+ autographs (as of January, 2016): more than sufficient to force the Dutch government to indeed organize this referendum.  

Probably the first autographs came from jokers and troublemakers, who saw this as a golden opportunity to pull a trick on the Dutch government and annoy the people in charge. Little later many other people voted also in favour of this referendum: worried citizens, who were opposed to this particular agreement from the beginning, and other Dutch people who see the EU itself as a threat for the stability and democracy in The Netherlands,

And now the referendum is a fact of life of which the final outcome cannot be ignored lightheartedly by the Dutch government, without them making a total fool of themselves.

When a clear ‘No’ would be the outcome of the referendum, the Dutch government has to choose between either alienating the Dutch population (i.e. by signing the association agreement with Ukraine anyway) or the leaders of the European Union (i.e. by NOT signing the agreement).

Unless the ‘Yes’-camp would have a landslide victory after all, this referendum is in fact a lose-lose situation for the Dutch government. The odds for such a landslide ‘yes’ victory are minute, in my humble opinion, when we look at the current stance against the EU in The Netherlands.

To be frank: even I consider this referendum to be a quite difficult decision. While the association agreement could be an enrichment for both the Ukraine and the European Union and open the way for closer cooperation and better mutual understanding, it would put further pressure on the relation between Russia and the EU.

And whether we like it or not and irrespective about how we think about Vladimir Vladimirovich” Putin, Russia is definitely a force to be reckoned with and one that we need to reach a situation of stability in Europe. And in his slightly paranoid eyes, a membership of the EU and a membership of the NATO are two birds of the same feather.

My second scruple is about the Ukraine itself. While most European think that our ‘friends’ live in the western part of the Ukraine and our ‘enemies’ in the eastern part of the country (i.e. the Russia-oriented rebel groups), the situation is slightly less black and white. Within the current Ukrainian political system a number of extreme right parties, like Right Sector and Svoboda, have considerable influence in various important layers of society. These are parties with dangerous and reactionary ideas that must never be incorporated in the European Union.

On top of that, there is the ubiquitous and profound corruption in the country. With the association agreement, the European Union could not only become an involuntary accessory to this corruption, but it could also mean that millions and millions of European tax money are squandered in the form of structure funds, landing in the pockets of the wrong people.

On the other hand, the EU has brought more and broader positive change within Europe, than any other special interest group could have brought. With the combination of financial/economic carrot and stick and with its nearly incorruptable charisma, the EU is a beacon of light in a world of darkness: numerous European citizens have now a better life than they ever dreamt of having in the past.

Being part of the European Union is something that would be in the best interest of the Ukraine and even of Russia itself [before you start a rant against me: I consider this to be impossible myself, without an enormous change in leadership reaching from top to bottom in Russia – EL].

Anyways, President of the European Commission Jean Claude Juncker is extremely concerned about the GeenPeil referendum and today he responded in a way that many leading politicans do: fearmongering.

The following article was printed in the NRC Next:

A Dutch ‘No’ during the Ukraine referendum on April 6 ‘could open the floodgates for a large continental crisis’. This was stated by Jean Claude Juncker, president of the European Commission in an interview with Dutch newspaper NRC.

Juncker: “Russia would pluck the sweet fruit of an easy victory”, when the Dutch voter abolishes the association agreement between Ukraine and the EU. 

According to Juncker it would also be easy bait for populists, who want to blow up the EU. “So let’s not change the referendum into a referendum about Europe” says Juncker. “I truly hope that the Dutch will not abolish the agreement for reasons that don’t have anything to do with the agreement itself”.  

Some parts of the agreement, regarding trade, came already into effect on January 1st, 2016, albeit on a preliminary basis. However, as there is no time limit for this preliminary phase, reversing these parts can take place by unanimity alone.

To that respect, the influence of a Dutch ‘No’ is probably very limited, as the Dutch government does not have to take over the outcome of the referendum. When more than 30% of the voters show up, the government must only reconsider the treaty.

Nevertheless, the Dutch voter ‘must understand that this question superseeds the Dutch interest’, according to Juncker. He calls the Dutch voter "to act like a European strategist", on April 6.  

Juncker might have a point with his request to not treat the referendum on the agreement as a referendum upon Europe. Too many of the statements coming from GeenPeil seem indeed to point in that direction:

When you look at the development of the Greek crisis, the inconsiderate Dutch money transfers to Europe of billions of Euros in after-taxes and the unrestrained hunger for expansion of the EU, than the question rises: how much influence has the voter left upon the democracy? How far may politicians go in stretching their mandates to do things at will?!

This snippet alone shows a combination of classic fearmongering and spreading doubt about the honourable intentions of the EU leaders.

On the other hand: Juncker’s threat that this referendum may lead to a continental crisis within the EU is also widely exaggerated and – consequently  classic fear mongering. Even the concept that Putin will be smiling by the prospect of having an easy victory, seems a little bit over the top, for the simple fact that Putin could not care less probably.

In my opinion ‘the only thing that the European Union has to fear, is the European Union itself’. At this moment, the current European Union and its current leaders are their own worst enemies.

So many Dutch and European citizens are completely fed up with the lackluster, totally uninspired and utterly bureaucratic modus operandi of the EU itself. There is no basic unity between the member states of the EU, there are no fresh ideas, no dots at the horizon and no feeling that things will be better soon, when we look at our European leaders. 

Nowadays Europe seems to consist of managers and does not have genuine leaders. From the best thing that could have happened to Europe [my own opinion – EL] after the 2nd World War, the Union has degenerated to a bureaucratic extravaganza for job hunters, third grade career politicians and mindless apparatchiks.

The best crafted product ever is currently advertized by the poorest marketing department of all times; irrespective of those marketeers being national or pan-European politicians.

European people want to have answers to their questions and people, with their own hopes and fears, want to have a safe beacon to rely on. European citizens also want to be inspired by truly great politicians, in my humble opinion, where we seemed to have so many of in the second half of the Twentieth Century.

Not that these politicians were flawless, uncorruptable and/or always right: far from that. Some of them have even made grave mistakes and left their country in a worse shape than when they arrived.

Yet, when I think about Helmut Schmidt, Helmut Kohl, Margaret Thatcher, Valerie Giscard-d’Estaing, François Mitterand, Giulio Andreotti and for The Netherlands Wim Kok, Ruud Lubbers and Joop den Uyl, it seems that these guys and lady were all about inspiration and about having a story to tell to the people. 

It seems that Europe and the EU nations could use a few of such politicians very badly. 

Thursday, 7 January 2016

About anaemic inflation in the Euro-zone, flexibilization of the labour market and the real wage increases since the start of the economic crisis

“It is not the cost price of goods that should decide their sales price
It is the price that people are willing to pay for it, that matters”

Cees van Turnhout – former CEO of Ferney Holland

In the economy there are topics, which regard to seemingly independent measurement units. However, it makes sense that there is actually a quite strong connection between these topics. Two of such topics are for instance the inflation rate and the development of net earnings in an area.

In order to make my point, I want you to take a look at inflation:

Although I don’t know the exact way in which the Dutch and European inflation rates are calculated, I presume that this happens via a ‘basket’ of products and services.

In this basket there are probably items like:
  • taxes and levies;
  • (social) housing rent rates;
  • interest rates on mortgages and private loans;
  • ticket prices for public transportation;
  • energy prices (i.e. oil, gas and electricity);
  • food;
  • alcohol & tobacco;
  • fashion, shoewear and clothing;
  • small consumption goods and household appliances;
  • durable consumption and production goods;
  • prices for means of transportation.

This list is probably far from complete, but it sketches an image of what to expect in that basket.

Of course there are a number of components within this basket of which the value (and thus the effect on inflation) is much more dependent on the goals of the supplier than on the existing demand for this component.

Examples, for which suppliers have an extraordinary influence on prices are:
  • taxes, social housing rent rates, alcohol & tobacco (through excise duties and levies) and public transportation tickets: mainly national politics as ‘supplier’/ price setter;
  • interest rates on mortgages and private loans: the global financial system as price setter;
  • food and commodities: farmers and producers, as well as nature (due to natural scarcity);
  • energy sources, precious metals, fertilizers and minerals: international trade markets and global politics.

These are all goods and services of which the price elasticity is quite (in some cases extremely) low, as (most) people need these goods and services anyway in spite of higher prices, as there are hardly any alternatives available for it.

However, for probably most other items in the inflation basket, there is a substantial price elasticity. People can simply decide to NOT buy these items in times of high prices, as only few of them are really indispensable. 

Purchase of all the other items can be postponed for shorter or longer periods (f.i. until the Sale period starts, in case of clothing and shoewear). And even when people buy such items, they can choose between cheaper and more expensive alternatives, dependent on their mood and personal wealth situation.

It figures that when many people choose for cheaper varieties of consumption goods and durables, this will have a strong downward influence on price development and thus inflation.

As a wise man – Cees van Turnhout, a former executive of mine – once said: “It is not the cost price of goods that should decide their sales price. It is the price that people are willing to pay for it, that matters”.

Although this expression was made in the context of durable goods being sold too cheaply, it is also true in the context of goods being for sale at excessive prices. This becomes clear with the following example:

When an average family has only €500 in free spending money per month available for consumption goods, they will buy the things that they want or need, using that amount of money alone. In normal situations, they will not take a personal loan to increase their monthly spending money.

When the consumption goods of their desiring become more expensive, these people will buy simply less of them, as their free spending money does not increase. Hence: those goods will stay at about the same prices, as either manufacturers will voluntarily waive price increases or else cheaper alternatives will replace the more expensive ones.

So in times when the net income of average middle-class and lower class people shows hardly any positive development, the chances for real inflation are close to nought, unless such inflation is spurred by taxes, changes in interest rate or changes at the international energy, food and commodity markets.

In this case, it even does not matter much when the total amount of money and credit in the market is strongly elevated – due to external causes like f.i. quantitative easing –  as long as this money does not trickle down to ‘Joe Sixpack’, ‘Otto Normalverbraucher’, ‘Jan Modaal’ and other average middle and lower class citizens, where it increases his monthly free spending money.

I had to think about this when I read the following press release from the Dutch Central Bureau of Statistics and subsequently a news message from Eurostat about the European inflation:

Adjusted for inflation, the average remuneration per employee has decreased after the outbreak of the credit crunch in 2008, although labour productivity increased. This means that the higher labour productivity level of employed persons has as yet not resulted in a higher remuneration level for employees (after adjustment for inflation). According to Statistics Netherlands (CBS), the high unemployment rate and the growing number of flex workers and self-employed may have played a part in this respect.

The decoupling of labour productivity and
remuneration for employees
Chart courtesy of:
Click to enlarge
Productivity growth slows down compared to the pre-recession era

In the period 2002-2008, the labour productivity of total Dutch economy, excluding the sectors public administration and education, annually grew by an average of 1.6 percent. The real remuneration, i.e. adjusted for inflation, also rose during this period, but the rise was less substantial than anticipated on the basis of labour productivity.

In the latter half of 2008, the recession kicked off, resulting in a sharp fall in labour productivity caused by the fact that the input of labour and capital could not be adjusted soon enough to the reduced demand. This appears to be a recurrent pattern at the onset of a crisis. After 2009, labour productivity grew by an average of 0.8 percent annually. At the same time, the real remuneration per employee (including social contributions paid by employers) declined by 0.1 percent annually. In 2014, however, the situation began to change.

Unemployment and flexibility of the labour market keep wages down

Real remunerations decreased and simultaneously labour productivity increased. This is caused by the fact that tension on the labour market declined considerably after 2008. In 2013 and 2014, the number of unemployed rose significantly and far exceeded 600 thousand. When such a situation occurs on the labour market, employees are not in a position to make demands and there is no real pressure on employers to raise wages.

The soaring growth in the number of self-employed
and flex-workers between 2003 and 2015
Chart courtesy of:
Click to enlarge
Another reason for the fact that wages are falling behind is the growing number of flexible employment contracts. The number of permanent employment contracts is being reduced and replaced by more flexible types of employment contracts. Since 2009, wages of flex workers have been lower than wages of employees working on permanent contracts. The number of self-employed, especially self-employed without personnel, may also have had a negative effect on the wage level of employees. Incomes of self-employed are not included in remunerations. To what extent the growing number of self-employed affects the remuneration level of employees remains unclear.

This news from CBS about the structural decoupling between productivity growth and wage growth in The Netherlands is not surprising by itself. Yet, it is a tell-tale signal about how wage restraint and its ugly brother wage reduction, as well as the ubiquitous flexibilization of the labour market have nibbled away purchase power from the Dutch middle class and lower class workers.

In spite of their annually increasing productivity since at least 2002, the workers mostly did not received the justified remuneration for this.

As a matter of fact, for younger workers the fixed job contract has nearly been sacrificed in favour of payrolling, temporary labour contracts, temporary assignments through temp agencies, zero hour contracts and freelance contracts. These are all contracts that all offer only a little amount of security for the workers and – on top of that – make it very hard for young workers to demand higher wages, as the CBS press release already stated.

This situation is far from unique for The Netherlands; to the contrary, this phenomenon can be seen everywhere in Europe.

To these eyes, this flexibilization of the labour market and the decoupling between productivity growth and wage growth are two of the reasons that it seems impossible to bring the inflation back to the “close to, but not quite 2%” inflation as desired by the ECB. Therefore both circumstances lay considerable downward pressure on the inflation rates.

The moral side of it is that middle and lower class workers simply don’t receive enough wages and salaries for their efforts and don’t see their purchase power increase, in spite of their increased productivity.

So when there is not an inflationary trend in either the energy prices or the food prices and when the wages and net earnings do also not increase at the same time, the chances for considerable inflation are that of a snowball in hell!

This is proven once again by the latest inflation data from Eurostat. The following snippets are from the Algemeen Dagblad:

The inflation in the Eurozone was 0.2 percent year-on-year in December 2015. In November the inflation had been at the same level. The inflation is still under the desired rate of ‘close to, but not quite 2%’, which is strived for by the ECB. This was the reason that the ECB announced additional measures at the beginning of December.  

In my humble opinion, the ECB can say and do what it wants, but before the wages of lower class and middle class workers become considerably higher, the inflation will not go anywhere, as far as I’m concerned.

To prove my point, I collected the monthly inflation data (2005 – November 2015) for six countries in the old Euro-zone – France, Italy, Spain, Belgium, Germany and The Netherlands – for the categories Energy, Food and Miscellaneous (all other categories, except for Alcohol & Tobacco).

I also took the annual wage development data for these countries between 2005 and 2014 for four of the most occuring household types and made one data set from it, with the unweighted average wage development of all these household types combined.

In order to make both data ranges comparable, I interpolated the annual wage data over the months of these years and I also extrapolated the 2014 wage data upon 2015 [wage data for 2015 was not yet available – EL]. I know that all these aforementioned changes could be called ‘tweaking’, but otherwise it would be impossible to compare both data sets in an understandable way.

I created these charts, as I wanted to check my statement that the inflation for consumer goods and durable goods with high price elasticity, will be close to nought when the net earnings of households don’t increase.

The correlation between wage development
and inflation data in Belgium
Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
Belgium is one of the few countries where the indexed wages (red line) between 2005 and 2015 have actually risen considerably. Except for the categories with low price elasticity Energy and Food, there has not been a considerable inflation for the other categories. Particularly in Belgium, one can see clearly that the dropping energy prices of 2015 will have a strong downward effect on the Belgian inflation rate.

The correlation between wage development
and inflation data in France
Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
Wage development between 2005 and 2015 has been virtually non-existent in France. Also here the only really inflatory influences have been the energy and food prices between 2005 and 2015, while the price development of other consumer goods and durables has been very moderate, as I would expect.

When oil or food prices will not increase dramatically in the coming year, the odds for a 2% inflation in France seem close to nought with the development of wages there.

The correlation between wage development
and inflation data in Germany
Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
Also in Germany, the wage development has been anaemic during the last ten years, due to a policy of wage restraint and flexibilization of the labour market. Again here, energy and food have been the only real triggers for inflation, while the price development of other goods and durables has been very moderate indeed.

The correlation between wage development
and inflation data in Italy
Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge

The correlation between wage development
and inflation data in The Netherlands
Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge

The correlation between wage development
and inflation data in Spain
Chart by: Ernst's Economy for You
Data courtesy of:
Click to enlarge
In Italy, The Netherlands and Spain the same trends were visible: wage development between 2005 and 2015 being close to nought, while energy and food were nearly the only triggers for inflation. Inflation for all the other categories has developed very moderately, in correlation with the anaemic wage development.

Therefore the conclusion of this article can only be: if the ECB really wants to spur inflation in the Eurozone, it must emphasize to the European Council that the wages and remuneration of lower and middle class workers must go up considerably, with at least 3%-4% annually for a period of five to ten years. 

Otherwise, all attempts to spur inflation will be futile: quantitative easing or not!

In order to achieve this, there are two roads ahead:

  • First, companies must pay higher wages to their steady workers in the bottom half of the organization. 
  • Second, companies must stop with forcing the hourly rates and payments down for their flexible workers and freelancers. Instead, they should pay these workers a fair remuneration and they should also increase their labour security . 

When this will not happen, we will firmly remain in deflation territory, as we have been the last few years, when energy and food would have been taken out of the equation.