The European Union (1): Why is there substantial unemployment, while there are still many jobs available? A question of fancy horses and workhorses?!

Next to the free traffic of goods and services within the European Union, the free traffic of workers was the bedrock of the EU. This rule enabled workers from all countries of the EU to work in all other countries of the EU without permits, licenses and other protectionist measures. This brought enormous prosperity to the EU: people from countries with high unemployment went to the countries and cities that had work and economic growth available. They didn’t have to worry about paperwork. The workers got the jobs they wanted and the company that hired them got motivated workers for a good price. With the money that people sent home to their families, the prosperity in their home country was also soaring.

But this bedrock is currently under heavy fire, due to two reasons. There has been a substantial influx of people from the new member states of the EU (a.o. Poland, Hungary, Rumania and Bulgaria) that are looking for jobs in the older member states, like The Netherlands, Belgium, United Kingdom, Germany and France. This influx led to unrest at the native workers in low-education, hands-on jobs: “they are taking our jobs away and we will be jobless as our wages are too high, compared to theirs”

The second reason is the uprising of populism in Europe: ‘old’ politics didn’t want to address the issues concerning the growing population of generally low-educated Turkish, Algerian and Moroccan immigrants coming from poor regions, afraid as they were of being accused of discrimination. Issues like the looming segregation in the cities, the ‘black schools’, the growing influence of the Islam and the growing usage of welfare funds by these immigrants were picked up by the populist parties. Parties like `Le Front National` in France, ´Lega Nord´ in Italy and the PVV (Party for Freedom) in The Netherlands.

These parties promised the lower-educated native citizens to listen to their problems and “to fight the tsunamis of low-educated immigrants” from Turkey and Arabic countries “that are taking away our welfare euro´s”. But the struggle of the populist parties is not limited to the immigrants that came in the sixties, seventies and eighties of last century.

As these populistic parties have their reason of existence in protecting their own countries against the evil outside world in general, they are all also very much against the anonymous monster called the European Union.  The free traffic of workers, especially from the low-wage countries into the rich countries, is the devil´s breath of the monster and needs to be terminated.

Some of the “old” parties that saw their voters initially step over to the populist parties, adopted some of the statements of the populist parties: ´if you can´t beat them, join them´.

First victims of this new policy were the Polish people. Although their country became a full member of the EU, nevertheless countries like The Netherlands asked for temporary permits and even temporary bans on the Polish people. This was not literally against the European rules (only a little), but it was very much against the spirit of the EU.

All kinds of stories on `drunk Polish truckers` and ´jobs in greenhouses that were not available anymore to the native workers´ were printed in capitals in the populist newspapers. After a few years the Polish workers were fully allowed to the West-European job markets and everybody got used to it. Except for a few incidents, nobody talked about it anymore and the Polish workers became well-respected workers all over West-Europe. The populists saw a new victim in Rumanian, Albanian and Bulgarian workers (gipsys with accordions: spooky!), but had to accept them while teeth-grinding, due to EU rules.

But now the situation is different in The Netherlands: the Dutch large banks have been saved at enormous costs and the current rightwing/populist government needs €18 bln in cutbacks to cover the state budget. As the credit crisis is still on full steam and unemployment is expensive, the Dutch government thinks it is a good plan to put a ban on East-European workers in The Netherlands: especially the Rumanian and Bulgarian workers are banned.

Instead the Dutch unemployed people must do the jobs these Rumanian and Bulgarian workers can´t do anymore: harvesting crops in greenhouses and on farmland (strawberries, blackberries, grapes, asparagus, potatoes or flowers) and other heavy, labor-intensive and often dirty jobs. With the kindest regards of the Dutch government.

As inquiring minds will have guessed already: the Dutch unemployed DON´T want to do these jobs. A Dutch greenhouse farmer told on Dutch television with tears in his eyes that he got fifty forms of potential Dutch job applicants from the employment office, but NONE of them showed up for a job interview. He is now stuck in the situation that he is not allowed to hire his last-year Rumanian and Bulgarian workers and he doesn´t have enough workers to harvest his crop within two weeks. And with harvesting crops it is: do it the right way at the right time, or get burned litterally!

Even if you force unemployed people to accept these jobs, they might have a thousand ways to screw up. Squashed strawberries, broken asparagus or apples with brown spots, due to harsh handling. Every glasshouse worker can tell you that unmotivated workers are worse than useless, as they ruin their harvest and diminish their yields. You could take the welfare away from Dutch unemployed workers that won´t do these jobs, but nobody in The Netherlands will find that acceptable. It´s sad, but true.

Although the situation in other labor-intensive industries is not as bad as with the greenhouse farmers, it is also very difficult to get enough applicants for the heavy and dirty jobs that are available; even if these jobs are well-paid what they often are. And that leads to a totally ridiculous situation: substantial unemployment while there are many jobs available

Of course you could consider this a question of Dutch fancy horses against Rumanian workhorses, but if the fancy horses won´t work and you can´t get the workhorses, your company is screwed under these new rules.

This example is of course about The Netherlands, but you can have similar issues in countries like Ireland, Finland (!),Belgium and everywhere where populist parties are voting against EU rules and habits.

In my opinion it is bad to let healthy companies of hardworking people suffer from national rules with a high amount of ´wishful thinking´ in it. Let´s stop this populist nonsense and let us allow hardworking people from East-Europe to enter our countries and do the jobs our citizens won´t do anymore. It is not in the interest of our national economies to ban these people.

Getting poor from your own Residential Real Estate (RRE)? Then renting might be the name of the game. But you better watch out for the pitfalls.

The Dutch housing market is still locked up very badly. For inquiring readers of this blog this is old news, but for the people that are in desperate need of selling their former house or appartment, it is a very overwhelming problem. Some people think they have the perfect solution for it: renting their house. However, this solution has some implications that could send shockwaves through the Dutch Residential Real Estate (RRE) market in the near future.

At this moment, it is a fact that single-family dwellings in expensive cities like Amsterdam and Utrecht are extremely hard to sell. The same applies to the top class condominiums and expensive duplex and detached houses in the “Randstad” (the conurbation existing of the cities Amsterdam, The Hague, Utrecht, Rotterdam and everything between it). In general you can say: every house that exceeds a price of €350,000 is considered a sticker at this moment.

This is mainly caused by three circumstances:

• The current tight lending rules employed by the banks, that make it virtually impossible for a one-income-family to borrow more than (about) €300,000.
• The extremely high price level in the housing market, caused by the RRE bubble in The Netherlands.
• The fact that the current houseowners are up to their eyeballs in mortgage debt and have to pay this off when they want to sell their house.

People that are already living in a new house, but still couldn’t sell their former house have a big problem. They have to pay two mortgages and this eats up a large part of their income and puts them under constant pressure from their bank. On the other hand, they don’t want to drop their sales price, as this means they can’t pay off the mortgage on their former home and would stick with a residual debt. This situation led to a deadlock on the housing market.

However, today on the Dutch business news radio station BNR, there was a discussion on the ‘solution’ for this problem: instead of being sold, an expensive house is put out ‘for rent’. Specialized bureaus mediate between landlords and possible tenants for houses that can’t be sold currently. In this way such a house returns enough yield for the owner to pay off the second mortgage and escape the financial pressure. If the bank or third party that provided the mortgage agrees with the collateral being rented, this seems like a viable solution. Landlords and realtors think with this they can tide over this period of hardship on the housing market. They hope to sell the house when better times have arrived.This is the reason that the number of expensive houses and condo’s that can be rented is soaring at the moment.

On the social renting market (the affordable, often subsidized appartments and single-family dwellings) however, scarcity for starters and low income-households remains high. The current cabinet of Prime Minister Mark Rutte wants to raise under circumstances the maximum amount for “social renting sector” houses with €140 from €680 to €820. When real estate-owners and housing corporations refurbish their social renting-houses, they can raise the rent considerably for new tenants. Current tenants keep their current rental amount, except for yearly raises.

This phenomena leads to the strange situation that the renting amounts for houses in the “social renting sector” are currently rising, while the rent in the higher ranks of the “free renting sector” is falling.

This has some undesired results:

•       For starters and low income-households an owner-occupied house was already too expensive. Now the social renting sector-houses are becoming too expensive too.
•       People that could afford a bigger house, but currently have a social renting sector-house, stay where they are: moving would mean they would be confronted with much higher rents than now.
•       People that are rich enough to buy a luxury house, rent it instead:
•       It is much cheaper now to rent the house than to buy it. 
•       They can remain waiting until the housing prices fall, which they will inevitably.
•       The housing market will become even more locked-up than it is already.

And people that are renting their former house can have another big problem: the tenant protection laws in The Netherlands are still very strict and rigid. As soon as your house is rented, the tenant is protected by the tenant protection laws and can’t be easily removed if he wants to stay in this house.

This means that if the expensive house or appartment could be sold to an interested buyer in the future, the buyer has to accept that already someone is living in it. Almost no buyer wants that, as most people buy a house to live in it themselves. This means that the landlord must stick with his second house until eternity or until the day that the tenant decides he wants to move. In the process the owner of the house is involunteerly changed into a real estate magnate.


And this can create more chaos and deadlocks on the already chaotic Dutch housing market.

Saab: Saving the “Swedish Airplane company” morphs into castle in the air for Saab / Spyker senior executive Victor Müller.

Try to catch a deluge in a paper cup
There's a battle ahead 
many battles are lost
But you'll never see the end of the road
While you're traveling with me
Crowded House – Don’t dream it’s over

“Sometimes it is not so nice to be right: dreaming makes so much more fun! “

These words came into my mind during the last weeks as I read the continuing news about Saab , the eccentric car builder from Sweden that originated from an aeroplane factory:

·     Saab suffers from production stops: secondary suppliers stopped delivery of car parts until late payments were settled.

·     Saab sends workers home for a number of days

·     Spyker asks Swedish government for permission to sell real estate Saab

·     Swedish government hesitate about rescue plan Saab.

Already in my SMS from Ernst (8) from a few weeks ago I expressed my doubts about the viability of the Spyker-SAAB combination:

For the bulls in The Netherlands and abroad, the take-over of the Swedish car brand Saab by the small Dutch manufacturer of luxury sportscars Spyker was like a fairytail come true. The bearish people see it just like something that is too good to be true. 

[…] 

Victor Muller, the Dutch entrepreneur that co-founded Spyker, is a real entrepreneur in the sense that he likes to take risks and wants to achieve the impossible. Most of the time that is a true quality. 

In case of his take-over of Saab, however, you should notice three things:

-     Spyker never made a profit and never managed to reach the quality standards of real supercar brands like Ferrarri, Lamborghini or Noble.

-     Saab is already hopeless for many years. In the eighties the brand was as good as dead, before it was taken over by GM. In 1995 it made a real profit on the production and sales of cars after 7 years of losses, but since then the results are often terrible.

-     The demand for more loans (among others) from Vladimir Antonov, a Russian venture capitalist of doubtful repute, sounds a lot like throwing good money at bad money. 

It seems like the blind is leading the blind and we know where that usually ends. The net loss of €218 mln seems like a bad omen for the future of Saab.

Since I wrote this article then, the conditions for Saab deteriorated and all actions of Victor Müller, the senior-executive of the Saab-Spyker combination seem in vain to prevent the inevitable decline of the brand Saab:

·     Looking for the “don’t ask, don’t tell”-dollars of Russian tycoon Vladimir Antonov

·     Looking for other wealthy private investors: Antonov’s loan could convince them to supply a loan too

·     Trying to convince the Swedish government into releasing Saab’s commercial real estate as collateral for a sell-and-lease back construction that might supply €100 mln.

·     Trying to squeeze every Euro out of the €400 mln loan that the European Investment Bank (EIB) supplied to Saab, with the Swedish government as the guarantor.

·     Trying to smooth-talk secondary suppliers into delivering car parts for “a promise, a firm handshake and a smile”.

My predictions are:

·     In the current tempo Saab will default within 3 months, unless a miracle happens.

·     Victor Müller will even have to do his very best to stay out of trouble, as the Swedish government might want to have his head after the default of Saab

·     Spyker, the Dutch sportscar brand co-founded by Victor Müller will also cease to exist

·     The €400 mln from the EIB will be vanished to the last cent without a trace.

But what is it with factories like Saab that makes it so hard to survive in the international car business, while even more expensive premium brands like Audi, BMW and Mercedes thrive, even in these trying times.

Saabs are cars that actually have much of an aeroplane built in (like f.e. having the starting key positioned between the front seats and the true cockpit-like look and feel inside). Besides that these cars were built around the Swedish ideas of safety and comfort: excellent crumple zones and safety cage, heated front-seats and a heating system that could withstand the coldest Swedish night, a cozy compartment in warm colors and built-up using the best materials. In that way it were truly excellent cars.

In the seventies and eighties in The Netherlands, these cars very popular with pipe-smoking and beard-wearing people in free and alternative professions: notaries, medical professionals, real estate brokers and teachers. That was Saab's strength, but also its weakness:

Although Saab was considered a premium brand, it had during its lifecycle a considerable number of years without profit. The cars were too expensive or too eccentric for the mainstream car owner and the production quality has not always been without flaws. Before the mid-eighties, the brand produced only two truly new models since car production began in 1948: the 92 and the 99. All other models (900) and types were revisions of especially the 99.

When the factory developed the 9000 model in 1985, in close cooperation with the Fiat – Alfa group, the model was not special enough for the Saab-lover and still too eccentric for the normal driver. The Saab 9000 became a failure, also due to the growing pains that this new model had. In the meantime the other models 90 and 900 became so outdated that Saab didn’t have a profit anymore for seven years until it was taken over by GM.

GM renewed the brand and introduced some truly new models (9-3 and 9-5), but except for a number of dead-cat-bounces, the brand never became structurally profitable: too mainstream to be a niche brand, too niche to be a mainstream brand.

Especially during the IT-boom in the nineties and after, Saab failed to step succesfully into the lucrative car lease market, where the German, French and Japanese (premium) brands did. Result: very high lease rates and almost no drivers who wanted to pay the extra bucks.

Saab turned into a brand with a few diehard fans, until GM sold it to Spyker.

And now, in the hands of Victor Müller, the dream of reviving the brand will certainly morph into a castle in the air. That is sad, but not a reason to invest more tax euro’s in this doomed brand.