Did Dutch PM Mark Rutte do a good job for the domestic employment, with his two Cabinets? Eurostat unemployment data tends to state: “No, he did not!”

Lars Boelen is one of my older Twitter friends and readers. He is the personification of someone who is ‘entrepreneurial, but yet green and sustainable’, an avid blogger himself and a genuine social-democrat with, in my opinion, his heart at the right spot.

A few days ago, Lars made an outcry on Twitter that during the two Dutch Cabinets  with PM Mark Rutte at the helm, the Dutch unemployment had soared to 650,000 people.

Tweet of Lars Boelen regarding the
latest populist outburst of PM Mark Rutte of The Netherlands
Screenshots courtesy of: NOS.nl and CBS.nl
Click to enlarge

Lars did so, after PM Mark Rutte himself had uttered one of his infamous platitudes, concerning 'people, who should not immediately run for their unemployment benefit after having been fired, but instead try a little harder to get a new job’ during a speech at a congress of the VVD (Dutch liberal-conservative party). 

What Mark Rutte conveniently "forgot" to say, however, is that people are obliged to register themselves at the UWV (i.e. the institution which settles the unemployment benefits in The Netherlands) as being unemployed, within 14 days after being fired. When they fail to do so, unemployed people might forfeit their entitlement to unemployment benefits. Being a hero of liberal-conservative politicians is one thing, but having a family and no unemployment benefit after becoming unemployed, is another.

Personally, I try to halt myself from being annoyed once more by the ‘populist bleating’ of the Dutch Prime Minister and therefore ignore it most of the time. Nevertheless, the complaint that my friend Lars made about the soaring Dutch unemployment during the last five years could very well be a legitimate one.

Therefore Lars' remark was definitely worth a little bit of research; especially when I learned today that my dear, former employer ING scrapped another 400-500 steady jobs at the head office in Amsterdam: people who might have been my direct colleagues in the past. 

Of course these new unemployeds in the banking industry are not to blame on PM Mark Rutte; directly or indirectly. Nevertheless, my initial question was: did both Cabinets of Mark Rutte cause some positive change with respect to unemployment in The Netherlands? Or to the contrary: did the Dutch situation deteriorate with him at the helm?!

Secondly, I wanted to compare the situation in The Netherlands with a few other, relatively successful Euro-zone countries, in order to place PM Mark Rutte’s achievements during the last five years in a European context.

The latter is the reason that I created my charts based upon the European unemployment data of Eurostat and did not use the Dutch unemployment data, as generated by the Central Bureau of Statistics.

To start with the Dutch employment and youth unemployment itself, I created two charts based upon the (youth) unemployment development during the last 9 years.

Youth unemployment in The Netherlands from 2006 - 2015
Chart created by; Ernst's Economy
Data courtesy of: Eurostat
Click to enlarge

With respect to the youth unemployment in The Netherlands, you can at least say that the situation did not deteriorate with Mark Rutte at the helm as Prime Minister. The youth unemployment rate nowadays is exactly the same as the youth unemployment rate was 5 years ago (2010), according to the Eurostat data. However, when the same question would have been asked one year ago, Rutte’s unemployment figures would have been much poorer.

I tend to believe that rather the cautious economic growth in the European Union, as well as the European attention for this devastating phenomena, helped to diminish the Dutch youth unemployment (15 – 25 years) by 3%, than the “visionary approach” of Cabinet Mark Rutte II.

And there is something more, especially with respect to the kinds of jobs that youngsters have nowadays. Where less than 15 years ago youngsters below 30 could still quite easily acquire a job with a fixed contract, this has become virtually impossible in 2015: youngsters get jobs with temporary contracts, with zero hour contracts, through a temporary employment agency or as a freelancer, but no steady jobs with open ended contracts.  

This means that the recent improvements in youth unemployment could be over in a jiffy, when economic growth in The Netherlands starts to falter. The flexible layer of working youngsters with temporary jobs or freelance jobs can be dismissed very easily, while the older workers with fixed contracts are still much harder to fire. This means that youth unemployment will probably remain quite volatile in the coming years. That is something to keep in mind very well.  

Common unemployment in The Netherlands from 2006 - 2015
Chart created by; Ernst's Economy
Data courtesy of: Eurostat
Click to enlarge

And the area where the approach of Cabinet Mark Rutte I + II definitely did not help much yet, is the common unemployment (age category 25 – 74 years). This unemployment rate soared, with almost 2.3% extra unemployment during the five years with Rutte at the helm. 

Of course, in comparison with other countries the Dutch unemployment is still very low, but one should remember that it rose by more than 50% since Rutte’s cabinets commenced in 2010: to 6.2% in 2015 from 3.9% in 2010.

To compare the achievements of The Netherlands regarding unemployment with other countries, I acquired the unemployment data of five other, quite successful Euro-zone countries: Germany, France, Finland, Belgium and Austria.

Although all these countries endured their share of economic hardship since the economic crisis started (France(!)), they are still among the strongest economies in the Euro-zone and neither belong to the PIIGS-countries, nor to the Eastern European Euro-zone members.

Youth unemployment in six strong
Euro-zone economies from 2006 - 2015
Chart created by; Ernst's Economy
Data courtesy of: Eurostat
Click to enlarge

Among these six strong economies, The Netherlands is still firmly in the Top Three of countries with the lowest youth unemployment. Slightly to my surprise, the youth unemployment in The Netherlands is much lower than in France, but also in Belgium and Finland. I must credit Mark Rutte for that.

On the other hand: where Austria and Germany managed to respectively keep youth unemployment stable or even diminish it strongly during the last 9 years, the youth unemployment in The Netherlands climbed with a considerable 6% between mid-2008 and early 2014 and is even nowadays still 3% higher than in mid-2008, when the credit crisis started.

Common unemployment in six strong
Euro-zone economies from 2006 - 2015
Chart created by; Ernst's Economy
Data courtesy of: Eurostat
Click to enlarge

Again, The Netherlands is firmly in the Top Three, when it comes to the lowest common unemployment, lagging only to Austria and Germany. Again Belgium, Finland and France are doing much, much worse.

Nevertheless, where the unemployment situation in Germany strongly improved and where it remained stable in Austria, the situation in The Netherlands deteriorated as we saw earlier on the separate chart.

So, if you ask the question whether the policies of the Cabinets Mark Rutte I + II have been successful, regarding the diminishment of (youth) unemployment during the last five years, the answer must be a firm ‘No’.

It seems that my friend Lars was right indeed, with his angry outcry against Mark Rutte!

Volkskrant: “The state guarantees set by the government of The Netherlands for the protection of both KLM and Schiphol as its main hub, are not exactly rock-solid”. Not that we thought they would have been…

One day I'll fly away

Leave your love to yesterday

Randy Crawford – One day I’ll fly away

When the merger between the national airliners of France and The Netherlands, Air France and KLM, was communicated in 2003 and 2004, the news was brought with the usual mixture of:

• Boasting; 
• Denial of existing issues at hand;
• Remaining silent about the more practical reasons for the merger (i.e. reasons of the kind that nobody wants to hear); 
• Unfounded optimism and wishful thinking regarding the more remote future for both brands. 

The announcements in the media contained the usual expressions like: “great opportunities…, two strong brands will become one even stronger brand…, global leaders…, dramatic increase in flying destinations…, synergy… and win-win situation”. 

Well, you know the drill, don’t you?!

In 2003, it was a few years after the devastating attacks upon the Twin Towers in New York and the Pentagon in Washington. These terrible events were the direct cause for the demise of PanAmerican airlines (PanAm) and left their scratchmarks within the whole aviation industry.

In those days there was a considerable consolidation operation going on within the aviation industry. Therefore it seemed not such a bad idea, that two (formerly) strong brands with some serious issues to tackle in their daily operations, joined their forces. However, only the most naive souls will have genuinely believed that this was indeed a merger between two quite strong parties and not the ‘de facto’ take-over of KLM, that it will prove to be in the end. 

Air France, although business-wise a company that has been in trouble for already quite a long time, will prove to be the strongest and most influential partner of the two. It is the biggest partner in size, with the biggest domestic market AND it has the full force of the French government behind it.

In the beginning KLM might have been the healthier of the two companies, but in the end that just won’t count. Just like it did not count in the days of 1999 when ‘long-term problem child’ British Steel took over the Dutch ‘pearl in the shell’ Koninklijke Hoogovens – combinedly forming Corus Steel – and subsequently started to use Hoogovens’ profits to cover up the losses of BS itself.  

Although the Dutch government made some ‘brave’ attempts to a. warrant the connection between KLM and its domestic hub Schiphol for the future and b. tried to protect the Dutch jobs and economic interests offered by KLM for quite a long period of time, it seems that their attempts have not exactly been rock-solid in character.

This morning, the Dutch newspaper De Volkskrant had an excellent scoop. The journalists Wilco Dekker and Eric vanden Outenaar wrote a very interesting article regarding the flawed sturdiness of the Dutch State Guarantees on behalf of KLM and Schiphol.

And on top of that, they also presented a PDF-copy of the special clause in the 2003 contract between KLM and Air France, which dealt with the original state guarantees, as well as a 2010 prolongation contract between Dutch Transport Minister (2006-2010) and KLM executive-to-be (nudge nudge…, wink wink…) Camiel Eurlings.

Both documents were acquired by the Volkskrant using the Dutch version of the Freedom of Information Act (i.e. Wet Openbaarheid Bestuur or WOB).

Here are the pertinent snippets from the Volkskrant article:

State guarantees for Schiphol and KLM appear to be futile

The state guarantees for KLM and Schiphol appear to have been nearly futile from the very beginning in 2003, when the merger with Air France commenced. 

On top of that, the Minister of Traffic and Waterways has dropped the most concrete guarantees, when the special state guarantees clause in the merger contract was prolonged and renegotiated in 2010. 

This made it possible for the executive management of Air France-KLM to abolish KLM-flights from Schiphol or transfer these flights to French airport Charles de Gaulle.

Twitter-discussion between me and
the authors of this article in De Volkskrant
Click to enlarge

My comments: Today, I had an interesting Twitter-discussion with the authors of this article, about the statement in the red & bold text (see the aforementioned Twitter-screenshot). 

I read the sections 2.1 (iii) and 2.2(iii) of the aforementioned special clause, containing the most concrete guarantees as mentioned in the Volkskrant article, and also the rest of it, meticulously. 

With respect to these particular sections, the preface of the special clause already mentioned that the arrangements in these sections would legally mature exactly five years after the merger had been finished (i.e. in May 2009). The other sections of the special clause would come to an end exactly eight years after the merger had been finished (i.e. in May 2012).

In my personal opinion, the earlier maturity date of these fairly concrete sections 2.1 (iii) and 2.2(iii) had been a strategical mistake of Eurlings' predecessor Minister Karla Peijs of Traffic and Waterways. To this respect Minister Eurlings had done nothing ‘wrong’, regarding the aforementioned sections: they had already matured legally when he was demanded at the negotiation table by Air France-KLM, in 2010. 

Eric vanden Outenaar argued in the aforementioned tweet, however, that Eurlings should have repaired (i.e. prolonged) those already matured sections 2.1 (iii) and 2.2(iii), instead of leaving them as-is. I do sympathize with Eric and Wilco in this matter, but won’t call it a real mistake of Eurlings after all.

When KLM and Air France merged in 2003, the Dutch government demanded a guarantee package, which was meant to uphold thousands of jobs at KLM and Schiphol and maintain The Netherlands as a popular hub for airliners. Besides that, the growth of one airport (read: Charles de Gaulle) should not come at the expense of the other airport (read: Schiphol) and vice versa. 

Yet, the composition of these state guarantees, demanded by the Dutch government, was quite vage and ambiguous, as it is disclosed now in the official special clause.

Until now, both the airports are doing fine and there seems little to be wrong. As a matter of fact, Schiphol seems to be doing even better than Charles de Gaulle.

However, the signs for the cargo division of KLM have strongly deteriorated, as it was disclosed in a recently published evaluation. Almost all cargo activities of KLM-subsidiary Martinair have been cut down, with as a consequence a considerable loss of jobs. On top of that, company parts within KLM’s head office have been moved from Amstelveen to Paris.

According to aviation economists, the massive competition will force the merged airliner to reorganize its business and operate it from one single location. There is a considerable chance that KLM and Schiphol will not win this struggle against Air France / Charles de Gaulle, as France has a much larger domestic market.

By itself the guarantees have little value: they are solely a declaration of the intention to let Schiphol grow, according to various pundits that have been inquired by the Volkskrant. 

Apart from the agreement that KLM will remain an independent airliner with The Netherlands as its main hub, three guarantees have been negotiated. In the first two, Air France-KLM promises to operate from two airports and states that it tries to enable growth on both locations; however, without mentioning concrete targets.

In the third guarantee (mentioned in sections 2.1 (iii) and 2.2 (iii) – one section for cargo and one for passenger traffic), there had been some (disguised) targets – concrete destinations and a balanced development. However, these third guarantees, for passenger traffic as well as cargo traffic, have been striken out in 2010.

As I mentioned before, I have read both the special clause containing the Dutch state guarantees from 2003 and the renegotiated contract from 2010 meticulously and I advice my interested readers to do that too. 

It is vagueness and good intensions, but also escape routes, all the way, in my humble opinion. Those two challenged sections 2.1(iii) and 2.2(iii), matured in 2009, for instance also stated: 

For the avoidance of doubt, this does not prevent the Combination to take any adaptive measures in case of and for the duration of a crisis.

In other words: from the beginning the combination Air France – KLM already had the right to overrule this so-called warrant for the growth of Schiphol, in case that a crisis would occur; whatever that may be for the executives of Air France-KLM. This was definitely an escape route to avoid the Dutch state guarantee, whenever deemed necessary.

Personally, I see hardly any possibilities to "re-renegotiate" these contracts for State Secretary Wilma Mansveld of Infrastructure and Environment, who is now responsible for Schiphol. 

The current situation of Air France – KLM is simply too challenging for the French to give much leeway to the government of The Netherlands in their attempts to save either KLM or Schiphol. When deemed necessary, the French will play for keeps and abandon Schiphol if they have to.

And that puts the spotlight on a prediction which I made in an article written in June, 2013:

Air France is definitely the top dog within the merged aviation company Air France-KLM. When the going would get even tougher for Air France-KLM than it already is today, there is a considerable chance that the French / Dutch aviation company would abandon Schiphol as one of its main hubs and would exclusively operate from French airport Charles de Gaulle.

Ergo: when Air France-KLM would leave Schiphol, it would be ‘the end of the line’ for this self-acclaimed ‘mainport’.

These are the main reasons that I look at Schiphol’s expansion plans with hardly concealed mistrust.

I agree with everybody that aviation is an important economic and strategic factor for a country, for Europe and for the world in general. I don’t want to deny this fact through this article. I also don’t deny that aviation will grow further in the coming 10 - 20 years.

However, with all these plans still in the loop for new commercial airports all over Europe and for the expansion of existing airports, the people should remember that aviation is one of the least profitable businesses in the world. 

I think that it’s very good that De Volkskrant has disclosed these very vague state guarantee contracts regarding KLM and Schiphol and put a bright light upon them.

However, in future situations, when foreign parties again want to take over nationally important (stateowned) companies, we will probably see similar vague and open-ended contracts, full of escape routes for the foreign party taking over the Dutch company. 

Government parties are seldomly the smartest and toughtest guys at the negotiation table. Especially not, when everybody in the Dutch government wants to succesfully finish such a merger, in order to save the future of one of the ‘crown jewels’ of The Netherlands.

So the conclusion of all this could be: first comes the Champagne and afterwards the tears!

TAXE, the fiscal committee of the European Parliament visited The Netherlands last Friday: is the net finally closing around the empty Dutch letter-box firms?!

If one thing became clear during the last few years, it is the fact that the status of The Netherlands as tax haven is finally getting in the crosshairs of the United States and European institutions, like the European Commission and Parliament.

The Dutch government, as well as politicians in the Dutch Second Chamber of Parliament, almost frantically deny that The Netherlands IS a tax haven: the Dutch parliament even accepted a ridiculous motion, in which The Netherlands officially denies to be one. Nevertheless, the writings are on the wall.

Numerous foreign companies and private millionairs from all over the globe knew where to go to, when they wanted to forward their money at a bargain price to tax-friendly savings’ banks and other financial hotspots in the Carribbean area or elsewhere. And it weren’t the Ghostbusters...

Money, that these people and companies earned with foreign-based dividends, or with royalties, patents and other earnings, coming from foreign subsidiaries, made a U-turn through The Netherlands, only to end at a beautiful, palmtree-laden island somewhere on the globe, with more banks and companies than inhabitants… on paper. But it seems that something is finally changing in Europe…

Not that this change is grasped by The Hague yet; the Dutch politicians still assume the ostrich position (“Please move on, nothing to see here”) when it comes to the Dutch role in the ubiquitous tax avoidance (our should we call it evasion?) by large corporations, as well as rich businessmen and famous artists like U2 and the Rolling Stones.

Nevertheless, it seems that the ‘Big Four’ accountancy firms (KPMG, PWC, EY and Deloitte) finally understand that a different wind is blowing in Europe, after they have all been invited to plea for the TAXE committee on taxes of the European Parliament.

Their pleas were meant to discover/discuss the best arrangements to make the tax collection by individual countries – within the European Union and outside of it – as fair as possible, for both the corporations in question, as for the countries where the underlying yields are earnt.

The ultimate goals are: no double taxing for corporations in countries at both the emitter and the receiver side of money transfers, but also no zero taxing by both parties. And an end to the artificial, fiscal constructs that large corporations use to scoop out their taxable profits and income.

Is it a coincidence that recently a movement has started in The Netherlands, which seemingly wants to make an end to the numerous, so-called letterbox-companies in this country? Letterbox companies, which seemed only created for exactly that purpose of scooping out money from corporate profits and income? Let’s see what happens along the way.

Prisco Battes, journalist at Het Financieele Dagblad (FD) wrote an article about this new phenomenon. Here are the pertinent snips of it:

Fiscal counsels abandon the letterbox companies

Fiscal counsels increasingly question letterbox companies, which are established in The Netherlands for the single purpose of transferring corporate income from interest and royalties to tax havens.

Partners of large tax consultancy bureaus tell the FD, that they are informed by foreign customers with subsidiaries in The Netherlands, that they should be so wise to abolish these letterbox firms.

According to leaving chairman Marnix van Rij of the Dutch Order of Fiscal Counsels, The Netherlands has to guard its favorable fiscal climate for the establishment of companies and ‘it should look after not being punished for a side product of this favourable fiscal climate’.

My comment: In plain English, this opaque remarks means that ‘everybody and their sister should leave the sinking ship of the empty letterbox firms’.

The discussion about the letterbox companies is very topical, now that there is an international movement working towards the establishment of measures, which should prevent against scooping out the basis of tax assessement and avoidance of revenue taxes by international companies.

“As a guild, we went through a certain process regarding empty letterbox companies”, according to Van Rij in an interview with the FD. “We don’t close our eyes for reality and we are not in the defensive in order to keep everything as-is. Empty companies, which don’t have another purpose than transferring money flows through The Netherlands against the absolute minimum amount in taxes, are bad for the Dutch image. By maintaining this tactics, The Netherlands could be punished by both the OECD and the EU for what is mainly a fiscal side product.

Until recently, employment and tax yields were arguments to keep the ‘empty’ letterbox companies. Now, fiscal counsels of large tax consultancy firms state that these constructs are not viable anymore.

Companies must have a certain ‘substance’ in The Netherlands. Customers belonging to such companies with substance, warn The Netherlands that it puts its favourable fiscal climate under jeopardy, when it maintains its policy with respect to letterbox companies.

When even the large accountancy firms, as well as the chairman of the Dutch Order of Fiscal Counsels, think that change is necessary in The Netherlands with respect to some fiscal arrangements, you can bet that change IS indeed necessary.

And last Friday, the special TAXE committee of the European Parliament visited Dutch State Secretary Eric Wiebes of Financial (i.e. Fiscal) Affairs to ask him about the Dutch situation with respect to fiscal constructs and special tax rulings for large corporations.

Wiebes bravely stood his ground and maintained his denial of The Netherlands being a tax haven, according to De Financiële Telegraaf, while reluctantly giving a little bit more openness about the favourable fiscal rulings for large corporations in our country.

The national revenue services of The Netherlands and Germany will soon automatically exchange data, regarding tax deals with large corporations: the so-called tax rulings. Within two weeks both countries will sign a treaty to that respect, according to State Secretary Eric Wiebes of Financial Affairs.

He stated that, after being visited by a delegation of the European Parliament, which is investigating the infamous tax-rulings in a number of countries, with multinationals, like Starbucks.

Wiebes stated that The Netherlands wants to be a front-runner in Europe in the battle against tax evasion. Yet there is nothing wrong with the Dutch tax-rulings, which are according to Wiebes ‘flawless and professional’. Wiebes also wants to make an end to the existence of empty letterbox companies, which are established solely to evade taxes and don’t bring any employment in the country of their establishment.

Earlier that Friday, Wiebes stated that the tax rulings are meant to offer certainty in advance about the height of their tax assessment, but did not “hand out presents to large companies”. “The Netherlands is not a tax-haven”, according to the liberal-conservative State Secretary (VVD).

The last remark is where The Netherlands, represented by this State Secretary  differs in opinion with many, many other countries, people and institutions, who consider that The Netherlands is exactly that: a tax haven!

One thing is certain: in spite of all the bold words of Eric Wiebes and in spite of the fact that chairman Marnix van Rij of the Order of Fiscal Counsels does not want to slaughter the goose with the golden eggs, by totally abandoning the (empty) letterbox firms, it seems that these fiscal constructs have a bright future behind them.

And when the Dutch government does not voluntary abandon the most blatant fiscal presents to the likes of Starbucks, the European Parliament probably will. That is news that will undoubtedly lead to broad disappointment among the financial industry and government of Ireland, The United Kingdom, Luxemburg and The Netherlands. Nevertheless, it will also lead to sheer happiness among numerous countries all over the globe, who see their natural resources being emptied by large, multinational companies, who hardly pay one penny in taxes in exchange.

It is good news when this practice will end soon.