The “Mother of all Summits” (MoaS) revisited in Europe. It is 5 minutes before 12 (once again).

Tomorrow, once again a European 'Mother of all Summits' is held. As always during the last three years of European Summits, ‘it is five minutes before twelve; the stakes are extremely high, as the Euro-zone as we know it, is about to implode’, or more bombastic texts like that.

While a few leading protagonists ( Nicolas Sarkozy, Giorgios Papandreou) already have been replaced and some other leading actors might be replaced before the end of next year (Angela Merkel, Mark Rutte), the scenario for this summit remains largely the same as before: 

• The PIIGS have been and still are in deep trouble:
• Greece is almost totally down and out; 

• The same fate threatens to happen to Spain, due to a residential and commercial real estate crisis of epic proportions and the circumstance that Spanish banks (i.e. the former cajas and their successor, the new superbank Bankia) are at the brink of bankruptcy;
  
• Portugal and Ireland, as well as Italy know they could be the next countries to be at the crosshairs of the financial markets;
  
• Mariano Rajoy, the PM of Spain is busy with disclosing piece-by-piece how deep the financial rabbit hole in Spain is; a lot deeper than much analysts expected, unfortunately;
  
• While Mario Monti is developing himself as the financial conscience of Europe and Italy is actually doing very good, the interest rate of Italy is still heavily correlated with that of Spain. When the rate of Spain goes up, so does Italy's rate; 

• Germany is still holding the money and is therefore calling the shots in Europe.
  
• Chancellor Angela Merkel has her hand firmly on the emergency brake and threatens to veto every resolution that puts the bill of the sovereign debt crisis mainly in the hand of Germany;
  
• She is only willing to come to the rescue if a fiscal union will emerge and she can have influence on the future usage of European tax money;
  
• France is stuck between a rock and a hard place:
  
• President François Hollande wants room to execute his socialist agenda to keep his grassroots at home happy and is strongly in favor of Eurobonds, while being strongly opposed against Merkel’s fiscal union;
  
• Merkel is very much against the concept of Eurobonds as a blank check for countries in need and against the socialist agenda of Hollande;
  
• At the other hand: he doesn’t want to risk a war of words with Merkel, as both countries need eachother at the helm of the European Union. The pre-summit meeting of Hollande and Merkel will therefore take place in a very tense atmosphere;
  
• PM Mark Rutte of The Netherlands, the former bully of the PIIGS countries, is currently also in a difficult situation: 
  
• The Netherlands is struggling with a stalling economy and with its forecasted budget deficit of 4.5% of GDP for 2013, well above the 3% of the Stability and Growth Pact;
  
• Rutte himself is PM under resignation and must send a desirable profile to his grassroots in The Netherlands, well before the elections in September. Europe is not a popular word in such a profile, currently;
  
• Rutte is therefore very much opposed against handing over sovereignty to Brussels, not in the least because Geert Wilders (PVV) and the other party-leaders are ready to attack every weakness of Rutte, concerning Europe and the Euro-zone;
  
• On the other hand, Rutte is afraid of losing his last friends in Europe. This was the reason for the heartbreaking display of Dutch-German friendship last week when Merkel and Rutte publicly declared their love for eachother on national German and Dutch television;

• PM David Cameron of the London City, excuse me… the United Kingdom is trying to reel in as much as possible for the financial industry in the City, while being prepared to veto every financial EU regulation that narrows down the unlimited possibilities for the bankers and insurers in London;

• Cyprus is part of Greece and therefore unfortunately also part of the Greek misery. Due to its large investments in Greece and the Greek banking system, the country needs a financial rescue package of about half the Cypriotic GDP: €10 bln;

• The stance of the remaining (smaller) Euro-zone countries is not so clear:

• Belgium’s PM Di Rupo is in favor of more Europe, but ‘doesn’t want the European Commission to decide for all European citizens’;
  
• Austria, on the other hand, requires ‘a big and visible action that really solves the current issues in Europe’. In other words, Austria seems in favor of a fiscal union;
  
• Of the remaining (small) Euro-zone countries, Finland is probably against a closer cooperation within the Euro-zone, due to the influence of the populist True Finns;
  
• The stance of the other countries is unknown to me. 

Herman van Rompuy, the somewhat colorless, but brave and diplomatic Belgian President of the European Union tried to shoot a perfect pass at the forwards of the pro-European integration / pro-burden sharing team, hoping that one of them would score against Merkel.

The latter, however, won’t give in against this team, as long as Germany mainly picks up the check for rescuing the EU. Van Rompuy tried to reach his goal by stripping an earlier proposal from all the issues that were considered too controversial.

Here are the most important snips of Van Rompuy’s proposal, advocating a quick integration of the Euro-zone. The full text can be found behind the link:

TOWARDS A GENUINE ECONOMIC AND MONETARY UNION

The economic and monetary union (EMU) was established to bring prosperity and stability across Europe. It is a cornerstone of the European Union. Today the EMU is facing a fundamental challenge. It needs to be strengthened to ensure economic and social welfare. 

An effective vision has to confront the long-term challenges that the EMU faces. The euro area is diverse and policy-making at the national level is the most effective method for many economic decisions. Yet, national policies cannot be decided in isolation if their effects quickly propagate to the euro area as a whole. Therefore, such national policies must reflect fully the realities of being in a monetary union. 

Maintaining an appropriate level of competitiveness, coordination and convergence to ensure sustainable growth without large imbalances is essential. This should allow for the appropriate policy mix with the single monetary policy in pursuit of price stability. 

But to ensure stability and growth in the euro area, Member States have to act and coordinate according to common rules. There have to be ways on ensuring compliance when there are negative effects on other EMU members. This is necessary to guarantee the minimum level of convergence required for the EMU to function effectively.

Overall, closer EMU integration will require a stronger democratic basis and broad support from citizens

The report proposes a vision for a stable and prosperous EMU based on four essential building blocks:  

§ An integrated financial framework to ensure financial stability in particular in the euro area and minimise the cost of bank failures to European citizens. Such a framework elevates responsibility for supervision to the European level, and provides for common mechanisms to resolve banks and guarantee customer deposits. 

§ An integrated budgetary framework to ensure sound fiscal policy making at the national and European levels, encompassing coordination, joint decision-making, greater enforcement and commensurate steps towards common debt issuance. This framework could include also different forms of fiscal solidarity.  

§ An integrated economic policy framework which has sufficient mechanisms to ensure that national and European policies are in place that promote sustainable growth, employment and competitiveness, and are compatible with the smooth functioning of EMU. 

§ Ensuring the necessary  democratic legitimacy and accountability  of decision-making within the EMU, based on the joint exercise of sovereignty for common policies and solidarity.  

1. An integrated financial framework

The financial crisis has revealed structural shortcomings in the institutional framework for financial stability. Addressing these shortcomings is particularly important for the euro area given the deep interdependences resulting from the single currency. However, this needs to be done whilst preserving the unity and integrity of the single market in the field of financial services. Therefore, an integrated financial framework should cover all EU Member States, whilst allowing for specific differentiations between euro and non-euro area Member States on certain parts of the new framework that are preponderantly linked to the functioning of the monetary union and the stability of the euro area rather than to the single market.

Building on the single rulebook, an integrated financial framework should have two central elements: single European banking supervision and a common deposit insurance and resolution framework.

2. Towards an integrated budgetary framework 

The financial and debt crisis has underlined high levels of interdependence particularly within the euro area. The smooth functioning of the EMU requires not only the swift and vigorous implementation of the measures already agreed under the reinforced economic governance framework (notably the Stability and Growth Pact and the Treaty on Stability, Coordination and Governance), but also a qualitative move towards a fiscal union. 

In the context, within the euro area, of greater pooling of decision making on budgets commensurate with the pooling of risks, effective mechanisms to prevent and correct unsustainable fiscal policies in each Member State are essential. Towards this end, upper limits on the annual budget balance and on government debt levels of individual Member States could be agreed in common. Under these rules, the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval.

Subsequently, the euro area level would be in a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping in mind the need to ensure social fairness. 

In a medium term perspective, the issuance of common debt could be explored as an element of such a fiscal union and subject to progress on fiscal integration.

3.  Towards an integrated economic policy framework

In an economic union, national policies should be orientated towards strong and sustainable economic growth and employment while promoting social cohesion. Stronger economic integration is also needed to foster coordination and convergence in different domains of policy between euro area countries, address imbalances, and ensure the capacity to adjust to shocks and compete in a globalised world economy. This is essential for the smooth functioning of the EMU and is an essential counterpart to the financial and fiscal frameworks.

4.  Strengthening democratic legitimacy and accountability

Decisions on national budgets are at the heart of Europe's parliamentary democracies.

Moving towards more integrated fiscal and economic decision-making between countries will therefore require strong mechanisms for legitimate and accountable joint decisionmaking. Building public support for European-wide decisions with a far-reaching impact on the everyday lives of citizens is essential. 

In my opinion, this proposal of Herman van Rompuy is a very good one, that spells out exactly what needs to be done within Europe.

This is not a popular statement currently, as the look and societal mood of European citizens is currently pointed inside, away from the neighbors and other Euro-zone countries: our people at the first place! 

Europe is seen as an undemocratic, spending-happy monster that 'is only paying for bankrupt banks in corrupted countries, while using up billions and billions of North-European taxpayer's money'. People feel victimized by the Euro, the PIIGS and the credit crisis. National politicians in Northern European countries fully abuse this distrust of the European citizens, to bang the nationalistic / populistic drum and accuse Europe of everything that is wrong in the world, while promising falsely that they can solve all European problems by stepping out of the Euro-zone.

Often these are the same parties and politicians that voted in favor of the Euro-experiment in the nineties, when Europe and European integration were still hot.

Of course, I don’t blame Germany (and Merkel in particular) that it doesn’t want to pay for the crisis alone. Also, I understand Mark Rutte that he doesn’t have a brave stance on Europe in The Hague (understanding does not mean approving).

However, European citizens and politicians should understand that when the Euro-integration started in 1999, there was no way back. There was also no way back, when Greece and Spain were allowed into the Euro-zone. 

All politicians that voted against the entry of these countries into the Euro-zone have the doubtful pleasure of being right at the wrong time, when nobody listened to them.

To use the cheesiest of cheesy management statements: to get there (hence: at the other end of the European crisis tunnel), Europe needs to be together. There is simply no alternative.

Unfortunately, this is probably not what will come out of tomorrow’s summit. The chance that Van Rompuy’s proposal or a similar one will be accepted by all EU members, is very, very small. 

The dwarves in the European Union will put the giants under too much pressure to really achieve their goals, concerning more integration. This turns Europe’s Mother of all Summits probably into: ‘dead on arrival’. The final conclusion of the summit will be the same ol’ same ol’ that we are used to from the EU.

One fortunate thing is that a failure of this meeting will not bring the Euro to its knees. It has been 5 before 12 more often. In spite of all Doctor Doom’s of this world, the Euro-zone and the Euro will also survive this crisis.

On the other hand, the crisis in Europe will continue and deepen when this summit fails. This is likely to happen. So strap on your safety belts, as the ride continues…

France raises the minimum wage. Is that a total waste of money? Or does François Hollande have a point?!

If there is one thing that I struggle with, it is the average wage for labor that is paid to workers in The Netherlands.

I think that everybody should earn a decent income that someone, who is alone or with a family, can live from, without feeling like a beggar or a second-rate person. This goes for the CEO of a company, but also for the cleaning lady, the maintenance man and the nightporter. For farmers and civil servants. For the fire fighter and the garbage man.

The degree of civilization of a country can be measured by the lowest incomes and the quality of life of the people that earn such an income. You don’t want people to be too poor to live, but too rich to die.

On the other hand, every time when I go to a shop with an electric tool or household appliance that has a seemingly small malfunction, I get the message: “Sorry sir. You have to replace it. The check up would cost you more than the purchase price of a new item, due to our repairing fee”.

There goes the perfectly looking flat-iron, electric toothbrush, television set, power drill or… you name it. To the recycle bin or the scrapheap. At the end of its lifecycle, before life started even properly.

But hey… the new television set or electric toothbrush in The Netherlands costs you only a moderate amount of money. Due to the (still very) low incomes that people in the Far East and in South-Eastern Europe earn.  And to the fact that a lot of factory-owners in Far Eastern countries look the other way when the subject child labor is mentioned. The misery of their overworked and underpaid workers is our good luck.

Still, it bothers me that we have to throw away so many easy-to-repair stuff, because repairing it would be too expensive; especially due to the ubiquitous usage of micro-electronics and glued housings.

My late father-in-law, Grigoriy Ilich Furman, who I unfortunately never met, was a wizard with repairing things: radio’s, television sets and everything that became defective; you name it… he could repair it. Due to the simple and robust Soviet/Russian technology of tools, household appliances (and everything else) that lagged 20 years behind western state-of-the art technology and design. This arrears in design made Soviet/Russian-made tools / appliances not very beautiful (to be frank: quite ugly), but on the other hand very easy to repair. Due to the very low average wage in Russia, it was often worth your wile to repair that old mixer, sewing machine or Lada car, instead of purchasing a new one.

These are the reasons that I have mixed feelings on the high average incomes in the Western European countries.

Today at Twitter, there happened one of those very interesting discussions that you sometimes get after news is published in the official media and dropped into Twitter. The news in the spotlights was that the freshman President of France, François Hollande, had decided to raise the French minimum wage by a total of 2% aka €21 per month.

Here are the pertinent snips of an article in the Financial Times that covers this subject:

French government raises minimum wage

France’s socialist government announced the first real-terms increase in the minimum wage for six years on Tuesday, but limited the rise to 0.6 percentage points above inflation as it sought to balance election promises with fears of damaging employment.

It also confirmed it would introduce a 3% tax on company dividends, increase wealth and inheritance taxes and abolish a tax “shield” – or ceiling – for the wealthy in its effort to meet its targets of cutting the budget deficit to 4.5% of gross domestic product this year and 3% in 2013.

But the government also signalled a freeze over the next three years in nominal terms in a swath of public spending, saying the budget deficit effort would be balanced between tax increases and spending cuts.

Business leaders, the conservative opposition and even German government leaders have criticised early moves on the economy by president François Hollande as being contrary to reforms required to restore France’s badly diminished competitiveness and flagging growth.

But Mr Hollande has been scrupulous in meeting key election promises such as boosting the minimum wage and restoring the right for some workers to retire at the age of 60 – while pledging to hit France’s obligations on its public finances.

Michel Sapin, labour minister, said the minimum wage would rise by 2% to €9.40 an hour from July 1, of which 1.4% was accounted for by inflation. It is the first time the base wage, which affects one in six workers, has been raised above inflation since a 0.3% boost in 2006, before former president Nicolas Sarkozy in effect froze it in real terms.

Mr Sapin said there would be no further increase in January, the usual date for an annual revision.

… the CGPME, which represents small and medium-sized businesses, said it was a “political decision that will have negative economic consequences”, adding to France’s already high labour costs and threatening investment and employment.

“It is feared that this measure will translate into the destruction of tens of thousands of jobs among the least qualified,” it warned.

Then the discussion broke out between two distinguished commentators, known from the financial/economic TV-program RTLZ (www.rtlz.nl) and BNR Radio (www.bnr.nl), as well as written financial/economic media: Mathijs Bouman and Hans de Geus. Mathijs Bouman has in general a liberal/conservative, rightwing point of view (i.e. the VVD view), while Hans de Geus has in general a more leftwing, labor-ish approach.

Mathijs Bouman thought that Hollande’s action of raising the minimum wage was a stupid one that would put the French workers in an even more unfavorable situation, compared to their German counterparts. This would lead to a loss of competitiveness and jobs in France and thus to even more unemployment, as the French workers would not be able anymore to compete with their cheaper counterparts in other countries.

Hans de Geus responded with a very interesting article in the Dutch magazine De Groene Amsterdammer (link in Dutch), arguing that the minimum wage is only earnt by people in services jobs, like cleaners, hairdressers, garbage men or employees of fastfood restaurants.

Lowering the minimum wage could lead to a domestic race to the bottom, while it doesn’t supply many extra jobs in the country (do you know someone who visits a hairdresser in his neighboring country, because the hairdresser in his own town is too expensive?)

It could also lead to poor, working people that need multiple jobs to earn their family income, as one job doesn’t supply enough money to do so. In the process, people that are unemployed and live from a welfare benefit will become really, really poor.

Everybody that saw Michael Moore’s documentaries Bowling for Columbine or Fahrenheit 9/11 knows what poverty-while-having-a-job looks like.

Therefore the main question of this argument remains: is François Hollande right or wrong with raising the minimum wage? One clue can be given by the red text in the aforementioned snip: It is the first time the base wage, which affects one in six workers, has been raised above inflation since a 0.3% boost in 2006, before former president Nicolas Sarkozy in effect froze it in real terms.

If I understand this snippet right, it means that the base wage didn’t rise at all since 2007 until this year, not even by the inflation amount. This means effectively lowering the minimal wage rate.

If Mathijs Bouman is right, this 5-year period of wage restraint should have given a boost to French unemployment: if increasing the minimum wage amount leads to less jobs, than decreasing the minimum wage amount should lead to more jobs. That is logical, isn’t it?!

Fortunately, it is quite easy to obtain the French unemployment statistics from Eurostat (ec.europa.eu/eurostat) over the last five years.

French unemployment from 2001-2012
Data courtesy of: ec.europa.eu/eurostat
Click to enlarge

To be fair: there has been a drop in unemployment in France, since the period of wage restraint started in January, 2007. However, was that drop in unemployment due to the wage restraint? Or was it because the French economy was at the peak of a period of conspicuous and hedonistic consumption (just like many other economies in the world) and France had a new, fresh and bold president Nicolas Sarkozy?! Who can tell?!

The effect of wage restraint becomes stronger, the longer it lasts. Still, the party in France was over in May, 2008. After that time the French unemployment started to rise like a rocket before the credit crisis really lifted off in Europe, only to end at the level of 10.4%, unprecedented in the zeroes in spite of the wage restraint.

That the effect of wage restraint has (at best) been very small is proved by comparing the French unemployment figures with the Dutch unemployment figures over the same period. As you might know, the Dutch didn’t have wage restraint in those days

French and Dutch unemployment, compared from 2001-2012
Data courtesy of: ec.europa.eu/eurostat
Click to enlarge

The improvement in employment in the period before May, 2008 is just as strong in The Netherlands as in France. You could conclude here that wage restraint for the minimal wages didn’t help the economy very much in France. And after May, 2008 the unemployment in France rose much faster than in The Netherlands (mind here that the chart has two vertical axes. In reality the Dutch unemployment is much lower than the French, but I put them together at the same scale for purposes of comparison).

So there might be an amount of truth in the story that wage restraint among minimum wages helps to reduce unemployment, but the French case proves that the positive effect was moderate(at best) and lasted only for a very short period of time.

In case of the German situation with an overall wage restraint, the effect might have been bigger. The cost price of produced goods becomes lower and thus the sales price too. However, also in this situation wage restraint had a lot of negative side-effects: not only for the German workers and civil servants that became effectively poorer as a consequence of inflation, but also for the other Euro-zone countries that see their competitive position deteriorate as a consequence of this ‘beggar thy neighbor’ tactics. 


Besides that, wage restraint hits often especially the people with the lowest wages, as their job doesn't require much training at first glance and there are enough people to take it over. That is why these are the first people to accept wage restraint: 'for you there are ten others, if you don't accept reduced payment'.

Besides that, the success of the German factories and worldfamous brands can not so much be owed to their cost and sales price, but to their superior  quality in almost any kind of manufacturing. If only cost and sales price would matter, everybody would drive a Landwind car, instead of a European, Korean or Japanese car. Fortunately, almost nobody doesn’t... and for a very good reason.

This example discloses that there is one much more important factor for employment and general prosperity in a country: education and training on the job. With this I do not only mean education at university or college-level, but also good technical education at a lower level; education where people learn technical engineering, welding, metal and wood working, carpentry, plumbing, concrete handling and bar bending, electrotechnique and miscellaneous technical jobs. These are all jobs that people with an university level often treat with disregard, but that are indispensable for a modern industrial country: a country like Germany or France for instance.

Therefore my conclusions can only be that Hollande is right by handing out the poorest workers their long overlooked minimum wage increase (since 2007) and that the Small and Medium Enterprise representatives, in my very humble opinion, should not whine about a lousy € 252 wage increase per year, inclusive 1.4% inflation compensation.

However, what could make François Hollande’s presidency even more convincing, is when he makes the French economy more competitive: not by leading the race to the bottom in wage costs, but by:

• improving French education at the highest and especially the lower levels; 
• by getting rid of useless government regulation and (semi-)local government layers that add nothing to the French society, but cost billions of euro’s;
• by getting rid of the dozens of often inefficiently operated, stateowned companies; 

That would be great when Hollande could achieve this, although it is probably not what chancellor Angela Merkel of Germany wants to hear.

Economy in the mud: Overview of the Dutch economy, based on CBS statistical data

Yesterday, I stated that PM Mark Rutte of The Netherlands drove the Dutch economy further in the mud with his indecisiveness and lack of bravery concerning domestic and European issues. Today, I want to show how deep the mud is, based on the latest statistical data from the Dutch Central Bureau of Statistics (www.cbs.nl).

To be frank: it would be ridiculous to compare the current Dutch problem with the problems in the PIIGS countries and especially Greece and Spain, as these are uncomparable quantities. The Netherlands still has an economy in a relatively luxury position, that's true. However, the velocity of the deterioration process in Dutch economy is worrisome and could eventually bring the economy in the trouble-zone, if no sound government policy is deployed.

It would also be unfair to blame the currently troubled state of the Dutch economy fully on the current cabinet of PM Rutte. The European sovereign debt crisis of 2011, culminating in the current Euro crisis helped in this proces.  On the other hand, if one person – next to German chancellor – was responsible for the fact that the European Union took only halfhearted measures last year and thus aggravated the crisis to the current level of total uncertainty, it would be Rutte.

Anyway, there are some substantial differences between The Netherlands in June 2010 and June 2012 and it can for a large part be blamed on the current government.

Where the economy in June 2010 still was in a phase of building-up, the economy in June 2012 is clearly on the way down, with no relief in sight. All key figures seem to be deteriorating. I collected some key figures from the Dutch CBS to illustrate my case:

Unemployment per age category June 2010 - June 2012
Source: www.cbs.nl
Click to enlarge

Consumer confidence June 2010 - June 2012
Source: www.cbs.nl
Click to enlarge

Indexed consumption June 2010 - June 2012
Source: www.cbs.nl
Click to enlarge

Housing prices June 2010 - June 2012
Source: www.cbs.nl
Click to enlarge

Producer confidence June 2010 - June 2012
Source: www.cbs.nl
Click to enlarge

Concerning the housing prices I have often stated that the housing prices were still to high, compared to other countries. I am still firmly behind that, although I have stated that the housing prices were not too high in 2012, if you take the current, very low interest rate and the leverage of the MID into consideration. 

In the same article, however, I stated that the current negative mood will bring the housing prices further down, as people don't have the lust to invest in a new house yet and wait for the housing prices to further drop. 

Therefore it is a good development in itself that the housing prices are still dropping to more affordable levels. 

What the current government could have done, however, is getting rid of this darn MID (Mortgage Interest Deductability) with a transitional arrangement for a limited period (5 years), as this would have given clarity about the housing market and would have given all houseowners a clear future. The government failed to do so.

I can only hope that the new elections in September, 2012 will bring a new and stable government: one that fully supports the European Union and the Euro, or does even the total opposite. Both directions concerning the EU would have given total clarity to the Dutch citizens about the political direction of their country(although I would consider the latter to be a tragic mistake). Now this clarity is still missing; instead every political party brings their soundbites in the media, mostly blaming Europe for everything that is wrong in the world.

The Dutch citizens need clarity:

• about their future;
• about the future of the European Union and the Dutch commitment towards it;
• about the Euro;
• about their economy;
• about the Dutch housing market;
• about their income and taxes in the coming years;
• about their healthcare and the consequences of the aging process in The Netherlands.

This was the kind of clarity that the current cabinet of PM Mark Rutte didn’t want to give during its (continuing) stint. And that's a real shame.

The dogs bark, but the caravan moves on. Or, how PM Mark Rutte of The Netherlands puts himself offside in Europe, while driving the Dutch economy slowly into the mud

Here in D.C. - they talk about ’euro-disease’

And how the French are always so damn hard to please

Options are passed in Brussels, but no one agrees

And no one walks tall - but no-one gets down on their knees

40 years ago – Joe Jackson

These are lonely days for Prime Minister Mark Rutte from The Netherlands, as he turned from the most outspoken interpreter of the North-European ‘vox populi’ against the PIIGS into a Don Quixote, fighting the European windmills.

The Netherlands initially seemed one of the winners of the European credit crisis: the unemployment had only risen by a tiny amount in 2008/2009 and the exports within the European Union had recovered quickly after the credit crisis.  Rutte was firmly in the team of German chancellor Angela Merkel for the greater part of 2011, defending the line of pro-budget discipline, pro-austerity and anti-economic stimulus and blaming the countries (i.e. the PIIGS) who spent too much money in the past or had difficulties with balancing their state budgets. The Netherlands was also among the countries with the lowest unemployment in Europe. Summarized, The Netherlands seemed the Golden Boy of Europe.

However, since June 2011, The Netherlands had to deal with an enormous reversal of fortune.

The Netherlands, behind Luxembourg the biggest exporter of goods in Europe per head of the population, is specialized in agricultural produce and intra-European transport & redistribution of imported goods from outside the EU. This massive export worked like a cloaking device that covered up the view on the struggling Dutch economy; when the sovereign debt crisis wouldn’t have broken out, nobody would have noticed its imbalances. However, the sovereign debt crisis did break out in 2010, dimishing the export of Dutch goods and thus fully exposing the weakness of the Dutch domestic economy.

The very low interest rates since 2000, further leveraged by the Mortgage Interest Deductability (MID), had led to extremely high housing prices and – as a consequence –

enormous mortgage amounts. These mortgage amounts had a restraining effect on the consumption of the Dutch citizens, as a large and increasing share of the salary had to be reserved for mortgage payments, while the high housing prices made it virtually impossible for starters to purchase a house, forcing them to stay in their relatively expensive rental homes.

When in 2007 the interest rate rose sharply for a number of months, the Dutch decided that ‘enough was enough’ for rising housing prices.

This decision led to a steady drop in housing sales from that moment on and a slowly, but surely deflating housing bubble. This effect was reinforced when the credit crisis broke out in 2008 and changed the banks from ignorant, risk-hungry daredevils into risk-averse and anxious scaredy-cats that refused almost any loan to companies and private citizens. This situation lasted until today.

While the Dutch people in 2011 waited for a firm and clear government decision on the future of the housing market, the hesitating response of PM Mark Rutte and Dutch Finance Minister Jan Kees de Jager to the housing crisis was: ‘We are not going to do anything about the Mortgage Interest Deductability. Really! It is a taboo!’. The people considered this to be an implausible policy as they reckoned that the worst had yet to come for the sovereign debt crisis and the Dutch housing market. This led to countrywide frugality, strongly diminished purchases of expensive household appliances , luxury consumption goods and cars and a general hoarding of cash, in order to be able to partially pay back the mortgage when the MID would disappear after all.

While the Dutch Residential Real Estate market (RRE) had turned into a deflating bubble since 2007, the same happened with the Commercial Real Estate (CRE) market.

During the last decade before 2007 the CRE market had been an enormous  driver for jobs in the Building and Construction industry. Communities, project developers and large building companies had started a building frenzy where every free square acre around cities and villages had turned into building ground for industrial and commercial zones. A self-respecting town during the nineties and zeroes could not exist without its own commercial zone. All these building activities started a fierce competition between cities to get small and (especially) large companies within their city limits. These were lured with tax discounts, favorable terms and establishment subsidies.

The B&C industry thrived from this building frenzy and had a ball in those years. In 2007 the party was over: office buildings became vacant. At first seemingly for a short period, but soon this vacancy became structural. Although official figures speak of 14% structural vacancy, 17% is probably a more realistic figure and 25% is in sight within a few years.

When exports diminished and the deflation of the CRE/RRE bubble started to gain momentum in 2011, this had an immediate effect on employment. In 2009, the amount of economic contraction resulting from the credit crisis should have led to 4% loss of employment in The Netherlands. This didn’t happen, as it was postponed by the Parttime Unemployment Benefit arrangement of the Dutch government and by the general reluctancy of companies to fire personnel they thought they might need again in a few years.

In 2011, most companies had a few difficult years behind them that cost them a substantial part of their financial reserves. When the Dutch economy entered into the infamous double dip, the companies decided to fire their excess personnel after all. As there is still of lot of excess capacity in The Netherlands and there is no signal whatsoever that the economy will improve soon, the soaring unemployment will go on well into 2013, is my opinion.

Another factor was that the Dutch and Germans turned more and more hostile against the poorer members of the Euro-zone, i.e. the PIIGS. Instead of looking at these countries as ‘brothers that temporarily went through a rough time as a result of mistakes made in the past, but that needed help at this very moment’, Merkel and especially the dynamic duo PM Rutte and Finance Minister De Jager looked at them like a bunch of parasites that could be bullied at every occasion. While some of the complaints about the peripheral countries were not necessarily wrong by themselves, it was becoming more and more a useless waste of breath to make these points on clientelism, tax evasion, corruption, poor budgetting, waste of government money, outdated labor regulations and the poor competitiveness in the PIIGS economies over and over again.

If you are driving towards an abyss, it is useless to complain about the poor steering of the driver. You better try to get hold of the steering wheel or eventually jump out of the car and start the blame game after you saved your own bacon and that of your co-drivers.

In 2011, this valuable lesson had not been learnt yet. The European governments failed to take decisive action against the spreading sovereign debt crisis and instead, decided to kick the PIIGS-can further down the road again and again. They did so by taking half-hearted measures against the contamination in the peripheral zone and by handing out just enough money for these countries to stay afloat, but not a penny more.

While the peripheral countries, the IMF, the US and the financial markets urged the need for decisive measures, Germany, Finland and The Netherlands banged the drum for budget balancing and relentless austerity measures, while categorically refusing to do something about the ailing economies of the southern European countries. The increasing popularity and influence of the populist parties in The Netherlands, Germany and Finland helped this destructive behavior that led to a contraction of all peripheral economies, with Greece as the absolute negative outlier with an economic growth of about -5% in 2011.

Then there is also the case of Mark Rutte’s schizophrenia: in Brussels, Prime Minister Mark Rutte has been moving cautiously towards stronger European Union bonds, while in The Hague political leader of the VVD Mark Rutte categorically denies that one inch of sovereignty is offered towards Europe. Europe is the boogeyman for Dutch politicians at the outer ends of the political spectrum and it happens to be that these outer ends are currently very popular with the Dutch voters. So Europe has also turned into the boogeyman for party leader Mark Rutte.

In March, 2012 the Dutch government got their first shock when the Dutch Central Planning Bureau (www.cpb.nl) calculated that The Netherlands would have a budget deficit of 4.5% in 2013, well above the 3% threshold of the Stability and Growth Pact (SGP). As The Netherlands had been the main bully for the PIIGS countries in 2011, the Dutch government had to deploy an additional package of at least €10-15 bln in austerity measures in order to bring back the excess budget deficit, if it didn’t want to lose face in Europe. It didn’t matter whether these austerity measures helped the Dutch economy or not. Just do it… was the message. Austerity had been the recipe of choice and Rutte’s mantra for the PIIGS, so austerity should also be recipe and the mantra for The Netherlands.

The second shock came when the socialist François Hollande was elected as président of France in May, 2012. This was the absolute nightmare scenario for Mark Rutte, who saw his political ally Nicolas Sarkozy disappear, in favor of somebody who shouted terrible things about Eurobonds, a lower retirement age and loads of stimulus for the ailing economies in Europe, including the French.

The third shock came when another political soulmate of Rutte, Angela Merkel, gave up her longterm resistance against a more unified European Union, by holding the possibility of a bank union and even a political union explicitely open, as a tell-tale favor to her important partner in the Elysee, François Hollande, with whom the new Paris-Berlin axis has to be established. Although the Eurobonds still seem one bridge too far for Merkel, it becomes clear that Hollande has smelt blood and will try to reel in additional measures to improve the economies in Europe.

This cautious change of policy in Berlin alienated Rutte, who is now turning into the Don Quixote of Europe: fighting his fights against the windmills (economic stimulus, Eurobonds, the EFSF/ESM complex, the banking union), but knowing that he is on his own, as he lost all his political friends in his European battles.

The outragious televised display of friendship between Chancellor Merkel and PM Rutte of last week – “I love you, Mark. I love you too, Angela” – could not even fool the stupidest television viewer into believing that everything is hunkydory between Rutte and Merkel. If everything IS hunkydory, it ought not to be televised, as everybody already knows it.

In the meantime, the problems in The Netherlands are gaining momentum under the lack of leadership of Mark Rutte:

• Unemployment will probably reach the 8% that I already predicted in my Outlook for 2012 of December, 2011.
• The intra-European exports, traditionally the motor of The Netherlands, will remain lagging for a number of years; at least as long as the situation in the PIIGS and in France remains difficult.
• The domestic consumption and consumer confidence, further negatively influenced by the additional austerity measures of this government, will remain at the lowest level in years for a long period of time.
• Economic growth will be a mirage until at least 2014, is my expectance.
• The Building and Construction industry will have to go through a fierce restructuring operation as the overcapacity is dramatically at the moment, while the government will not be prepared and ready for this. This will cost thousands of (independent) workers their job and will further spur unemployment.
• The deflation of the CRE and RRE bubbles will have increasingly nasty side-effects and again the Dutch government will not be prepared.
• The Dutch banks will have to write off substantially on their CRE/RRE assets in The Netherlands and abroad, forced by the increasingly unfavorable market circumstances. This might lead to a new banking crisis in The Netherlands.
• Europe will – without any doubt – move more into the direction of Hollande’s economic policy, as it has been proven beyond reasonable doubt that extending Germany’s policy of forced austerity and supplying only the absolute minimum in aid to the PIIGS countries, has made the situation in Europe rather worse than better.
• Rutte will become the court jester of the European Union: annoying, but increasingly irrelevant with his resistance against a more unified European Union.

The dog Rutte might bark, but the European caravan moves on.

Ernst's Economy In-depth analysis: Will the elections in France and Greece strike a fatal blow to the Euro-zone?!

The following article was meant to be published by the Singapore-based business magazine 'World Business Magazine' in their August issue. Due to an unfortunate financial dispute, the article has been withdrawn for publication by me. I publish it therefore on Ernst's Economy for You for the benefit of my readers.The article is one month old and may contain facts that have become outdated today.

I want to emphasize that I still fully endorse the contents and editorial quality of World Business Magazine. Therefore I strongly advise interested readers in the Singapore region to grab one of the earlier issues, wherein my previous articles have been published.

Nightmare scenario in France and Greece

Sunday May 6, 2012 was a memorable day in the history of the European Union, that sent shockwaves through the Euro-zone and the financial markets.

In France, the relatively unexperienced socialist François Hollande overcame in two rounds the current, conservative president Nicolas Sarkozy. With a narrow, but decisive margin of 51.7% against 48.3%, Hollande became the next president of France. The defeated former president Sarkozy generously admitted his loss that same Sunday evening.

At the same time in Greece, the legislative elections turned into a disaster for the current government coalition, led by Prime Minister Lukas Papademos. This Sunday the leading coalition parties PASOK and New Democracy lost about half of their voters, to end with only 33% of the votes; nowhere near the majority required to form a new government.

Both the election of Hollande and the new Greek parliament can be considered as a powerful statement that the French and Greek people have had it with the current pro-austerity policy of the European Union. This signal was immediately picked up by the stockmarkets worldwide, that subsequently went through a number of days with serious losses, especially among the financials.

How did Hollande defeat Sarkozy? 

The question how François Hollande defeated sitting president Nicolas Sarkozy is not so easy to answer. Hollande after all didn’t win with a landslide victory and during the first round of the elections, both candidates lost lots of votes to extremist-rightwing candidate and ‘daughter of’ Marine le Pen.

It might be save to state that the eventual victory of Hollande is as much influenced by the past political choices of Sarkozy, as by the personality of both candidates.

In the first place, Sarkozy was a truly conservative president: tough on crime, strongly in favor of private wealth and against a large social security system protecting the poor and disabled. He was a friend towards the people with the highest incomes, while at the same time showing little compassion for the (often colored,) unemployed and undereducated youth in the ‘banlieus’ (the poor areas of the large French cities) and the French low-income factory-workers.  

Hollande promises to be more a president for all the French; a president in favor of an elaborate social security network and good medical facilities, who wants to help young students and unemployed workers by letting older workers retire earlier, instead of later.

According to Bryan Walsh in his Times article ‘Kiss austerity goodbye’, Sarkozy ‘polarized France during his five years in the Elysée Palace’. This would not have been a big problem for his re-elections, when France – just like the rest of the world – had not entered into the worst financial crisis since 1929. After the crisis started, Sarkozy decided to follow the EU policy of saving the troubled, large French banks by investing numerous billions of Euro’s in taxpayer’s money to keep them afloat. This turned the banking crisis into a direct risk for the financial stability of France.

At the same time, the general reluctancy of banks to lend money to small and medium enterprises and private persons caused a deep recession that brought many French companies in trouble and spurred the already high unemployment in France. The French voters were alienated by the fact that the ‘fat cat’ bankers seemed to escape their fate here, while the average ‘Jean-Claude’ in the street had to pay dearly for the events at the financial markets in 2008 and 2009.

Another cause for irritation at the French voters was the almost symbiotic cooperation of Sarkozy with German chancellor Angela Merkel, that delivered the couple the nickname ‘Merkozy’. While Sarkozy and Merkel had little chemistry from a personal point of view, Sarkozy understood that he had few other choices then to follow the German leadership during the crisis.

The reason that this cooperation caused so much irritation among the French, was because Sarkozy followed Merkel’s lead in almost all decisions and didn’t offer enough resistance to her. The French disliked Merkel’s policy of forced austerity without any form of econonomic rebuilding. They also disliked the strictly monetary approach of the ECB towards the sovereign crisis in Europe. While the French and the other South-European countries had been more in favor of using the European Central Bank (ECB) as a political instrument with an active role in spurring the economy, this intention crashed and burned against ‘the Berlin wall’, Angela Merkel. Sarkozy and the whole EU seemed to be on a leash with her. This annoyed the vigorous French.

Another reason that Sarkozy lost the elections might be that the French were just fed up with the personality of their president, who resembled in behavior the 17th century ‘Sun King’, Louis XIV. Again Bryan Walsh in his Time article: He [Hollande] isn't Sarkozy, the temperamental conservative with the supermodel wife and ostentatious taste for wealth […] who famously vacationed after his 2007 win on the yacht of a billionaire friend in the Mediterranean.

François Hollande doesn’t look and act flamboyant, but rather like a friendly, intelligent and very competent civil servant. He has not much charisma, but seems to bind people together, instead of alienating them by his words and behavior. Looking at the French elections, you could say that they were as much a vote against Sarkozy, as a vote in favor of François Hollande.

Impact of François Hollande’s election on France 

François Hollande started his presidential campaign in January 2012 with a programme that has been described by the British newspaper The Telegraph as: ‘Farewell to austerity’.

The pivotal points in his campaign were:

• A more important role for the ECB in solving the European debt crisis;
• The introduction of Euro-bonds as a new financial backstop for the union as a whole;
• Abandoning the 3% budget deficit threshold of the European Stability and Growth Pact (SGP);
• Deploying possibilities for elderly workers to voluntary step aside in favor of younger workers. This means in fact: lowering the retirement age for workers that want to retire voluntarily;
• The creation of 60,000 jobs in education, in order to reduce the large number of drop-outs;
• Reducing the general number of 10% average unemployment in France, by using fiscal and economic stimulus. 

These are very bold statements from a socialist point of view that create large expectations among the French voters. There is of course a big risk in it; when Hollande must abolish too many of his promises during the domestic and European political process, he might lose his credibility towards his grassroots.

Especially the first two bullets of his programme will fall on deaf ears in Germany, being a nightmare scenario for Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble. The general expectation is that Merkel will not give in to the demands of Hollande in these matters.

The fourth bullet will also be hard to achieve in reality. All over Europe, countries and governments are elevating their retirement age in order to fight the consequences of the ageing population and the rising mortality age among the elderly, thus keeping pensions, healthcare and social security affordable. When the French government would lower its retirement age in order to help the younger unemployed, this would be received as an odd signal by the other European leaders. Therefore it is my expectation that Hollande will be forced to drop this plan too.

The other three bullets could be achieved when Hollande shows good steermanship in France and in the European Union.

However, the true problem with all of Hollande’s plans is that they won’t help the ailing French economy a lot and might bring little extra employment, where this is needed so much.  The reason is that Hollande doesn’t seem to address the main problems of the French economy:

• the many, often struggling, stateowned companies that are not very efficient and competitive, when compared to their German, American and Japanese counterparts;
• the rigid labor market with its outdated laws, rules and organization;
• the excessively strong position of the French labor unions who prevent necessary changes in the labor market from happening;

Besides that, these plans all cost considerable amounts of money; money that Hollande probably doesn’t have currently.

Therefore Hollande might have a hard time, as the first socialist president since 1995, when François Mitterand left the Elysée. Although Hollande will definitely receive the benefit of the doubt after the difficult years of ‘sun king’ Sarkozy, his star might not shine so brightly anymore when he encounters too many disappointments in this highly demanding economic situation.

Impact on the EU 

In one thing François Hollande is probably right: his attack of the rigid 3% budget deficit threshold, that is prescribed by the European Stability and Growth Pact, seems to hit bullseye in Europe. The results of four years European austerity policy, since the crisis started in 2008, have been generally disappointing and the economic situation in the whole European Union is currently deteriorating rapidly.

Everywhere in Europe the consumers are waving the white flag and unemployment is climbing to record-levels. Many youngsters feel deprived from their hope for a better future, as youth unemployment in the south of Europe is ranging from 20% - 53% and none of the government leaders seemed to care about it. This might change with Hollande as French president.

During the two weeks after the French elections, a wind of change was blowing through the European Union. Suddenly not all talks were about austerity anymore; instead, there seemed to be room for an agenda of economic growth to help the lagging European economies, like Spain, Italy and France.

Merkel and Hollande seem natural adversaries due  to their different political background, but looks could be deceiving. First, they are as much sentenced to one another as Merkel and Sarkozy were. Both are very well aware of this: Hollande’s maiden voyage as president had as destination Berlin.

Secondly, Hollande might even have one big advantage upon Sarkozy; it was an open secret that the chemistry between Sarkozy and Merkel was virtually non-existent at the beginning of Sarkozy’s presidency.  The flamboyant streetfighter Sarkozy with his supermodel wife Carla Bruni often annoyed the down-to-earth, deliberate and somewhat dull chancellor Angela Merkel. The renowned ‘Merkozy’ symbiosis since 2010 was rather a marriage out of necessity than one out of love. Sarkozy was simply too dependent on Germany to set his own course for France in Europe and Germany needed the political firepower of France to force its will on the other Euro-zone countries.

Hollande and Merkel seem to have much more in common, in spite of their political differences. François Hollande is a friendly, compassionate and somewhat uncharismatic, but seemingly competent leader; just like Angela Merkel. Both probably don’t feel the need to sling soundbites in the air before hundreds of reporters, but rather fulfill a background role. Therefore my expectation is that Merkel and Hollande will soon find a common ground to operate from, again strengthening the axis Paris – Berlin.

While it seems that the political differences between France and Germany are large, it might be not so bad after all. Hollande understands very well that some of the promises he made to the French voters, are in their current form unacceptable to Merkel.

Both leaders will find a compromise on the role of the ECB as economic pacesetter; it will probably have more room for monetary easing than in the times of Jean-Claude Trichet, but not as much room as the Federal Reserve currently has in the US.

Considering the Euro-bonds, both parties will probably find a kind of intermediate EU-bond that could help to spur the South-European economies, but will not fully depend on the Germany willingness and ability to keep the whole European economy afloat.

It cannot be predicted how the financial markets will react to the influence of Hollande on European decision-making. A peculiar phenomena is that the financial markets often applaude European austerity measures, while at the same time cheering for American quantitative easing programmes. In case you applaude both solutions, you are at least wrong once. However, if the chemistry between Hollande and Merkel will indeed be good, this will improve the process of European decision-making that suffered from the cool relations between Sarkozy and Merkel. The financial markets will note this as a positive factor.

The ‘Merkellande’ cooperation will have to proof itself in the very demanding coming months, as tough political decisions seem to ly ahead for the European Union. The best thing that Europe can do now is chosing one direction decisively. When the uncertainty gets out of the financial markets, the spreads on interest rates will diminish for all Euro-zone countries. Partially abandoning the austerity programme in favor of intelligent economic stimulus might be a viable solution for the Euro-zone as a whole.

Greek elections overview 

The results of the Greek elections on May 6 came hardly as a surprise: the Greek citizens were outraged about the relentless and humiliating austerity measures that were deployed on Greece by the so-called troika, consisting of the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB). Many of them decided to give their vote to the neofascist party Golden Dawn and the extremist-leftwing party Syriza, in what may be considered a protest vote against austerity. The political landscape in Greece that emerged from these elections made it impossible to form a viable government. That is the reason that the date for new elections has been set already.

The socialist PASOK and conservative New Democracy formed with the rightwing-nationalistic LAOS a transitional government, after PM Giorgios Papandreou retired in November, 2011. Papademos, a former counsel to Papandreou, was a well-respected economist and former vice-president of the ECB. He seemed the ideal person to guide Greece through the difficult financial and economic reforms, as his reputation was not stained by scandals or dirty hands that he had to make in the past. His main assignment was to make clear to the Greek population that the harsh austerity measures were a necessary evil, in order to secure Greece’s position in the Euro-zone. He seemingly failed at this task, as the Greeks decided to send his government home.

 Will Greece default from the EU now? 

Many analysts agreed that the outcome of the Greek elections brought the country at least one step closer to an exit from the Euro-zone. The left-wing Syriza party, led by Alexis Tsipras, stated that it didn’t feel bound to the austerity deal that had been posted by the troika and didn’t want to confirm to it. This statement provoked an enraged reaction from Antonis Samaras, the leader of the conservative New Democracy party: “This party asked me to sign for the destruction of Greece. I refuse that”.

The northern Euro-zone countries were already alienated by the reckless Greek spending behavior in the past and the blatant lies in Greece’s Eurostat statistics, painting a much too optimistic financial situation, compared to reality. These countries all approved with heavy toothgrinding the rescue plans for Greece.

Now these countries are getting fed up by the current political flip-flopping of Greece: one day Greece pleas in favor of the strict austerity measures and promises to keep every one of those; the next day, it doesn’t. Empty promises mean empty hands and the Euro-zone’s worst fear is that Greece leaves it empty-handed after investing billions of Euro’s in rescue-packages.

Logically, the European Union shows little understanding for the economic difficulties and financial hardship that Greece is experiencing currently. To put it straightly: Greece should shut up and follow the posted austerity measures to the last syllable. No more discussions. The EU respects the democratic desires of the Greek population, but doesn’t want to renegotiate any subject anymore. If Greece can’t create a government that delivers, it should leave the Euro-zone.

The reason for this firm stance of the EU is that a Greek exit from the Euro-zone is now considered a manageable problem. It hurts badly from a financial point-of-view, but it won’t bring the Euro-zone to its knees, like it would have back in 2010. The ECB and the European emergency funds EFSF (European Financial Stability Facility) and ESM (European Stability Mechanism) have brought the financial backstops that were necessary to contain the Greek situation. Although the EU officials and political leaders from the leading Euro-zone countries officially denied that they aim towards a Greek exit strategy, the signs and hidden messages in the official statements can hardly be misunderstood. This explained the very tense situation on the financial markets during these early weeks of May.

Whatever happens, a EU policy change towards more economic growth that might have been ignited by François Hollande, will probably come too late for Greece. This country seems destined to leave the Euro-zone and subsequently  turn into a third-world country within Europe. The distrust between Greece and the other Euro-zone countries is simply too big to heal in the coming years.

Although many European leaders consider a Greek exit not to be fatal to the European Union, this opinion is not shared by all economic analysts. Especially renowned analysts like Paul Krugman and ‘Doctor Doom’ Nouriel Roubini are very pessimistic on the future of the Euro-zone. The former stated recently in a New York Times article:   Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years. And the costs — both economic and, arguably even more important, political — could be huge.

So while I don’t expect the election of François Hollande  to strike a fatal blow towards the Euro-zone, it still might be that a Greek exit from the Euro-zone is. That isn’t a very promising prospect.


Epilogue June 19, 2012:
In the meantime the second round of the Greek legislative elections have been held. These elections delivered a workable majority for the parties Pasok and New Democracy. Although this seems good news for Greece, it brought little relief at the financial markets. 


There are four good reasons for this disappointing reaction:

• The situation in Spain is still considered to be too serious for relief. Interest has been soaring above 7% today and everybody is expecting the European Central Bank to step in to prevent from further damage;
• The winner of last weekend's election, Antonis Samaras' New Democracy, is considered to be the bad genius behind the massive fraud with statistical data in Greece in past years. Although Samaras stated to follow the measures of the troika IMF, EU and ECB to a tee, his track record is hardly promising for real progress in the Greek situation;
• There are no signs that the Greek economy is improving currently. To the contrary: the economic situation is only deteriorating currently and there is a serious capital-flight going on in Greece;
• Finally, there is still no united stance within the European Union. The Netherlands, represented by PM under resignation Mark Rutte, is persevering its role as cross-grained agitator that is stopping real political progress within the European Union, even when Merkel seems prepared to take the necessary steps.

Therefore I am afraid that the inevitable outcome will be that Greece leaves the Euro-zone. Something that might be considered a historical mistake in years to come.