Five issues that a new cabinet in The Netherlands should solve first after the elections, but probably will fail to do

On Wednesday, September 12, the elections for the 2nd Chamber of parliament will be held in The Netherlands. These elections became necessary after the minority cabinet of VVD and CDA, led by PM Mark Rutte and with its silent partner PVV, failed on April 23, 2012.

Since mid-2011, The Netherlands turned from a self-confident country with a healthy economy that was mainly based on exports to the other European countries, into a worrisome and doubtful country with a great lack of consumer confidence and diminishing export possibilities.

Although it is hard to find the exact reasons for this landslide change in Dutch national self-esteem, the writings had already been on the wall for quite some time. I kindly refer to my older articles if you want to read more on the backgrounds of this crisis.

If I had to point out two reasons for the dropping Dutch self-esteem, it would be: 

• The continuing European credit crisis that turned from a smouldering torch into a blazing forest fire that threatens to consume the Euro-zone as a whole. 
• Cause: the indecisiveness, the continuous, publicly expressed arguments and half-hearted measures within the Euro-zone and the whole European Union, combined with the seeming lack of urgency for reforms and restructuring in some of the PIIGS countries themselves. 
• The Dutch housing market that came in a total deadlock and the serious consequences that this had for the consumer confidence. 

The new elections in September could in theory be the start of a new era in The Netherlands after the weak and indecisive cabinet Rutte I, that had been held hostage by the ultra-rightwing PVV of rabble-rouser Geert Wilders.

However, the Dutch political landscape is much more divided than in the US and other European countries and the polarization in society is larger than it has been in many, many years. 

The largest Dutch political party VVD has, according to the latest polls, currently  less than 25% of seats in parliament and there are not less than four parties that could eventually claim victory on September 12: VVD (conservative), PVDA (social-democrat), PVV (ultra-rightwing) and SP (socialist/ultra-leftwing). Together with the explosive political situation, this could lead to endless negotiations on a useful and decisive coalition; a situation we all know from Belgium during 2010 and 2011.

To help the new coalition to make a step in the right direction, I present here my five issues that the future cabinet should solve first after their inauguration. At the other hand, I’m not very optimistic: the chance that a decisive and powerful cabinet will be installed soon after the elections is very, very slim.

Eurocrisis / European Trust crisis

The most important issue to solve is the Euro-crisis: there can be no doubt about that. If solving the Euro-crisis fails and subsequently the Euro-zone implodes, the economic hardship might at least last for a decade or more in the European Union and far abroad. This will also lead to a political crisis of which the consequences could be very grim. Almost everybody agrees that the European Central Bank of chairman Mario Draghi and the European Stability Mechanism play a very important role in this process, by saving and monitoring the European banks and buying collateral from countries in need.

Although there is still resistance from a.o. The Netherlands and certain persons around the German Bundesbank, there is a growing consensus that there are no other options than to put the financial firepower of ECB and ESM combined in place, to convince the international financial markets of the European resolve to solve the Euro-crisis.

However, encapsulated in the Euro-crisis there is a much bigger issue: the total lack of trust, cooperation and friendship between the North- and South-European ‘hemispheres’. There is a total division between the ‘frugal, hard-working and mainly protestant’ North-European countries and the ‘cheerful, squandering and catholic’ south of Europe, culminating in the PIIGS-countries.

In this division, The Netherlands, mainly represented by PM Mark Rutte and Finance Minister Jan Kees de Jager, has played a controversial role. In a short amount of time, The Netherlands changed from one of the most loyal partners of the EU into the ‘class bully’ with its non-cooperative stance on many issues and the constant bullying of the PIIGS-countries and their so-called unreliability. Even today PM under resignation Mark Rutte is constantly sending the wrong signals to Brussels and the financial markets.

The first thing that the new cabinet should do is to turn this policy around again. While the euro-crisis will be very hard to solve, trust MUST be restored within the EU. The only way that the financial markets will regain confidence in the Euro-zone again is that the EU shows unity, decisiveness and determination to solve the crisis. The Netherlands, although small, can play an important role in this process, together with Germany.

Stalling Dutch economy

The Dutch economy has seriously stalled during the last year and the main reasons are the dropping exports to the European countries (especially the PIIGS-countries) and the current total lack of consumer confidence. 

In the past I’ve advocated the dropping exports as a blessing in disguise, as it could help to bring more balance in the intra-European trade. The Netherlands is among the countries with the largest trade surplusses within the EU and a smaller trade surplus would be a good development, as 'it would bring balance to the force'.

However, the Dutch consumer confidence is almost historically low currently, due to a number of causes (unemployment, the housing market etc.) and this consumer confidence will further deteriorate if the economy stalls further, due to dropping exports and the rising unemployment that is a consequence of this development. This process is happening currently and it leads to strongly diminished purchases of durables and consumption goods and consumption in general. 

This is a self-reinforcing spiral of lacking consumer confidence, leading to diminished consumption, leading to more economic hardship which leads to lacking consumer confidence etc., etc.

What the new cabinet should do is not firing up the intra-European exports again, for reasons that I described earlier. The cabinet should try to stimulate the Dutch internal economy and consumer confidence. Not through a brainless Keynesian stimulus-package that fills potholes and builds bridges to nowhere, but by stimulating education, development of skills and craftsmanship,  innovation and creativity. And maybe even through developing an old-fashioned industrial policy: it worked for the Germans during the last decade. Hell, did it!

Of course, these are not measures that will fire up the Dutch economy at very short notice. That is simply not possible. However, it will do so in the long run (5 – 20 yrs)

Unemployment

The Dutch unemployment, although still among the lowest within the EU has soared since August 2011. In July, unemployment was a staggering 38% higher than in 2011M08 and this number wil further soar in the coming months, is my strong conviction.

This has everything to do with the previous topics and can only be solved if these earlier topics are solved first. Fighting unemployment by creating (useless) temporary or semi-government jobs has almost never worked in the past, just as throwing Keynesian stimulus money around almost never worked. This will fight the symptoms, but will not cure the disease. It can hardly be enough emphasized that this crisis was a result of too much debt. Creating more debt can therefore never be the solution to this problem!

However, just as harmful as throwing money around is going through too much austerity. Something that the new Dutch cabinet should not do is to get the economy on its knees, by introducing harsh austerity measures in order to reach the 3% deficit level of the European Stability and Growth Pact. This would lead to a case of: operation succeeded, patient died!

Crisis on the CRE and RRE markets and in the Building & Construction industry (B&C)

There is a problem zone that needs fixing at the shortest possible notice: the Dutch Commercial and Residential Real Estate markets (CRE/RRE) and the Building and Construction industry that surrounds it. The bubbles on the RRE and CRE-markets that emerged during the last two decades, have skyrocketed housing prices and caused a building frenzy that did not stop until today.

I have written numerous articles on the dire situation in the Dutch CRE/RRE markets (see my posts at ernstseconomyforyou.blogspot.com) and the top-heavy Building & Construction industry that has been the result of years of overproduction, price bubbles and overcapacity.

The results of the failed policies on the Dutch CRE and RRE markets:

• The Dutch people simply don’t believe anymore that the (failed) policy of the Mortgage Interest Deductability (MID) remains in place in the coming years and hold their horses. Politicians that state that the MID will remain intact receive scornful laughter and agriness from the Dutch citizens. 
• Consequence: the RRE market is increasingly getting in a deadlock since 2007, with stalling sales, dropping housing prices and half a million homeowners (more than 10%) being underwater already. 
• The CRE-market suffers currently from a 17% vacancy of office and business buildings in The Netherlands, of which at least 70% structural vacancy. Insiders fear that this number will rise to 25%. 
• The Netherlands is currently full of industrial and commercial zones and buildings that nobody asks for anymore and that turn into scars on the natural landscapes and in the cities. 
• Still, many communities and project developers start new CRE and shopping space projects this very day. For whom, is a rhetoric question?! 
• As a consequence of the problems on the CRE and RRE markets, many B&C companies have already defaulted and many more will do so, at the costs of thousands of jobs, as the overcapacity in this industry is still enormous. 
• Politics assumed the ostrich position and scared away from decisive measures, as it was very heavily influenced by the powerful lobby of the B&C industry. 

The only thing that could help the cursed Building and Construction industry is a vigorous restructuring by the new cabinet, until 60% to 70% of the current jobs and companies remain. All other measures (Keynesian stimulus) will only take away the symptoms (for a while…). The people whose jobs this concerns should be retrained through extensive government programmes to help them find jobs in other industries.

This will be a harsh process and it will bring a lot of uncertainty for the people involved. However, letting the current situation go on for a number of years, will only increase the current problems.

Hopefully the new cabinet will have the guts to take decisive action. I’m afraid, it won’t!

Problems caused by the aging process in The Netherlands

One of the most inevitable processes in The Netherlands is the process of aging within the population, where less and less workers have to pay for more and more retirees, including the soaring healthcare costs that are a consequence of this aging process.

Now that the babyboom generation will be retiring in the next years, the aging problem is becoming more urgent. Pension funds are currently suffering from coverage ratios that are too low to meet their future obligations, spurred by the economic crisis and the larger demand for pension money.

Costs for healthcare are soaring at the moment: not only as a consequence of the increasing number of patients, but also due to the increased possibilities to enhance / improve life through very succesful, but often extremely expensive treatments and medical facilities. And unfortunately also due to a substantial amount of wastage, caused by the current structure of healthcare in The Netherlands.

The new cabinet should do three things:

• Increase the retirement age at a much higher speed to 67. It is hard to understand that it takes more than ten years to increase the retirement age by only two years. The sooner this process is finished, the better. People that fall into a pension void, due to the increased retirement age, could receive temporary subsidies from a transitional arrangement.
  
• If future pensions of the current workers (especially youngsters) need to be reduced to keep pensions affordable in the future, the current retirees should carry an equal share of this burden. This could reduce the feelings of ressentment in society about ‘one-way-solidarity’: from the youngsters to the elderly.
  
• There should be a society-wide, ethical discussion on the boundaries of healthcare: should the Dutch citizens pay for every possible treatment at every price, or should we accept that certain diseases and medical conditions are incurable when the costs of state-of-the-art treatments are compared with generally accepted expense thresholds. 

These are all topics that ask a lot of guts, political feeling and helmsmanship from our future politicians. But: should we settle for less during the elections? Should we settle for the mediocre politicians (in all meanings of the word mediocre) that we unfortunately have gotten used to during the last decade? I think we shouldn't!