How the credit crisis became a youth unemployment crisis in the European Union… but not in every country. Which countries became the “winners” of the credit crisis?

If you want to see how big the impact of the credit crisis in the European Union has been, you just have to take a look at the average youth unemployment. From the European bureau of statistics Eurostat, I took the average youth unemployment data between December 2007 until July 2013.

Especially between September 2008 and April 2010, there has been a surge in youth unemployment (see the chart).

Average youth unemployment in the EU between 2007 - 2013
Data courtesy of Eurostat.
Chart by: Ernstseconomyforyou.blogspot.com
Click to enlarge

In the remainder of 2010, youth unemployment initially decreased a bit when the economy seemed to pick up again in Europe, as the initial credit crisis seemed to be over. However, at the end of that year the euro-crisis was already looming, which came to an outburst in 2011 and beyond. This Euro-crisis caused the European youth unemployment to rise further, albeit at a much slower pace.

If you want to see what the impact has been of the credit crisis (inclusive the Euro-crisis) on youth unemployment, look at this data table and especially this gruesome chart:

Rise in youth unemployment per
country between 2007 - 2013
Data courtesy of Eurostat.
Click to enlarge

Top 5 biggest rise in youth unemployment between 2007 - 2013
Data courtesy of Eurostat.
Chart by: Ernstseconomyforyou.blogspot.com
Click to enlarge

Strangely enough, as you can see, not all countries became a victim of the soaring youth unemployment. Some countries managed to keep their youth unemployment quite stable during the credit crisis and two countries even diminished their youth unemployment:

Top 5 smallest rise in youth unemployment between 2007 - 2013
Data courtesy of Eurostat.
Chart by: Ernstseconomyforyou.blogspot.com
Click to enlarge

Unfortunately, I can’t tell you much about the situation on Malta, as this country has always been far from the economic spotlights.

However, Austria and especially Germany have profited strongly from the diminished competitiveness of the PIIGS countries, while especially the German export machine operated at full speed during the last three years of the crisis.

Since the beginning of this century, Germany went through an enormous wage restraint program which has been the basis of the German success during the last five years.

Austria, with an economy which is mainly based on small-scale, labour-intensive Small and Medium Enterprise (SME) industries, seemed almost untouchable for the economic crisis: the country has the lowest unemployment of the whole EU and arguably the most stable economy and industries.

On top of that, the exposure of these two countries to the misery in the PIIGS countries had been relatively limited, in contrary to f.i. The Netherlands, whose export has traditionally been very dependent on the European Union and especially the southern European countries. Together with Malta, Germany and Austria seem to be the relative ‘winners’ of the credit crisis.

You could argue that the youth unemployment also rose very limitedly in Sweden and Finland, but with a youth unemployment of already 16% (Finland) and 19% (Sweden) in December 2007, this is hardly a comforting achievement.

What was partly surprising for me is that the youth unemployment effects of the Euro-crisis (roughly from the beginning of 2011 until the end of 2012) are actually quite small, in comparison to the effects which were caused by the official start of the credit crisis (September 2009, when Lehman Brothers collapsed).

The reason can be seen in the following table, which shows the change rate between January 2011 and July 2013:

Rise in youth unemployment per country
 since the start of the Euro-crisis
Data courtesy of Eurostat.
Click to enlarge

While some countries (a.o. the PIIGS ( minus Ireland), Croatia and Slovenia) saw their youth unemployment further explode during the Euro-crisis, in some other countries youth unemployment actually decreased strongly during this period: especially the Baltic States. Under pressure from their EU membership, these countries worked very hard and took very painful, but successful measures to increase their economies, with spectacular results.

This improved unemployment situation worked as a counterweight for the soaring unemployment in the PIIGS, Croatia and Slovenia.

What all these tables make perfectly clear, however, is that the European youth unemployment is still not under control at all.

The Euro-crisis has now been declared over unofficially and there seem to emerge some ‘green shoots’ in Spain, Greece and other countries. Nevertheless, to take away the outrageous youth unemployment in the PIIGS countries and the former East-European countries, still a miracle should happen.

I am very afraid that this miracle won’t come from the European Union: renewed German Chancellor Angela Merkel and her henchmen from The Netherlands, Great Britain and Finland will keep their hands firmly on their European wallets and still want to solve the euro-crisis with austerity and more austerity.

The 3% from the Stability and Growth Pact is yet holy and further it seems to suffice to ‘kick the can further down the road’, instead of making some fundamental adjustments in the (South and East) European economies. The South- and East-European youth will remain the victims of this mindless policy.

That is not an opinion, but a crystal clear, inevitable outcome from the European unemployment data.

What is going on with the Baltic Dry Index (BDIY)?! Does the sudden rise of this tell-tale index point at the imminent end of the economic crisis as we know it? Or is there something else going on?!

Sometimes, I don’t find the news, but instead the news manages to find me.

Yesterday, I noticed that one of my articles, which I wrote about container shipping and the Baltic Dry Index (BDIY) in February 2012, suddenly became extremely popular with over 150 reads in two days. 

This happened seemingly without a reason and without the article being picked up by another news medium. By the way, the latter doesn’t happen very often with old articles are they are just… old. So you can understand that this provoked my unconditional interest.

Therefore tonight, out of curiosity, I checked out the Baltic Dry Index to see if something happened there. And boy, did something happen there indeed. Check out the following stat from Bloomberg:

Baltic Dry Index (BDIY) 5Y chart
Chart courtesy of Bloomberg.com
Click to enlarge 

Since December 2011, when the Baltic Dry Index took a nosedive of more than 1000 points, the index had not been nowhere near the 2000+ points, where it currently resides.

However, since 2 September 2013, the index climbed by 900 points to 2127 (25 September) from 1139 points (see the next chart).

Baltic Dry Index (BDIY) 5Y chart
Chart courtesy of Bloomberg.com
Click to enlarge

Could this be the beginning of the end of the economic crisis that we are currently in? Or is it a false alarm, like the sudden, sharp rises in 2010 (see the 5Y chart) had also been false alarms in hindsight, as at that moment the Euro-crisis had not yet kicked in?!

Since the beginning of 2012, the container prices showed a dramatic 1,5 year depression, as the world watched the Euro-crisis unfold and probably feared the chaos that a possible ‘Grexit’ could cause.

Another reason could have been that the extreme growth in the BRIC’s countries, which raised the demand for bulky goods even during the worldwide crisis, had cooled down substantially.  

Maybe now the time has come that many consumers and (in their trail) manufacturers in the US and Europe declare the economic crisis to be finished and put up their happy, bullish face again! The enduring American optimism and the better than expected economic results from a.o. France, Spain and Germany seem to point in this direction.

And in China there has been an important and probably influential change of power: President Hu Jintao has been replaced by Xi Jinping. The latter seems to be cautiously on the path towards more political reforms and less repression for the Chinese citizens. 

And even more important, he also seems to be on the path towards more open economic relations with the Western World. The new free-trade-zone near Shanghai and the experiments with a freely exchangeable renminbi could indeed be the beginning of better trade relations between the China and the Western World, mainly represented by the US and Europe. 

This event by itself could already spur trade and economic growth all over the world. However, you should always be careful with political change in China: mostly the political and economic changes seems more dramatic than they are, in reality. So let’s look how this possible game-changer plays out!

Nevertheless, according to the container shipping behemoth Maersk from Danmark, it  could indeed be true that a new period of growth has started. The following article comes from the Financial Times:

Maersk calls bottom of trade cycle

The world’s biggest container shipping line by market share has called the bottom of the global trade cycle, predicting that the world will come out of the funk induced by the Eurozone crisis in the coming two years.

The recession in many worldwide economies that followed the 2008 crisis caused trade to collapse around the world. The continuing recession in Europe and slowdown in China and other big developing economies this year have led the World Trade Organisation and others to downgrade their expectations for global trade this year and next. The WTO expects global trade to grow by just 2.5% this year.

But Maersk Line said on Thursday it believed the downturn in trade had bottomed out and predicted demand for global containers would grow by 4-6% in 2014 and 2015, up from recent forecasts of 2-3% for this year.

 “We believe we’ve reached the bottom of the cycle,” Jakob Stausholm, Maersk Line’s chief financial officer, told investors and analysts in Copenhagen on Thursday.

Maersk is one of the best corporate indicators of global trade as it carries 15% of all seaborne containers. In recent years it has been weighed down by the weakness of Asia-Europe trade but in a major bet on the future of global trade it has started taking delivery of the first of the world’s biggest container ships, the Triple E class each of which can transport the equivalent of 180m iPads.

Global container demand collapsed after the financial crisis, dropping by close to 16% at the start of 2009. But Mr Stausholm said such a decline was exceptional and that the present growth rate of 2-3% had historically represented the trough in the shipping industry.

“This is an extreme environment. But there are early signals that world trade is returning,” he told the Financial Times.

Container shipping is not the only part of the industry to see an increase in trade looming. The Baltic Dry index, a gauge of ship earnings for dry bulk carriers transporting a range of commodities, collapsed in the wake of the financial crisis, and last year sagged to its lowest level since August 1986. However, the index has climbed over 200% this year as trade has gingerly picked up.

The Baltic Dry is still over 80% below its 2008 peak, but some economists expects the gauge to continue to climb higher as an economic recovery gathers pace the developed world.

However, not everybody is so optimistic. The Economic Times/ India Times warns investors to be careful:

Shipping company stocks have got a Baltic boost, with the share prices of some of these companies rising by 5%-20% in a single trading session on Thursday, but analysts maintain that it's not yet time to invest in such stocks.

A rise in the Baltic Dry Index (BDI), benchmark for measure of shipping or sea freight rates across the world, is fuelling a rally in share price of companies such as ABG Shipyard, Essar Shipping, Mercator, Bharati Shipyard, Varun Shipping and Shipping Corporation of India among others.

However, market experts in India aren't too excited with the rising share prices and are discounting a pick-up in shipping trade.

"It's not yet time to invest in shipping stocks," said Saurabh Mukherjea, CEO, institutional equities, Ambit Capital. "Indian players are too small and there is massive overcapacity in the global shipping industry.

"Baltic index rally is only the result of improvement in foreign freight rates, and the rise in share price of domestic companies could be a knee-jerk reaction," said Kapil Yadav, assistant VP at Dolat Capital. Market experts say that Indian companies are usually plying small-sized vessels whereas containers listed in the BDI are large-sized vessels.

Of course the rise in foreign freight rates stands for something. However, what that ‘something’ is, is not sure at this time. 

Like my aforementioned article from February, 2012 already pointed out: higher prices are not always the result of increasing demand. They COULD also be the result of illegal price agreements between shipping companies. 

Let’s wait and see if that perhaps is the reason behind the sudden rise of the BDIY!

Will the quickly growing void between the lowest and the higher incomes in The Netherlands turn the poorest people into the losers of the 21st century?

The buzzword in King Willem-Alexander’s Speech this year was: the participation society. As this speech is always written by the Prime Minister, it represents the opinion of the VVD/PvdA cabinet Mark Rutte II.

Concisely summarized, a participation society is a society in which anybody is ‘in play’ and uses his abilities to take all the chances that he is offered in life. People, who fail in taking their chances for any reason, should not automatically count on the Dutch government to supply an income to them, except for the most basical social benefit payments. Thus people are stimulated to stand on their own two feet.

It is the Dutch version of the American Dream: everybody is responsible for his own fate and the government must only be used as a financial backstop, when all else fails. You could call this a neoliberal concept.

Therefore, it is no wonder that this concept finds its biggest fans among the intermediate parties, which hover around the center of the political spectrum: VVD (liberal-conservative), PvdA (Dutch labour), CDA (Christian-Democrat), D66 (liberal party) and GroenLinks (liberal-progressive party). The parties at the outlines of the political spectrum, SP (socialist party) and PVV (Party for Freedom), despise the idea, because respectively “it doesn’t help the poor people” (SP) or “it doesn’t help the poor, old, native Dutch people” (PVV).   

During the last three decades not only the Christian religions in Western Europe lost many followers, but so did the “old school” social-democrat movements: especially after the Berlin Wall was brought down. Capitalism had won the war-of-the-ideologies, it seemed. Although the social-democrat movements eventually survived this change of heart and even learned to flourish from it again, their basic ideas had changed dramatically.

The traditional ‘pampering’ of the working class and the poor, handicapped and unemployed people was abolished and a pragmatic ‘new realism’ came in exchange for it. Striking and demonstrating was out and “polderen” (i.e. government, labour unions and employer’s organizations all talking and working together as social partners) was in fashion.

The message was: Exit for the old-school “Neil Kinnocks” within the social-democrat parties and welcome to the pragmatic technocrats with a leftish heart, but a right-ish wallet: Tony Blair (UK), Gerhard Schröder (Germany) and Wim Kok (The Netherlands) were their main representatives. Wouter Bos and Diederik Samsom, the most important of the recent political leaders of the PvdA in The Netherlands, are true heirs of Wim Kok, when it comes to their political flavour.

Many people consider the neoliberal mood change among the European social-democrats to be a logical move after the disappearance of international socialism. Nevertheless, you could justifiably argue that it has overshot a little. The participation society, which has been full-heartedly adopted by Diederik Samsom, is a concept that would send Joop den Uyl (the last true “old-school” social-democrat of the PvdA) and Neil Kinnock shivers down their spine; just like a horror movie. And for me the participation society is also a very hard nut to crack:

I think that many unemployed people should stop ‘whining’ about the hard economic times and instead could and should try harder to get a job: any job and not just the one that fits in their resumee perfectly.

During my life, I met a few people, who you could justifiably call ‘freeloaders’: people who messed up every job that they got, because it was not fancy or sexy enough (too little payment and perks !!!) or because they didn’t work hard enough and sometimes even overslept on their first two working days. Of course, in such a situation a third working day never arrived.

Strangely enough, these same people always used to know everything about their legal, financial and social rights, during negotiations with local officials, but very little about their societal duties, like ‘not sponging on society’. These people not only remembered the exact amounts of their social benefits, but they also knew every additional subsidy by heart and, on top of that, which rules could be bent or broken without financial consequences.

These were exactly the kind of people that made politicians consider to reduce social benefits and make it harder to acquire those. I really can’t blame those politicians.

Nevertheless, there are people that really had their share of bad luck in life:

• People with fysical and mental handicaps, which scare away possible employers or even make it impossible to work;
  
• People, who got an serious illness, which strongly diminished their working possibilities;
  
• People, who – for some reason – always missed the boat in their careers, or who had an extremely bad start, due to economic hardship in the beginning of their career and never caught up with the rest anymore;
  
• People (often women), who took always care of their children, but lost their partner and now are litterally on their own, without any working experience. 

I think that the national and local governments should always offer these kinds of people a helping hand, when it is needed most. And it should be a generous hand, not a stingy one….

In my opinion, you should not punish people and load them up with a feeling of guilt, when they missed the boat for a particular reason and are required to live from social benefits. On the other hand, you should also not be a push-over for people, of whom you know that they didn’t try hard enough in life. This is a very schizophrenic stance, but life is not black and white at all…

In theory, the aforementioned helping hand of the government is by no means hard to match with the ‘participation society’: a society with an efficient and strict, but fair government.

In practice, however, this is not what especially the liberal-conservative VVD has in mind. In their opinion, their helping hand should be frugal, perhaps even stingy, and not generous at all.

Today, the results of a very interesting investigation by the Amsterdam Institute of labour Studies (AIAS) have been published in the press: about the growing inequality between income groups in The Netherlands, during the last four decades.

Unfortunately, the end report of this study was not yet available on the website of AIAS. Therefore I used an article in the Volkskrant as a source. Here are the pertinent snips of this article:

The void between rich and poor has grown faster than expected

In The Netherlands, the void between rich and poor has grown faster than expected. The bottom of the income pyramid, the 10% least earning households, has lost 30% in real income, since 1977. All other income groups have received more real income since that period.

The main cause for the income deterioration of the bottom 10%, is the retrenching of social benefits and subsidies. This became clear from an investigation by the Amsterdam Institute of Labour Studies into income inequality, between 1977 and 2011.

These data are remarkable, as the common and standardized gauge for income inequality, the Gini coefficient, showed a fairly level image since the nineties.

In much more detail than the Gini-coefficient, the AIAS study showed the consequences of policies for the incomes in various income groups. It became clear that the poorest 10% lost an additional 10% in real income, between 1990 and 2011, on top of the 20% deterioration in the years before that period.This 20% was the result of the economic crisis in the 1980’s.

Households in the higher income groups did see their incomes rise between 1977 and 2011: from 6% for the then-poorest group until 23% for the richest group.

In 1977, the richest 10% in the income pyramid earned  5.1 times as much as the bottom 10% of the households; in 2011 this void had grown to 8.2 times as much. The void grew the quickest in the 1980’s (to factor 7 from factor 5), when the minimum wage and the coupled social benefits had been frozen after the crisis in the first half of the decade.

According to professor and investigator Wiemer Salverda, the main cause for the deterioration of income of the bottom 10% is the retrenching of social benefits and subsidies. The bottom 10%, represented by approximately 700,000 households, mainly exists of adults with a social benefit, next to freelancers (ZZP’ers) with little income and singles with poorly paid jobs. Other causes for the deterioration of the lowest income group are the growing inequality in hourly fees and the fact that more and more people are dependent on temporary jobs, which on top of that are often parttime.

An extra cause for anxiety is the debt position of the lowest income group. In 1993, the bottom 10% of the income pyramid had twice as much debt as income. In 2011, this debt to income ratio had soared to 5.5 times. The richest 10% of the Dutch households owns 70% of total capital, while the bottom half of the households has no capital at all and often only debt.

I cannot wait until the whole investigation report is put on the website of AIAS (http://www.uva-aias.net/38) and I truly hope that the institute does not hesitate to do so.

Raising taxes for the highest income groups (i.e. leveling or ‘nivelleren’ in Dutch) is neither popular among rich people in The Netherlands nor anywhere else in the world. The arguments of the richest people for decreasing taxes and (financially) stimulating entrepreneurship and venture capitalism through adapted policies are, that high taxes put a brake on risk-taking and entrepreneurship and thus cost jobs, while lowering taxes spurs the creation of jobs.

That might be true indeed, as some entrepreneurs and executive managers are really only in business for becoming rich and retiring early. Some people do indeed only work for money, as they don’t have any other goals in life. These people fit neatly in the upcoming political trend (see the aforementioned link in this paragraph), in which entrepreneurs, venture capitalists and executive managers are the superheroes of society, while the workers are ‘mainly a drag’: “people, who ask too much money for too little labour capacity”. One of the worst examples of this species is the CEO of DE Master Blenders, Jan Bennink.

However, in my opinion this is a very slanted and distorted view on reality. Fortunately, many true entrepreneurs, venture capitalists and executive managers (especially the ones, who are very closely attached to their companies) have other inspirations and reasons to do what they do, than becoming rich. They both cherish their personnel and love their own innovative processes and products. And although nobody really likes to pay taxes, most people in The Netherlands fortunately understand that it is necessary to keep a society alive.

Another consequence of an increasing void between rich and poor is that it distorts the cohesion in society:

• Ask for instance in the USA, how a single mother with three poorly paid part-time jobs and no time for her children, thinks about the fortune of Facebook’s Mark Zuckerberg;
  
• Or ask how an unemployed guy, living on foodstamps, thinks about ‘those fat cat bankers on Wall Street’ with their 10+ million dollar incomes per year. Make sure that he doesn’t have a gun, when you ask him this question;
  
• And try to convince an American rich guy that it is good and decent behaviour to pay taxes. He will look at you as if you are a Borg, coming from the starship Enterprise. 

The poorest and richest people in the United States live in the same land, but in totally different universes, in which they never really meet eachother anymore.

Therefore this investigation by Wiemer Salverda of AIAS is extremely important. In The Netherlands, the income inequality has not yet grown too big. However, this might change at the end of this crisis, if the cabinet of Mark Rutte stays on the path of increasing the void.

Then the poorest people might indeed become the losers of the 21st century, who lost any connection to the rest of society.

Barack Obama and Snowden-gate: about keeping your friends closer than your enemies… and how your friends respond to this!

Don't it always seem to go

That you don't know what you've got

Till it’s gone

Joni Mitchell – Big yellow taxi

 “There are many things my father

taught me here in this room. He taught me: keep

your friends close, but your enemies closer”.

Michael Corleone – The Godfather II:

Michael Corleone, the infamous, fictitious hero from Francis Ford Coppola’s ‘Godfather’ movies, was a wise man, when he uttered the aforementioned quote.

People and countries need to have a very watchful eye towards their enemies, in order to protect their own interests. Effective (counter)espionage has been a life-saver for many countries in the past and helped them to survive through times of war, peace and economic hardship: “all is fair in love and war” is a beautiful and justified proverb.

And of course, although most people don’t like it, it is also smart politics for many countries to have a watchful eye towards their friends. Especially, when these countries have doubts about their friends’ plans and good intensions. It would be stupid to ignore these basic lessons, as these were taught the hard way to almost every country, during the past centuries which were full of smaller and bigger wars all over the world.

Unfortunately, President Barack Obama of the United States and his henchmen, like British PM David Cameron, seemed to have mixed up the Michael Corleone quote very badly; during the last decade, they kept their friends so close, that these friends started to feel like being enemies of the United States and the United Kingdom. And now these friends are enraged and looking for revenge…

What millions of officials, special interest organizations like Bits for Freedom and worried private citizens failed to do, was achieved by one intelligent and ‘nerdish’ youngster with an opaque past: he put espionage and (the complete loss of) privacy & secrecy back on the map of many people and governments.

Whether you agree with Edward Snowden’s actions or not: it was just what the doctor ordered in a world, where privacy and secrecy were things of the past, “because we had nothing to hide and we trusted that our friends would behave themselves like friends indeed”.

Well, continental Europe and a.o. Brazil found out the hard way, that we couldn’t trust our friends, especially when these friends were represented by ‘alphabet soup’ government services, like the NSA, CIA or (the British) GCHQ.

In other words, it was time for officials and citizens, who had been assuming the ostrich position for a long, long time, to pull their heads out of the sand and face the music.

In the past, the European Union’s tone of voice towards the intrusive laws and the espionage actions of the United States and – in its trail – the United Kingdom had always been very trivializing:

• “Well, we understand that the United States Patriot Act is an undemocratic and intrusive piece of junk law, which violates all our European privacy and information protection laws and puts the information of the whole world in their crosshairs. But you have to understand: the Americans suffered enormously from these terrible attacks on 9-11 and hey… they are our friends!!”
• “Of course, it is massively harming our privacy, that we have to send all this private information about ourselves and our families to the US, when we want to go there for holidays or business. And naturally, it is ridiculous that the EU doesn’t force the Americans to do us the same courtesy, but we have to send this information; otherwise we can’t get in there”.
• “Yes, we know that the CIA is monitoring the SWIFT-messages in Belgium and we know also that the NSA is tapping our telephone calls and email, but they are our friends. We are sure that they won’t abuse the information, aren’t we?!. The battle of Airbus vs Boeing, concerning the delivery of US Army refueling planes, where Boeing seemed to know the size of all offers that Airbus made, must have been an incident”

And this friendly, forgiving and trivializing stance would probably have continued forever, had not Edward Snowden entered the world stage and opened Pandora’s Box, with his revelations about the international spying and tapping networks of the United States and Great Britain.

Suddenly, it seemed that the protests against these intrusive policies gained critical mass: not only among the aware and increasingly worried European and Brazilian citizens, but finally also among the government leaders of the continental European countries and Brazil.

When it came to official protests against these espionage policies, Angela Merkel (the German chancellor) was forced by her citizens to run the gauntlet. In the beginning of September, Merkel had to deal with massive protest demonstrations of worried and enraged German citizens, against the vast espionage programs of her allies:

The protesters were also furious at what they regard the German government's lax reaction to the US surveillance activities.

“Intelligence agencies like the NSA shamelessly spy on telephone conversations and Internet connections worldwide (and) our government, one of whose key roles is the protection from harm, sends off soothing explanations,” said one of the demonstrators.

However, of late, the loudest protests came from President Dima Rousseff of Brazil.

First, she publicly offended President Obama, by openly withdrawing her announced visit to the US (the first in almost twenty years), due to the espionage scandal. 

Where a  “diplomatic headache” would have been sufficient in case of other, more ‘normal’ diplomatic scandals, Rousseff chose for the frontal attack in this situation. And to make things even worse for Obama, Rousseff gave the US a public scolding during today’s UN General Assembly, almost unprecedented for allies and trade partners of the US.

This scolding must not only be seen as a testimony of the Brazilian anger about this espionage scandal, but also as exemplary for the changed economic and political situation in the world. Brazil is officially one of the ‘big boys’ now and wants to be treated with respect by its allies.  

The Financial Times wrote the following lines upon this developing story:

Dilma Rousseff attacks US spying at UN

Brazil’s President Dilma Rousseff took her campaign against US spying to the UN on Tuesday, opening the organisation’s annual general assembly with a strong attack on foreign espionage using the internet.

The president, who last week postponed what would have been Brazil’s first state visit to Washington in nearly two decades over the issue, proposed a set of international norms to guarantee privacy on the internet.

 “We are ... confronting a case of grave violations of human rights and civil liberties as well as the invasion and capture of secret information about the activities of companies and above all, disrespect for the national sovereignty of my country,” she told the assembly.

Ms Rousseff’s pursuit of the espionage issue will add to pressure on the US to respond to Brazil’s complaints, with Latin America’s largest country seeking a formal explanation, apology and pledge not to repeat the activity.

There is little to be misunderstood in this message, by Dima Rousseff, I suppose.

And today, the Dutch newspaper ‘Telegraaf’ printed an article, which testifies that Brazil is not the only party to (slowly) lose its patience with the United States.

Even the European Union – normally notorious for its weak and obedient reactions and nondescript explanations, when it comes to such political quarrels with the United States (and the United Kingdom) – shows signs that it has finally hit the limits of its patience and forgiveness towards its most important trading partner.

Brussels increases pressure on US, due to espionage scandal

Brussels increases the pressure on the United States, in the affair concerning the American espionage upon European banking data. This Tuesday, the European Commission announced disguisedly that it plans to abolish a certain treaty with the United States.

When the accusations [against the US – EL] prove to be right, these represent a violation of the treaty. This was emphasized by European Commissioner Cecilia Malmström of Internal Affairs, during a public hearing at the European Parliament. She stated to be dissatisfied with the information and explanations that she received from the Americans, until now.

The treaty in question concerns an agreement between the EU and the US upon the international payment operator SWIFT, which maintains the payment traffic of over 10,000 banks, other financial institutions and companies. Under strict circumstances, the US are allowed to monitor certain data, as a consequence of their war against international terrorism.

However, certain media stated shortly that the American intelligence service NSA is clandestinely and systematically monitoring all payment traffic. However, when asked, SWIFT itself stated to have no proof of illicit intrusions of their network and data.

Of course, this is only a small and innocent reaction of the EU in – what seems to be – a very limited share of the whole, far-stretching espionage scandal.

However, it could be that the European Union finally starts to understand what happens to the privacy and secrecy of their own organization and their citizens, when these kinds of espionage by countries that could be considered as friends, are allowed.

Brazil is already further on this path and seemingly doesn’t want to stop yet.

The remainder of the Financial Times article (which I didn’t print) was full of contemplations about the question, whether it was a sensible step of Brazil at the UN today. Probably, in the eyes of many diplomats, it wasn’t.

Nevertheless, it cannot be denied that Brazil sent a very powerful signal to the US and UK today: these countries should stop with keeping their friends closer than their enemies. Else, loyal friends could easily turn into enemies, in these time of economic hardship and brutal competition for economic growth. 

A signal that cannot and should not be overheard by the rest of the world…

CDU/CSU’s Angela Merkel will remain the German ‘Bundeskanzler’ for the next four years! Two questions: with whom will she do it and what will be the consequences for Germany and the EU!

It doesn’t happen often that I’m totally right and totally mistaken upon the same subject within the same month. September 2013 is such a month.

In my article upon Germany from 8 September, I wrote that the current German Bundeskanzler Angela Merkel probably had an easy re-election ahead on Sunday, September 22nd:

The German political situation is very stable. It is very plausible that German chancellor Angela Merkel of the Christian-Democrat Union (CDU) will easily win the elections for the Bundestag (German House of Commons) for a third time and continue her policy of austerity and tight budgeting.

However, in my article about the end of the economic crisis in The Netherlands, I “flip-flopped” and changed my tune, under the influence of the latest German opinion polls. I stated that the election would not be a walk-in-the-park after all for Angela Merkel.

I was dead wrong: with 41.5% of the votes, Angela Merkel’s christian-democrat CDU/CSU combination had indeed a landslide victory over the second biggest party, the social-democrat SPD, with 25.7% (see the chart below)

 

The final results of the German elections 2013
Graph: courtesy of www.nos.nl
Click to enlarge

With this result of the elections, it seems that Angela Merkel missed only by a whisker the absolute majority in the Bundestag (see the following table). This is the consequence of the fact that German parties need to be above a 5% threshold, in order to be elected into the Bundestag. After these elections, the results of the liberal FDP and the anti-Euro party ‘Alternative für Deutschland’ (Alternative for Germany) have been striken. 

 

The results of the German elections 2013,
recalculated to seats in the Bundestage
Graph: courtesy of www.nos.nl
Click to enlarge

[Disclaimer: I cannot warrant that my calculations as shown above are right, as I don’t know the exact method for dividing the “rest-votes” over the largest parties, as it will be used for the Bundestag – EL]. 

Nevertheless, the picture of a very powerful German leader remains. A leader, who has been rewarded for her ‘good deeds’ as a determined, stable and frugal German chancellor. She became the ‘de facto’ leader of Europe and a stable anchor for the financial markets, but without wasting German tax-payer’s money.

While Peer Steinbrück’s SPD has been ‘rewarded’ with a 2.7% rise for its opposition to the current German government, when compared to the elections of 2009, ‘Angie’ enjoyed no less than a 7.7% improvement.

For Merkel’s coalition partner FDP, the grapes were very sour yesterday. Where the party still enjoyed 14.6% of the votes in 2009, it has almost been annihilated in 2013: only 4.8% of the voters voted FDP, which is below the 5% threshold. Consequently, the FDP will vanish from the Bundestag.

This is the consequence of a phenomenon, called the Prime-Minister’s bonus: where the largest party in a two-party coalition (the party, which delivers the PM) often receives the credits for the things that went right during the previous government stint, the smallest coalition party is often blamed for everything that went wrong in the coalition. Especially, by the people who voted for the latter during the last elections.

In other words: the smallest party is punished for having been smaller and for not having as much influence as the largest party. This happened to the FDP during the 2013 elections and to the SPD in 2009 (to 23% from 34.2% in 2005).

Consequently, the results of of these elections bring up two very important questions for Germany and beyond:

• Which party will bring the sacrifice to step into a government with Merkel’s CDU/CSU and consequently run the ‘inevitable’ risk of being annihilated in the elections of 2017?
  
• What will be the consequences of the new German coalition for Germany itself and for the rest of the EU? 

Which party will start a coalition with Angela Merkel?

The most obvious answer to this question would be: the SPD.

This is probably the most desired choice by Angela Merkel, as it would bring a broad and probably stable, middle-of-the-road coalition, without too outspoken figures (if we conveniently forget Steinbrück’s infamous “Stinkefinger” incident).

On top of that, a coalition with almost 80% of the seats in the Bundestag (according to my calculations), is a strong and decisive coalition, which can take some tough decisions for Germany, without being slaughtered in parliament.

However, the SPD has a lot to lose in such a coalition:

• the party will have to make a lot of impopular decisions, for which it is undoubtledly blamed at the following elections. The real advantages for the SPD are therefore not certain at all.
  
• besides that, Steinbrück might be forced to act as a stooge for Angela Merkel: making at least half of the jokes, but never receiving the applause for it. 

Is this the reason that the SPD used today (and probably the rest of the week) to ‘lick its wounds’, before taking a decision on a possible red/blue coalition in Germany?

Although this CDU/CSU/SPD coalition is clearly the favorite possibility of many Germany-watchers, I am not so convinced that such a coalition will indeed emerge, due to the aforementioned reasons.

In my opinion, there is a second “dark horse” possibility for a German coalition: a coalition of CDU/CSU with the Green Party (Die Grüne).

When in 1998 Bundeskanzler-to-be Gerhard Schröder (SPD) stepped into a coalition with Die Grüne of the future Minister of Foreign Affairs Joschka Fischer, everybody expected a disaster: a cabinet like a bad “Hollywood” marriage, with lots of arguing, fighting and intrigues.

Instead, this coalition became one of the strongest and most decisive German cabinets since the Second World War. It turned the former ‘sick man of Europe’ into the Golden Boy of the EU, during seven years and two almost full stints. And Joschka Fischer became one of the most respected Foreign Affairs ministers in recent German history.

At this very moment, the Green party has 8.4% of the votes (10% of the seats) and it has roughly two options:

• either it remains in the German opposition for four more years and it hopes to get a lousy 4% in extra voters in 2017;
  
• or it takes the gamble and steps into a coalition with the CDU/CSU, where it can ask for a lot of pork for its voters. 

As I consider that the Green party has virtually nothing to lose (with only 3% above the 5% threshold) and a lot to win by this coalition, I think that this is a realistic possibility, on their behalf.

And Merkel? When she notices the (presumed) reluctancy of the SPD to form a coalition and reckons that she has to do a lot of concessions in order to lure this party, a coalition with the Green party might not sound so bad after all.

She probably also remembers the strenght of the earlier SPD/Grüne coalition and might decide to give it a try, when the negotiations with the SPD do fail.

In my opinion, this is even the most plausible solution.

What will be the consequences for Germany and the EU

This brings us to the second question. To be more specific concerning question number two, I wrote the following lines on 8 September (see the aforementioned link):

However, there are some things in Germany that should worry the objective inquirer, as they could bring division in the country and disturb the ideal image of Germany in the future.

These things have without a doubt something to do with Schröder’s wage restraint policy, the rigid budgettary aproach of Angela Merkel, the invention of mini-jobs and with the downfall of the German heavy industry and the difficult climb up-the-hill of East-Germany, formerly known as the German Democratic Republic. Keywords: poverty and debt!

For either of both coalitions (with SPD or with the Green party), I am certain that the sharpest edges of Merkel’s economic policy of the last four year must be removed: I expect that the mini-jobs – the small jobs with a tax-free, social security-free €400 payment per month – will vanish, as both the reds and the greens won’t be charmed at all by this initiative, which enlarges the differences in income and future between the “haves” and the “have-nots”. I also think that the times of German wage restraint are well behind us, with either of both coalitions at the helm.

In reality, I am convinced that the Merkel government is forced to step onto a path, which brings Keynesian stimulus one step closer and which further opens the road towards green, environmentally friendly energy, as a substitute for the nuclear power plants that were abolished after the Fukushima nuclear disaster.

Nevertheless, I have little doubt that the world-famous German manufacturing and financial/business services industries, in any kind, will remain number one for the next Merkel government.

Further, it is my strong believe that the German frugality will remain: where I earlier mentioned Keynesian stimulus, I didn’t mean “quantitativen Ausdehnung” (i.e. Quantitative Easing) in an ‘American-ish’ way. The fear for the hyperinflation from the Interbellum is still strong in Germany and thus I think that both the SPD and the Green party won’t force Merkel to let the money-press go berzerk (by deploying billions of Euro’s in extra Bunds). Therefore the financial markets can rest assured: whatever coalition might be formed in the coming weeks, there won’t be very much change in Germany, is my assumption.

Which brings me to the European Union: the German elections will have been followed with mixed feelings within the European Union.

The governments in the north/western Euro-zone countries will have uttered a sigh of relief after Merkel’s landslide victory, afraid as they were for a ‘spending-happy’, Keynesian-oriented, left-wing cabinet. With Merkel at the helm, The Netherlands, Austria and Finland hope to continue their policy of “choking” the PIIGS-countries into fiscal responsibility, without having to write a penny off on PIIGS debt.

However, also in the PIIGS-countries (Portugal, Italy, Ireland, Greece and Spain), Eastern Europe and France, the end-result of the German elections will have been anticipated with an interest far above average, but for exactly the opposite reasons.

As the PIIGS countries, Eastern Europe and France must have hoped to get some serious leeway for economic reforms, remission of debt and Keynesian stimulus in order to help the battered economies in these countries, the results of the German elections must have been a bitter disappointment. That François Hollande was about the first government-leader to congratulate Merkel with her victory, doesn’t change much about this fact.

Conclusion:

My personal hope is that Germany changes its financial and economic policy for the Euro-zone, under the influence of either the SPD or the Green party.

Without wanting to open the floodgates for mindless, Keynesian stimulus in large amounts, I am convinced that neither the PIIGS countries, nor France or the East-European countries are really helped with the ‘financially choking’ policy, which Merkel has maintained during the last four years.

Unemployment has been soaring and has reached intolerable levels in Greece, Spain and some East-European countries, especially for the youngsters, who are especially victimized by this crisis. In my opinion, the financial restraint policy has led nowhere within Europe to real economic growth, but it led to economic decline and ever-larger financial and economic problems for the countries hit hardest by the crisis.

I therefore hope that the new German government will finally look beyond the 3% threshold of the European Stability and Growth Pact.

I fear, however, that Merkel is planning to continue the same mindless policy of austerity, austerity and more austerity, happly applauded by the clueless Dutch Rutte Cabinet. In case of the latter, this will mean that the Euro-crisis will be back on the map within a few months.

For more information on this subject, please read this very interesting article.

“Light at the end of the tunnel”: the crisis is almost over! The question is only: exactly WHAT crisis?! Part II

Yesterday, I published the first part of this short article series. Today is the second episode, about the question ‘exactly WHAT crisis is almost over’.

The euro-crisis

The tranquility on the financial markets, concerning the Euro-zone, is deceiving.

Since the president of the European Central Bank, Mario Draghi, told the financial markets in July, 2012 “that he would do whatever it takes to save the euro”, it seems that the euro-crisis has finally slowed down.

The interest rates in Italy, Portugal and Spain seem reasonably under control and even the message from the German finance minister Wolfgang Schäuble and chairman of the Euro-group Jeroen Dijsselbloem, that Greece would need another rescue package in the near future, seemed to have fallen upon deaf ears.

But is the euro-crisis really over?

• Did something significant happen with the financial/economic malaise in the PIIGS countries?
  
• And with the skyhigh unemployment that has been rocking these countries?
  
• Or with the political leaders losing their authority and credibility in the eyes of their voters: not only in the PIIGS countries, but almost anywhere in Europe?
  
• And also with the fact that so many banks in the PIIGS countries are blatantly underfunded? 

The coming weekend, there will be elections in Germany. And in contrary to what many people (myself included) thought in advance, it will definitely not be a walk-in-the-park for CDU chancellor Angela Merkel, in her battle against SPD (i.e. social-democrat) candidate Peer “Stinkefinger”(i.e. stinky finger) Steinbrück.

In spite of his ‘middle-finger-ish’ photo-blooper (warning: slightly NSFW content), Steinbrück yet seems a dark horse for becoming chancellor, after eight years of Angela Merkel.

During the last days of Steinbrück and Merkel’s battle for the voter or even in the aftermath of the Bundestag-elections, we might after all hear the nasty details concerning the euro-zone, which had been swept under the rug in the build-up for the German elections. So everything is quiet currently, but I really doubt whether 2012 was indeed the last leg of the Euro-crisis.

The banking crisis

When I lately asked former president Nout Wellink of the Dutch national bank DNB, whether there are zombiebanks in The Netherlands, he didn’t answer me that there weren’t any!

His answer was in fact quite intriguing: Wellink: When I would answer such a question, then you would draw your own conclusions upon individual banks. These are good and interesting questions and many analysts are looking at this topic, but it is not opportune for me, as an ex-supervisor, to answer this question.

This was about as close to a full-blown ‘yes’ as someone in his position could be. As a matter of fact: it is my firm opinion that almost all large Dutch banks have a lot of dead bodies floating in the assets of their balance sheets:

• vacant, depreciated commercial real estate;
  
• overpriced residential RE;
  
• underwater mortgages in arrears, which probably won’t be paid back;
  
• sovereign bonds of problem-countries, which are not priced ‘marked to market’, but are kept at a ‘fantasy rate’;
  
• collaterized debt obligations (CDO) and Mortgage-Backed Securities (MBS) in any kind against historic values;
  
• derivative trades, which are sometimes at the brink of going awry. 

When it comes to the balance sheets of banks, in my humble opinion the ‘modus operandi’ is ‘don’t ask, don’t tell’.

It is saver for everybody not to tell that ‘the emperor might not have any clothes on’. So everybody keeps quiet: not only in The Netherlands, but everywhere in Europe.

The labour crisis

Today, we celebrated a Champagne-moment in The Netherlands: after almost 24 months of continuously soaring unemployment and youth unemployment, unemployment finally dropped in August 2013. According to the Central Bureau of Statistics, youngsters were almost totally accountable for the drop in unemployment.

Before you put your Halloween-costume on and start to dance to the music, it is good to look at some circumstances:

• In August and September is always the start of the school and university year: many youngsters might have chosen after all to (re)start a higher vocational or university education, after they failed to find a job in summer. Officially, they are not unemployed anymore in such a case.
  
• Other unemployed youngsters might have started a life as freelancer, to simply not be unemployed anymore. Also in this case, they don’t count anymore in the official unemployment rates. 

Yes, this is speculation on my behalf, of course. And perhaps, this favorable CBS data could indeed be the start of a changing trend, when it comes to unemployment. But before I declare the labour crisis finished, I want to see at least three months with diminishing unemployment.

And there is still the remaining problem of the freelancers and the suppliers of business, financial, facilitary and ICT services. These persons and companies are squeezed by their (large) principals, in order to force their hourly rates down to levels that are barely enough to exist from and absolutely not enough to build a pension and contingency fund upon.

All these unemployed people and underpaid freelancers are not the people who will spur consumption in The Netherlands. Neither will the people that still do have a (sometimes lesser paid) job.

And although exports are very important for The Netherlands, it is almost impossible that the economic crisis in our country will finish during a periode of high unemployment and very limited consumption. That dog simply don’t hunt!

The housing and commercial real estate crisis

The vacancy rate of Commercial Real Estate in The Netherlands is the highest in Europe, according to a study of the Twente University and the Vrije Universiteit Amsterdam.

This is “Damocles’ Sword” for the large, Dutch banks and municipalities, who financed these buildings and the ground that they are built upon.

Some municipalities lost many millions of euro’s on their building ground portfolio’s, while many, many other municipalities at least lost a very important source of income for balancing their budgets.

The latter also explains why the Dutch building frenzy continued up to this very day – albeit in a limited state –, while everybody and their sister already saw years ago, that building companies have only been delivering CRE for (structural) vacancy.

Even today, officials are making up the weirdest plans in order to spur renewed production and refurbishing of CRE, in order to save the excess jobs in the building and construction industry. Nevertheless, it remains ‘hoping against better judgment’.

In the past months, both Rabobank and ABN Amro declared independently that the Dutch housing market has hit rock-bottom lately. 2014 might be the year when the phoenix finally rises from its ashes.

You should remember, however, that no structural measures have been taken by the Dutch goverment to do something about:

• the enormous amounts of houses, which are underwater in The Netherlands: close to one million;
  
• the destructive influence of the poisonous cocktail of extremely low interest rates and the mortgage deductability, which led to blatant overcrediting of millions of households;
  
• the enormous void between the low- and mid-priced houses, which are in demand by the Dutch people, and the luxury houses that have actually been built by the municipalities, project developers and the building & construction industry;
  
• the people and families, who are officially ‘too rich’ for social rental houses, but still too poor for rental houses or owner-occupied dwellings.

With this information in the back of your head, it still seems quite awkward to declare an end to the Dutch housing crisis.

The governmental crisis, the social crisis and the crisis of trust

Is there a governmental crisis in The Netherlands? I would say yes!

The PvdA (labour) and VVD (liberal-conservative), which form Cabinet Mark Rutte II, are under normal circumstances both popular parties in the centre of the political spectrum. Both parties have normally broad grassroots among all layers of the Dutch population.

However, the current situation is not normal:

During the last months, the Cabinet Rutte has been clutching at straws, as it lacked a majority in the First Chamber (the Dutch senate). Consequently, the cabinet closed on a number of agreements-without-value with almost every organization and pressure group in Dutch society: the employer’s organizations and the labour unions, the healthcare industry and many, many other societal organizations. At the moment when the ink of the agreement was barely dry, the conditions and policies of the cabinet had already changed.

In the meantime, the flip-flopping of both the VVD and the PvdA became so unbearable, that the Dutch citizens seem to have lost their last amount of confidence in their government. Although both parties entered the Second Chamber with a not-too-narrow majority of 79 (of 150) seats, their current polls point at a staggering loss of 47 virtual seats, only leaving 32 virtual seats behind.

All these virtual seats have gone to parties at the edges of the political spectrum:

• the rightwing PVV of Geert Wilders (i.e. Party for Freedom), who is currently in the crosshairs of Marine Le Pen for pan-European cooperation;
  
• the leftwing Socialist Party of Emile Roemer, who seemingly wants to bring the state of the social security back to the level of the sixties and seventies: noble, but probably devastating for the country; 

The results of these failed policies are clear: there is an almost ubiquitous consumer strike in The Netherlands and everybody who still has cash, is hoarding it for a rainy day, in spite of the insulting interest rates at the banks.

The social crisis also lingers on in The Netherlands…

People are afraid for their jobs  and do everything what the boss demands, or else…

Their employers often want to pay their personnel less money, when possible, and the simultaneously rising demands towards the same personnel have been causing increasing amounts of pressure: people are paid less for doing more and more difficult work in lesser time.

The ample availability of inexpensive low- and high-qualified labour from the East-European countries and India, enhances the pressure on the personnel. ‘If you don’t want to do more work, there are dozens of people who would like to take over your job’.

The visible results of all this (although I can’t prove it scientifically) are:

• an increasing number of burn-outs among people (especially youngsters), who can’t handle the pressure anymore;
  
• growing distrust and anger between people and politicians at one hand, but also between population groups, who accuse eachother of sponging on society or stealing eachothers jobs;
  
• an increased number of family-dramas, where mothers or fathers murder their spouses and/or children, before committing suicide;
  
• increased aggression towards government officials, like politicians, policemen, firemen and medical emergency personnel and towards other people; 

Concerning the soaring aggression and open distrust against government officials, there is this heartbreaking story of a policeman: a motorized police agent, who had the grim task of guiding two parents in their car towards their dying child, along a heavy traffic jam.

During this ride, the agent and the parents were cursed by people, who got stuck in the same traffic jam, and treated with so much disrespect, anger and mistrust that it made me really sick:

Various car drivers, who were standing outside their vehicles, were looking angrily at the vehicle, with in it the parents of the victim. The words that these people used, were way below the belt. Then we couldn’t drive further.

A car-driver, who tried to make a U-turn, stepped out of his car and wanted to spill his guts about the long traffic jam and the fact that the police did nothing about it.

I neither had the time nor the desire to start a discussion and demanded him to remove his vehicle, in order to let us drive by.

Initially he refused, because he wanted to know why this vehicle was allowed to follow me and whether these people were perhaps my family, being helped to pass the traffic jam. Did these people have more rights than he did?!

[…] I took myself together and demanded him one more time to go away, as these people had to go to this accident urgently. Utterly slowly, he went to his car, while saying ‘yeah, right!’

This whole sad story is an absolute must-read and it makes you wonder about the blatant crisis of trust which is going on currently. Again, the economic crisis will not end if this crisis of trust and confidence doesn’t end before that.

Conclusion

I let my final conclusion explain by my ‘old sage’ Todd Harrison of Minyanville, as he can say things like nobody else can:

The old saw is that social mood and risk appetites shape financial markets—the Great Depression caused the stock market to crash, not the other way around—but a wide chasm remains between the two, at least thus far.  And much like the stretch leading up to the first phase of the financial crisis, a variant view to the upside skew is being ignored, if not openly mocked.

On this, the five-year anniversary of the financial abyss, we should appreciate how far we've come yet not forget where we've been.  Pundit after politician after corporate chieftain is uniform in their view that blue skies and clear sailing await; that proved true for a significant stretch coming out of 2009, but it's far from certain given the run we've had and what continues to percolate under a seemingly calm financial surface. 

Please watch that surface, before you declare the crisis being over!