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Tuesday, 31 May 2011

Professor and former Minister Willem Vermeend wants Greece to get out of the Euro:for this he should be awarded with the “Golden Doughnut for ill-considered ideas”

Some ex-politicians spend their jobless days with being guest in talkshows and current affairs programmes. Other politicians get a job as professor with a special chair on (for instance) politics or the science of Public Administration.

That is a good choice in most cases, as these politicians have inside knowledge in all kinds of domestic and foreign affairs and can supply special information that was previously unknown for people outside the political arena. Their special knowledge makes them wanted for television and universities.

Sometimes, however, ex-politicians have opinions that seem ill-considered and even ridiculous, but still get a lot of airplay as these people are… ex-politicians. This seems to be the case with former Assistant Secretary of Finance and Minister of Social Affairs and Employment, the current professor Willem Vermeend.

According to professor Willem Vermeend: “Greece should be kicked out of the Euro-zone and it should be forced to readopt the Drachme again. They could, however, remain a member of the European Union” He wrote this in a Op_Ed to Dutch newspaper The Telegraaf ( I will show here a large part of this Op-Ed, translated to English by me. 
The news in the European Union is already hijacked for months by the threat for a default of EU member Greece. The country is part of the Euro-zone and battles with an ever-increasing state debt. At the end of May 2011 this debt was €330 bln, more than 150% of the Greek GDP.
 Besides this gigantic debt, the Greek government spends much more money than in receives in tax yields; Greece has a budget deficit of 11%. On top of that, it doesn’t seem like it that the empty Greek treasury will yield from extra income due to economic growth. To the contrary: the Greek economy doesn’t grow anymore. The Greek economy will even shrink with 3.5% this year, is the general expectance. Due to these problems, the international creditworthiness of this small EU member-state – with a GDP of €220 bln, about 2.6% of the economic domestic value of the Euro-zone – has gone to a very low level, almost equal to junk status. This makes that the Greek government will get  in bigger and bigger monetary problems. As the financial position of Greece is disastrous, international banks and other financial suppliers will only supply money at extreme interest rates. But through the extra loans and extreme rates, the mountain of debt will only become higher, putting Greece in even more trouble. At this very moment the Greek government should already use 35% of its income for interest payments to creditors. With the other European debt countries Spain, Ireland and Portugal this rate is below 5%. 
 Within the Euro-zone, governments disagree about the way that the Greek debt crisis should be solved. There are countries that don’t want to support Greece anymore. Other countries want that import creditors of Greece, like banks and pension funds, share the burden of saving the Greek. The major opinion of voters in the Euro-zone countries is that Greece should stand on its own two feet and should not receive any extra financial support. A lot of voters think that Greece should be kicked out of the Euro-zone. The Greek government itself created the financial mess and they should solve it themselves.
 The majority of governments of the Euro countries want to remain supporting Greece, under the condition that the Greek government will carry out necessary cutbacks and reforms. Governments and (hardly surprising) bankers state that the continuing European support for Greece is necessary to prevent banks from getting in a renewed financial crisis. European banks owe €140 bln in loans to Greece. Proponents of further European financial support assume that Greece can’t repay its bank debt without this European support. These proponents are especially found among bankers. 
 It looks like it that the Euro countries, under heavy pressure of the European Central Bank and the European banking industry, go on with keeping ‘bankrupt’ Greece upright. They lie against their better judgement that Greece will repay its debt. An increasing number of citizens don’t want to be fooled anymore by these people.People are also getting increasingly angry with the fact that governments with their support are busy saving the banks a second time. These banks took – driven by sheer greediness – unresponsible risks and added to the economic crisis. They were saved with taxpayer’s money and that is yet again the case. 
The European debt crisis should be solved by the Euro countries with sturdy, enforcable agreements about debt restructuring and a healthy financial policy with adequate European supervision. Beside that, this policy should be faced with enough public support from the citizens of the Euro-zone. This makes it necessary that the governments of the Euro countries, next to the announced bank tax, ask for a substantial contribution from the banks in the costs for solving this debt crisis.  
Greece should be supported to leave the Euro-zone.
 By itself, it seems that the proponents of further financial support to Greece have strong arguments. The essence of their plea is that Europe can prevent having a new banking crisis and that would get its money (the taxpayer’s money(!)) back eventually. This plea has no convincing power anymore. All international calculations show that Greece already drowned in its debt. Bond investor PIMCO calculated that Greece should have a budget surplus of 8% or more for the next twenty years, to meet the European demand that the state deficit should be brought back to 60% of Greek GDP. This is an impossible demand. 
The stringent cutbacks and increasing debt will let the Greek economy shrink, not grow and it will cause an increase in unemployment. It is also a fact that the inefficient and (according to the international corruption index) corrupted Greek government will not sell enough state-owned properties to substantially diminish the Greek debt burden in order to meet the Euro-zone’s demands. In shorter or longer notice, the Greek government will have to announce to the IMF and the European countries that it will not be able to pay back its debt (in time), in spite of more cutbacks, lower wages and the sales of state-owned properties. The Greek state is bankrupted and it makes sense that Greece decides for itself to leave the Euro-zone. The Euro-countries could speed up this process by offering a restructuring of debt to Greece when it leaves the Euro-zone. This package can exist of a combination of prolongation of redemption terms, a lower interest rate and remission of debt. New European instructions can force the European banks to contribute to this process. By executing this contribution proces in phases, no banks would fall over and no renewed banking crisis would emerge. With its own currency, Greece can work on its economic recovery.
The first part of this letter makes much sense and I have no doubt that the figures shown in this letter are right. The situation of Greece is indeed hopeless and the chances that Greece will pay back its debt are very small. 
It is, however, the last part of the letter that awards professor Willem Vermeend the Golden Doughnut for 'ideas that have a clear hole in the middle':
The fact that Willem Vermeend thinks that Greece can “just step out of the Euro and readopt the Drachme again” is ill-considered and clueless. I especially blame Vermeend for this, because he was Assistant Secretary of the Ministry of Finance and he should know the kind of hard work it was to get the Euro-zone countries into the Euro.

I wrote my reasons in a number of articles:
Here are some snips of the first article:

Already the introduction of the Euro in the vast European non-cash payment network was an operation without a peer in Europe. It started with the setting of fixed exchange rates between the Euro and all twelve native currencies in the Euro countries. 
 If Greece would readopt the Drachme now, it should do the same thing the other way around: setting an exchange rate that doesn’t make the drachme too expensive (the market will punish this as being implausible) or too cheap (a catalyst for hyperinflation in Greece). And there is nobody in Europe that can help them figuring it out. 
After the exchange rates had been set, all computer systems that were used for non cash money transfers had to be made dual currency: for the native currency and the Euro. And if you know that the kernels of much banking and insurance computer systems were from the fifties and sixties (hurray for Cobol, a legacy programming language) and almost nobody dared to touch them in the nineties, you can imagine this has been a very expensive operation (billions of dollars). Greece would have to go through the same operation once again and pay the same amount of money again, with one difference: those banking and insurance systems are even older now and the amount of Cobol programmers has diminished currently. 
For the introduction of the cash Euro the operation was even bigger. All ATM’s, point-of-sale terminals and cash deposit machines needed to be reconfigured for the new cash and non-cash money. ATM’s and cash deposit machines should:
  • recognize the new money;
  • distinguish counterfeits from true money without any mistakes
  • hand out the right amounts of money without grabbing double bills or forgetting to grab bills
  • settle the right amount to account numbers in two different currencies
  • have the right amount of drawers: there are four popular Euro bills, but there might be more popular Drachme bills, as this currency will have a much smaller value.
In Lelystad, The Netherlands, a money warehouse was built by De Nederlandsche Bank (DNB, Dutch national bank) that would give Scrooge McDuck five months of sleepless nights. Before 1-1-2002 there was a stash of litterally billions of Euro’s in coins and bills; afterwards it became the stash of exchanged Dutch guilders.
In the last week of 2001 all money needed to be transported to the banks, large shops, supermarkets and department stores, without being robbed or hindered and with the rockhard guarantee that nobody distributes the money early (people and companies could receive prison time and extreme penalties for early distribution of the Euro). You could imagine that this is a ‘logistical challenge’ in the small country The Netherlands, but an absolute nightmare on Greece with its thousands of islands and shipping as a means of logistics.
And further almost all printed paper and a lot of objects mentioning the Euro need to be changed again: preprinted invoices, pricelists, traffic signs mentioning penalties, matrix signs at exchanges, menucards in restaurants, stationery, account statements. Everything you can imagine has to be changed. 
And the most important factor of the Euro exchange programme was that it had to be finished at 01-01-2002, to be credible for the rest of the world. Also Greece needs a fixed deadline to keep her last bit of credibility. 
Imagine one of the most complicated logistical and financial programmes the world has ever seen. And imagine that the poor Greeks need to do that one more time, without Europe helping them with anything. Can you? I can’t! 
In the first place it is a very complex operation that would turn Greece upside down for at least three years. And it is a very expensive operation that might cost Greece billions of Euro’s. And it is a very, very high-risk operation involving amounts of paper money and coins that are beyond your imagination. And for what? For a currency that soon would not have the value of the paper it is printed on?! Don’t be ridiculous (no offense)! 
Those were my arguments why Greece would not leave the Euro-zone and these arguments stand –  yet again – upright.

Of course the Greek will have to restructure their debt. But they should do this as a member of the Euro-zone. Of course this would have grave consequences for the stability of the Euro-zone and for the banks within the Euro-zone. But these consequences are (in my opinion) not worse than if Greece would leave the Euro-zone. There will be pain either way, but the pain for Greece and the other Euro-countries will be less if Greece stays in the Euro-zone.

And therefore I want to award professor Willem Vermeend with the Golden Doughnut for ill-considered ideas: fighting the right problem with absolutely the wrong solution.

Monday, 30 May 2011

Dutch market gardeners want social support, due to EHEC bacterium

Germany is currently under influence of a growing epidemic, caused by the enterohaemorrhagic E. coli (EHEC) bacteria. More than thousand people already became ill in Germany alone and also in France, The Netherlands and Denmark victims of this bacterium have been found; all victims have presumably visited Germany shortly before.

At least ten people died over the last days. Dozens more are in a life-threatening situation, due to this very aggressive bug that causes heavy bleedings of the intestines and also can cause kidney-failure. Both might lead to the death of the patient. The probable cause for this outbreak, according to the German authorities, are cucumbers coming from Spain, that have been contaminated during the growing process or during transport.

Like often in these situations, there are substantial economic consequences from this outbreak, making it not only a health disaster, but also an economic one.The following snips are extracted and translated from an interview taken by BNR, the Dutch Business News Radio station (, with Geert Pinxterhuis, representative of the Commodity Board for Market Gardering. Also from the accompanying article (link in Dutch) some snips have been used:

“Dutch market gardeners, growing cucumbers and tomatoes, are hit very hard by the recent outbreak of the EHEC Bacteria in Germany” according to Geert Pinxterhuis. “The preseason was already bad, due to unfavorable price-making and now the sales to Germany have collapsed. 
If Dutch market gardeners will fall over, depends on the speed at which the official investigation is executed. This investigation should point out which crop has been contaminated and where this contamination has happened. The main suspect are currently cucumbers, coming from Spain. 
There is nothing that Dutch market gardeners can do nowadays to prevent economic headwinds:cucumbers and tomatoes are plants and when these have matured, the gardeners have to start harvesting” 
On the question whether Dutch tomatoes and Cucumbers are safe, Pinxterhuis answered: “The Dutch growing process is a certified process. The trust of the Dutch market gardeners in the quality of their crop seems to be confirmed by investigations that have been executed. To be frank: all cases of the illness can be reduced to Germany. If you wash your vegetables carefully (like you always should do), it is perfectly safe to eat Dutch tomatoes or cucumbers”.
Dutch cucumber growers grow a staggering 1.6 billion cucumbers per year. Half of this crop goes to Germany. That makes Germany an extremely important market for Dutch growers. The fact that the export of cucumbers to Germany totally collapsed, will probably urge the Dutch market gardeners to ask for government support.
 “When the overall picture of the impact of EHEC on sales and price-making is drawn, the call for governmental support measures might be inevitable”, according to again Geert Pinxterhuis. 
This afternoon (May 30th),  there are emergency talks at the Commodity Board on the economic consequences of this bacterium for The Netherlands. German Chancellor Angela Merkel advised the German population, on Sunday, May 29th, to quit eating salad-vegetables until the source of the bacterium has been found. A majority of the German population follows this advise, causing the most important sales market for Dutch market gardeners to collapse.
The EHEC bacterium is definitely a killer bug and it is fully understandable that the German government takes very decisive measures to prevent further infection of German people. This is extra important as the incubation period of this bacterium is said to be up to ten days (a relatively long period), which makes it very hard to discriminate between possible sources of infection.

It is also fully understandable that Dutch market gardeners of cucumbers and tomatoes, who see their main source of income become unmarketable, ask for government help. When help stays out for these gardeners, this might cause them eventually to default.

That I understand the market gardener’s request for government support, doesn’t mean that I’m automatically symphatetic towards such a request. As a market gardener you are an entrepreneur, that made a very distinctive choice for a certain kind of crop in the past. When the prices and numbers sold of the crop are good, the gardener yields from this. When sales decrease, you can see this as entrepreneur’s risk.

On the other hand, there is currently such an exceptional situation (total loss of demand) that I would fully understand if the government creates a transitional arrangement for the gardeners, in the form of a temporary subsidy or loan.

To draw a conclusion of this situation: you could say that the current monoculture at market gardeners (growing only one crop in large quantities, instead of growing small quantities of various crops) can be a risk for their existence, if there is total loss of demand. That might be a lesson learned.

Breaking news:

According to the European Commission, also a shipment of Dutch cucumbers is under suspicion of being infected. Further, shipments of cucumbers from Spain and Denmark are under suspicion.

Friday, 27 May 2011

Forget the data economy and look at pharmacy: antibiotics in particular. It might save your life, one day.

Antibiotics, discovered first in 1928 by Sir Alexander Fleming, were arguably among the greatest discoveries (inventions) of the 20th century and saved numerous lives during the 2nd World War and in the years thereafter.

Patients that were sentenced to death in former days, due to dangerous bacterial infections, aggressive illnesses like pneumonia or infected wounds, suddenly had a chance to survive their illnesses and live long and happily ever after.

If one group of drugs deserved the statement ‘wonder drug’, than must it have been the antibiotics. You could compare them with a sword, that could kill all bacterial enemies.

But due to exaggerated and needless usage of antibiotics this sword is getting more and more blunt. New generations of resistant bacteria are advancing: not only to the hospitals, but now also into the households of millions (and eventually billions) of people. And they will stop for almost nothing, unless very expensive, often toxic and therefore harmful antibiotics.

Where can you see the most needless usage of antibiotics?

You would expect that the most needless usage of antibiotics occurs among humans, but this isn't true. Although hospitals and inexperienced doctors in countries all over the world caused numerous cases of faulty usage or even abuse of antibiotics among patients, this is not at all the biggest problem.

The biggest problem is that antibiotics are used ubiquitously in:
  • cattle breeding of beef, poultry, turkeys and pigs
  • fish farms

It is calculated that the food industry accounts for almost 70% of all antibiotics usage.

A course overview, produced by Dr. Randy Regal of the University of Michigan in 2002 (!) reveals the following details:

Here is a list of several antibiotics that have played an extremely important role in resistance occurring through this modality.
  • Avoparcin in Europe.
  • Virginiamycin in the United States.
  • Ceftiofur, which is a third generation cephalosporin, in the United States.
  • Penicillins and tetracyclines in the United States.
  • Quinolones in the United States.
These are all antibiotics that are used in humans as well.
Here is a bit of an overview. The food industry use of antimicrobials in animals consists of about 40-50 percent of all antibiotics used in this country. Cleverly, the antibiotics are called "antimicrobial growth promoters," or AGPs. The reason why they are so desirable is that they increase growth and "feed efficiency" in animals by 2-4 percent. If you are a livestock farmer, 2-4 percent may be more than even your profit margin. To the farmer, there could be perceived negative ramifications to not using antimicrobial growth promoters.
Although this course is already quite old, it may be worth your while to have a look at it.

How topical the subject of antibiotics abuse is, is proved by news, published within the last few months:

Here are some pertinent snips of all four articles:

Bedbugs found carrying MRSA, dangerous drug-resistant bacteria
In Vancouver, scientists are analyzing the correlation between an outbreak of severe bacterial infections and a boom in bedbug infestations, according to a report initially released by The Associated Press.  The trends are thought to be related and are cause for growing concern in U.S. urban areas, where bedbug outbreaks have been on the rise. 
Hospital patients in British Columbia were afflicted by both attacks from bedbugs and infections from the dangerous MRSA bacteria (methicillin-resistant Staphylococcus aureus).  The number of coincidences led doctors to intuit a causal relationship. 
Examination of five of the Canadian bedbugs revealed that three of the parasites were carrying MRSA, and two were carrying VRE, or vancomycin-resistant Enterococcus faecium, another slightly less dangerous form of drug-resistant bacteria. 
Though a definitive correlation has yet to be established between the blood-sucking bugs and the bacterial infections, researchers are examining the possibility that bedbugs have actually been spreading the germs.  
The incidents occurred in poor neighborhoods where crowding is considered by investigators to be a contributing factor in the spread of both the infections and infestations. 
According to Dr. Marc Romney, co-author of the study released in Emerging Infectious Diseases, published by the U.S. Centers for Disease Control and Prevention, “it is not clear whether the bacteria originated with the bedbugs or the bugs picked them up from people who were already infected.”

Researchers find superbug gen in New Delhi water
A gene that can turn many types of bacteria into deadly superbugs was found in about a quarter of water samples taken from drinking supplies and puddles on the streets of New Delhi, according to a new study.
Experts say it's the latest proof that the new drug-resistance gene, known as NDM-1, named for New Delhi, is widely circulating in the environment — and could potentially spread to the rest of the world.
Bacteria armed with this gene can only be treated with a couple of highly toxic and expensive antibiotics. Since it was first identified in 2008, it has popped up in a number of countries, including the United States, Australia, Britain, Canada and Sweden.
Most of those infections were in people who had recently traveled to or had medical procedures in India, Pakistan or Bangladesh.
"This is not a problem that is looming in the future ... there are people dying today from infections that can't be treated," said David Heymann, chairman of Britain's Health Protection Agency. He was not linked to the research.

People that know me well, know that I’m the last person to promote fear-mongering. You should therefore not see this information in this light.
Deadly E. coli outbreak claims first victims
Three people in Germany have died from an outbreak of virulent enterohaemorrhagic E. coli (EHEC) bacteria, as potentially deadly diarrhoea continues to spread across the country. Many of those infected are fighting for their lives in intensive care units.
More than 350 cases or suspected cases have been registered, with several of those affected in critical condition. One patient is in a coma. EHEC can lead to kidney failure which can be fatal, as well as severe anaemia.

Two company canteens run by consultancy giant PriceWaterhouseCoopers in Frankfurt were closed on Friday after it was established that all 19 people infected with the EHEC bacteria had eaten there.

The EHEC bug occurs sporadically every year in Germany, but the current outbreak is unusual, according to public health body, the Robert Koch Institute (RKI).

Hotspots of infection include the northern state of Schleswig-Holstein, where the number of suspected cases rose between Monday and Tuesday from 90 to 200, as well as Lower Saxony, Hamburg, Hesse and Mecklenburg-Western Pomerania.

“The number of severe cases (more than 80 HUS cases) in a short time-frame is very unusual – and the age groups are atypical. Currently, adults, overwhelmingly women, are affected,” an RKI statement said.

It said that last year around 1,000 EHEC cases were reported in Germany, resulting in two deaths.
What exactly is this Ehec virus?

Four people died and over 600 were infected with a highly dangerous intestinal virus called Ehec within a week in Germany. The virus spreads quickly and scientists have no real idea where it comes from.
Ehec is part of the Ecoli bacteria group that causes bloody diarrhea in humans.
Germans have been told to stay away from raw vegetables, fruits and milk. While raw tomatoes and salads are on the list of the most likely sources the virus was actually found on cucumbers imported from Spain.
So what’s this mysterious virus?
Ehec is more dangerous than a normal gastric flu because its bacteria enter the intestines and start dissolving them.
It’s so hard to treat because the bacteria are resistant to most antibiotics. And the pills that can help, can also help the Ehec bacteria pump a kind of poison into the body (source:
Contagious disease specialists from the German Robert Koch institute have declared Ehec an epidemic.
Virologist, Alexander Kekule, from the University in Halle told the German newspaper “Tagesspiegel” that the outburst of Ehec is “odd and alarming”. Usually these kinds of infections are really rare, he says (source:
He also thinks that it can’t be ruled out that Ehec was let loose deliberately as a biological attack.

However, people should be aware that the abuse of antibiotics among humans and especially animals can possibly lead to a future where our trusted sword – the antibiotics – has become so blunt that it doesn’t work at all anymore.

Bacterial diseases and infections that are treated relatively easily nowadays can turn into mass murderers on a global scale: bacterial pneumonia, salmonellae, meningitis, infections with streptococcae, staphilococcae and wound fever. It will be like turning back the clock for 65 years. The first symptoms of this happening are omnipresent and the effects will be reinforced if legislation in countries all over the world does not do anything about antibiotic abuse. "Cause of death: an infected Spanish cucumber" might sound very ludicrous, but it could be the future if nothing happens.

I’m convinced that in the pharmaceutical world the awareness is already high, but the question is always: who will pay the vast expenses of research, which could amount billions of dollars. If pharmaceutical companies need to pay these costs themselves, they will try to guard their new found drugs with longlasting patents and monetize them, by delivering the medicine to everybody that will pay for it: for instance the cattle breeding and fish farming industry. And then would all research be in vain.

So I think in these special cases, the governments of the wealthy countries should step in and pay a large amount of these research costs, under the condition that the newfound drugs may not be patented and will only be used on humans under supervised conditions. Am I overly optimistic, here? Maybe, but I want my children to have good medicine and a healthy future too. As I said in the beginning: Antibiotics might save your life one day

Thursday, 26 May 2011

Moods and trends in The Netherlands are quite negative: Time to become bullish again?

One of the smartest professors at Minyanville (, Professor Kevin Depew, often says (in a little different words): 
  • If the socionomic mood is so positive that even the taxi drivers are talking about investments and stock trading, than it is time to become bearish. 
  • On the other hand, if the socionomic mood is so negative that it is hardly possible to find any positive news whatsoever, than it is time to become bullish again. 
It is good to look at the latest figures of the Dutch Central Bureau of Statistics ( with these statements in mind. 
Producer confidence drops back further
Producer confidence fell slightly in May. The indicator stood at 3.1, as against 4.6 in April. The indicator dropped because manufacturers’ opinions on their order positions deteriorated considerably. The producer confidence index declined for the second month in a row in May. In March, producer confidence had reached the highest level in three years with 5.8.

Producer confidence consists of three component indicators: manufacturers’ opinions on their order positions, the expected output in the next three months and manufacturers’ opinions on their stocks of finished products.

Opinions on order positions deteriorated considerably, but manufactures were slightly more optimistic on their stocks of finished products in May than they were in April. Expectations on their output over the next three months hardly changed.

Just as in the preceding months, manufacturers anticipated an increase in factory gate prices over the next three months. The number of manufacturers expecting employment in their branch to rise was about the same as the number expecting employment reduction. With 104.5, the order position index (orders received expressed in months of work) was slightly below the level in April.
Producer confidence in manufacturing industry
The main problem with the industrial production is still that the domestic business-to-consumer market is not improving very much. 

The consumption could increase slightly in the coming months now the vacation bonus has been paid for 2011. The structural consumption, however, is still wel below 2007 levels and will presumably remain there, due to worries on the economic crisis in the Euro zone. This means that goods nowadays are especially produced for other businesses (business-to-business) or for the export. 

Both categories can be expected to suffer from the economic worries on the PIIGS-countries, especially Greece, Portugal and Spain.

Providers of business services slightly less optimistic
Providers of business services were slightly less optimistic in May about their future turnover than in April. The number of business services providers anticipating turnover growth during the next three months still outnumbered those anticipating a decrease, but, with +15, the difference between optimists and pessimists was reduced relative to April (+23).

Providers of business services were also less optimistic about future employment and the economic climate in their sector. The number of business services providers expecting price increases in the three months to come was about the same as the number expecting prices to drop.

Just like in the previous months, temp job agencies were in high spirits. They were very optimistic about their future turnover and the economic climate. They also still expected to hire more staff in the next three months. The mood was less optimistic among other providers of services within the sector business services.

Expected turnover business services

It is hard to assess these figures and figure out their value in the economic development. Take for instance the optimism in the temp employment agencies. 

The fact that these are very optimistic can point out that there is economic growth, but that this growth is not strong enough for companies to hire steady employees. That is as much a bullish as a bearish signal.
Other providers of business services are less optimistic. Can this be, because the large employers (banks, insurance companies and other large employers) put pressure on them to lower their prices? That would be a deflationary (= bearish) signal, instead of a bullish signal.
Drop in house prices considerably more substantial
Prices of existing owner-occupied houses were on average 2.1 percent lower in April 2011 than in April 2010. 
According to the price index of existing residential property – a joint publication by Statistics Netherlands and the Land Registry Office – house prices dropped more dramatically in April than in March, when they were 1.1 percent lower than one year previously. 
All types of dwellings were cheaper in April 2011 than in April 2010. Prices of detached houses dropped most (4.6 percent). Prices of terraced houses decreased by only 1.2 percent.Prices fell in all provinces except in Zeeland. With 4.0 percent, residential property prices declined most in Flevoland. 
Prices in Zeeland were 0.8 percent up.Prices of existing residential property units dropped by 0.3 percent relative to March 2011. In March, prices were marginally higher than one month previously.Over 10 thousand existing residential property units changed hands in April, i.e. a decrease by 9 percent from April 2010. 
With over 12 percent, sales of apartments dropped most. The number of detached houses sold, on the other hand, increased by over 2 percent.  Altogether, the number of sales in the first four months of 2011 was marginally lower than in the first four months of 2010.

Prices of existing own homes

I wrote many articles on the Dutch housing market:

For the steady readers of my blog (thank you all and please keep on reading), the figures mentioned here cannot come as a surprise. The housing market is still very much locked up and this little drop in prices will do absolutely nothing about it. The Dutch powers-that-be keep the prices artificially high, instead of letting them go and perhaps compensate the homeowners that get into financial trouble.

Normally stable prices are a bullish sign, but for me these stable housing prices are a bearish sign. It means that the problems on the housing market will remain there for years to come and nobody is willing to do something about it. 

Mood among Dutch consumers remains gloomy
The mood among Dutch consumers remained gloomy in May, the consumer confidence index stood unchanged at -10. Consumers were less confident about the economic situation in general. Their willingness to buy increased marginally, but remained at a low level.

Consumer confidence

The mood about the economic climate was more negative in May than in April. This component indicator of consumer confidence dropped 3 points to -9. 
Consumers were obviously more negative about the economic climate over the past twelve months, but their opinions on the economy in the next twelve months hardly altered.The component indicator willingness to buy increased by 1 point and stood at -11. Willingness to buy remains low. 
The modest improvement in May was entirely due to consumers’ conviction that the time was more favourable to buy expensive items than in the preceding month. Opinions on their own financial situation, on the other hand, were slightly more pessimistic than in April.

Consumer confidence, seasonally adjusted

It is absolutely no surprise that consumers are still very bearish in their opinions. People notice that the housing market is not unlocked yet, making it for starters virtually impossible to purchase a house. People are also worried on:
  • the near-future cutbacks by the government, concerning subsidies on child care and tax breaks on their environmentally friendly car 
  • their pensions and their savings, choked to death by the low interest rates 
  • the developments in the PIIGS countries that might cost them lots of tax money in the near future. 
    • People don’t believe the government when it promises that guarantees and loans to Greece and Portugal won’t cost the Dutch taxpayers anything. People know this is a blatant lie. 
Don’t expect the Dutch citizens to become more optimistic very soon, as almost all politicians are busy with maintaining the current messed-up situation, instead of clearing the road for a new period of economic growth.

All in all these figures of the CBS were quite bearish. But be aware of the truthfulness of this saying: ‘it is always darkest just before dawn’. Dawn might be underway sooner than you might expect

Wednesday, 25 May 2011

“Last dictator of Europe” Alexander Lukashenko of Belarus in deep financial trouble, in spite of Vladimir Putin coming to the rescue; Belarus Rouble devalues by 50%.

People call it the last dictatorship of Europe: Belarus or White Russia. This country –  one of the former Soviet republics, lying between Russia and the Ukrain – is ruled with an iron hand by Alexander Lukashenko, president since 1994.

Where you could say that countries like Ukrain and Russia have accepted some kind of democracy and free market economy, albeit seriously flawed ones; there is no doubt who is the boss in Belarus. One look at the inflexible face of ‘Alexander Grigoryevich’ shows you: here is ‘one tough cookie’.

Alexander Grigoryevich Lukashenko,
president of Belarus

Picture courtesy of
But even the toughest of the presidents of the former Soviet republics has to accept that if you try to force the economy, the economy will force you in the end.

The Financial Times ( writes two stories on the growing problems of Belarus with its financial situation and its currency, the Belarussian Rouble. I will show here some pertinent snips of these articles and add my comments. 

Putin offers Belarus a $3bn bail-out 
Away from frantic negotiations over how to save Portugal and Greece, another peripheral European country is scrambling for a bail-out. But Belarus is looking not to the European Union or the International Monetary Fund but to a grouping of ex-Soviet republics led by Russia.
Vladimir Putin, Russia’s prime minister, flew to Minsk on Thursday to offer Belarus about $3bn in loans over three years from the Eurasian Economic Community, in return for undertaking economic reforms and privatising state companies – which could see Russia take controlling stakes in strategic assets such as oil refineries and pipelines.
“It will help to improve investor sentiment,” said Anastasiya Golovach, an analyst with Renaissance Capital. “But Belarus will definitely have to pay something for this and Beltransgaz [operator of the east-west pipeline shipping Russian natural gas to the EU] will be the price.”
Moscow is relishing Alexander Lukashenko’s discomfort, as the authoritarian leader of Belarus, who has long had a prickly relationship with Russia, endeavours to calm the growing panic surrounding the Belarusian economy.
Belarus has plunged into a balance of payments crisis, with the current account deficit soaring to 16 per cent of gross domestic product and currency reserves dwindling to a month of import cover. The central bank has introduced multiple exchange rates, seeing a collapse in the rouble’s black market rate.
The economic model that allowed Mr Lukashenko to rule over this largely unreformed ex-Soviet republic of 10m since 1994 has broken down. For many years Belarus was an island of post-Soviet stability, paid for in large part by the import of cheap oil from Russia, which was then refined and exported to the west at a considerable profit.
Several years ago Russia lost patience with the mercurial Mr Lukashenko, who was reneging on promises to bring Belarus into a closer union with Russia, and began to raise energy prices.
Although the former Soviet republics Russia, Belarus and Ukrain in the nineties could be seen as ‘old partners in crime’, the animosity and envy between these countries have been growing strongly, of late. In case of the Ukrain the reason was the growing overture to Europe, the EU and even the NATO that was a clear offense and threat to Vladimir Putin and his henchman Dmitry Medvedev.
For Belarus, however, it was probably the fact that Lukashenko has been tougher and more macho at politics than Putin and Medvedev together. To understand this, it is important to know something of the culture in these countries.
These countries of the former Soviet Union seem to have some things in common, like:
  • Idolizing of the President and people in power in general;
  • People thinking they need strong leaders to be able to survive in the world;
  • Overexaggerated respect of the people for their country’s history, authorities, ‘famous people’, artists and old sports and army heroes;
  • A culture of nepotism and pork barrel politics;
  • Incomprehensible laws and many unwritten rules of conduct that force people to find original ways to obtain products and services.
  • As a result: An informal economy that is fueled by the “if you scratch my back, I scratch yours”-attitude under the people to get things done or undone;
  • As a second result: Widespread corruption;

So where Americans and West-European people might look at Lukashenko as a dinosaur from forlorn ages, in Russian eyes he is a tough and strong leader that doesn’t prick up his ears to Russia, America or the European Union and sails his own course. That gained Lukashenko a lot of respect. That fact might have annoyed Putin and Medvedev, who both suffer from dwindling respect and authority in their own country in a pre-election year and now see a chance to get even with Lukashenko.
The fact that Lukashenko has to hold out his hands to Russia is a defeat for him and a victory for the Russian leaders. The article is very right that this will come at a high price. How high this price will be, can be seen in the coming months.
Watch out for companies like Gazprom, Rosneft (oil), Lukoil and others that are closely attached to the current Russian government, to obtain important parts of former Belarus state companies. And Putin and Medvedev probably also want to buy the unconditional loyalty of the Belarus government.

Belarus devalues its currency
Belarus on Tuesday lowered its official exchange rate against the dollar by 36 per cent, but analysts questioned whether even such a radical step would be enough to resolve the country’s balance of payments crisis.
The central bank lowered the official rate for the dollar from 3,155 roubles to 4,930 roubles but the move appeared to have little impact on the street, as the bank also said over-the-counter currency traders could not deviate by more than 2 per cent from the official rate.
The bank also continued to refuse to sell foreign currency to commercial banks.
Belarus has run into increasing economic trouble in recent months as the country’s state-controlled economy has proved unable to deal with Russia’s increase of energy prices and the spending increases by authoritarian President Alexander Lukashenko before last December’s presidential elections.
Currency reserves have dwindled to $3.8bn and Belarus is running a current account deficit of about 16 per cent of gross domestic product.
The $3 bln loan that was granted to Belarus by the Russian government seems like something out of Lukashenko’s own pocket, as he needs to pay the higher energy prices that Russia charges.

However, one should remember that the energy prices that were charged to the Ukraine and Belarus by Russia have always been much lower than the prices paid on the international energy marketa.

This has proven to be a timebomb for both countries, as Russia not only asks for cash, but also for unconditional love in exchange for gas and oil. The second undesired side-effect was an addiction of these countries to cheap oil, instead of being forced to develop more energy efficient industries, offices and houses.

The main problem for Belarus nowadays is that the official exchange rate from the Belarussian Rouble to the Dollar and the Euro is still ridiculously high, compared to the black market rates and that no foreign bank or company will accept this currency, that is akin to the Zimbabwean dollar in (lack of) value. So there is no force that will help the financial situation to increase.

The $3 bln will be spent in a jiffy and after that Belarus will be forced to sell its crown jewels: to the Russian stateowned companies or the ever hungry Chinese that are always looking for ways to expand their influence in Europe. Also this cash will disappear soon if the Belarussian economy doesn’t seriously change into a competitive one.

And Lukashenko: he is trapped between a rock and a hard place and he might have a beautiful future behind him.

However, one good thing is that wages in Belarus are relatively low and the people are very well-educated. A change in the government might open the Belarussian markets for western investors that want to move their production lines there.