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Friday, 30 September 2011

Quarterly review of the Dutch citizen’s perspectives by the Dutch Social-Cultural Planning Bureau contains depression-like data

In The Netherlands, there is, next to the Central Bureau of Statistics, another national bureau that is involved with the economy and society: the Social-Cultural Planning Bureau (

Where the CBS focusses on ‘hard data’ like unemployment, industrial data and consumer trust, the SCP digs deeper into the moods and minds of the people towards economy, politics and other topics.

Today the SCP presented its Quarterly review of the Dutch economic circumstances, the so-called Continuous Investigation Citizen’s Perspectives’.

And as could be expected after the economic moodswing that took place in the middle of this year, the data were depression-like. Here are the pertinent snips of this report, accompanied by my comments:

·     Less positive mood: optimism on the situation in The Netherlands drops to 26% from 32%
·     Concerns on economy: 41% expects deterioration (was 26%)
·     Growing concerns on the cutbacks in national healthcare
·     An increasingly negative view on the EU, due to the Euro-crisis
·     Own responsibility? Ample support for the principle, but serious doubt on everyday practice.

Positive mood of early 2011 vaporized

In the first half of 2011, the mood in The Netherlands was a little more positive than in the previous years, but in Q3 this positive mood vaporized. The share of people that thinks that The Netherlands is developing in the right direction, is back at the old level of 26% (compared to 32% in the first half of 2011)

Since the inauguration of the Cabinet Mark Rutte I, the trust in the government rose. But this quarter the positive trend stalled. However, there is no significant drop in trust yet; the political trust is well above last year’s figures: 54% has sufficient trust in the government, 57% has trust in parliament. Remarkable is that the trust in the labor unions dropped to 61% from 70%. This drop is probably caused by the unrest within the unions on the pension agreement.

It is my opinion that the positive mood at the beginning of this year was based on quicksand. The Dutch economy hardly suffered from the biggest crisis since 1929, while more recent economic crises (1981, 1994 etc.) always gave reason for massive concerns and rising unemployment.

The government postponed the inevitable deflationary period with the part-time unemployment benefit and other subsidies and assignments (f.i. for building new (and unnecessary) government accomodation) that should fire-up the economy. This will now be backfiring, in a quick return of the recession (i.e. depression).

And concerning the labor unions: these are growingly obsolete organizations that are clutching at straws to remain influential in society. Every union leader needs to defend his reason for existence, even against his colleagues. This leads to political battles that scare away union members and non-union workers.

Concerns on economy grow

Last quarter, 26% of the Dutch citizens expected a deterioration of the economic situation in the coming 12 months, but this number has risen to 41%. The share of people that gave the Dutch economy a ‘satisfactory’ note, dropped to 69% from 73%. In the summer of 2011, the concerns on the economy were not yet accompanied by worries on the own financial situation, but it is well possible that this is going to change as a result of government cutbacks and continuous news on the euro crisis.

I don’t belong to the group of people that thinks that societal mood is shaped by the economic and political situation. It is more the other way around. But the fact remaining, is that EU and US politics failed in every aspect during this year.

People that had an already shaky mood, are firmly pushed in the ‘negative’ corner; while their personal financial situation isn’t reason for concerns, they see politicians mess up the political process on the Euro and consequently worry on their future financial situation.

Growing concerns on the cutbacks in national healthcare

Healthcare rose from sixth to second place on the list of most important societal issues. This increase is totally attributed to rising concerns on the cutbacks in national healthcare. Cutbacks on the so-called ‘Personalized Budget’ [PGB; a personal budget that enables chronically ill people to purchase necessary healthcare, home care and additional resources at the free market – EL] are mentioned most often as a source for concerns.

The aging process in The Netherlands (i.e. the grey tsunami) and the soaring healthcare costs originating from this, is an enormous reason for concerns. Even healthy families with children worry on the soaring costs for healthcare (hundreds of euro’s more expensive every year), while the coverage of their insurance is depleted.

Very cost-effective, but nevertheless expensive measures like the PGB, are replaced by central purchasing of healthcare for 90% of the chronically ill, which will be even more expensive eventually and leaves many ill people in a much worse medical situation.

More negative on the EU as a consequence of the Euro-crisis

Satisfaction with European policy drops to 39% from 46%. The share of people that agrees that Dutch membership of the EU is a positive factor, drops also to 42% from 48%. People worry on the euro-crisis, the financial position of other EU-countries and the contribution of The Netherlands in helping these countries. People fear that Dutch people must foot the bill for financial mismanagement in other countries.

I have said anything I wanted to say on the ridiculous puppet theatre around the euro-crisis. Dutch and European politicians showed their incompetence at numerous occasions and scared the European citizens sh*tless. Instead of finding a definitive solution, politicians kicked the Greek can down the road. And the Dutch citizens know and understand this.

Substantial amount of people support  ‘own responsibility’ as a principle…

Just like most Europeans, the Dutch rather want people to take more responsibility for their own life, than that the government should take care. People call it more pleasurable to have their lifes in their own hands. 47% of the interviewed supports this principle (varying from 25% of the Socialist Party to 78% of the liberal-conservative party VVD).

…but are doubtful on concrete proposals

When there is a concrete shift of responsibilities from the government to citizens, people are more sceptical. Citizens think they already have many (and increasing) responsibilities and that the government is failing. People fear an ‘American society’ of bigger unequality between societal classes (Rich vs middle class and the poor) and too heavy burdens for weak groups in society. People cling on to the concept of good, affordable and accessible basic facilities in healthcare and education.

My American readers must understand that The Netherlands is a social-democrat, pro-solidarity and pro-government country to the backbone. Everybody wants to have more own responsibility, but nobody wants that people, unable of shaping their own lifes (due to mental/physical handicaps or poverty), suffer from this policy.

People noticed that ‘own responsibility’ for the Dutch government is often a euphemism for draconic cutbacks on social/healthcare programmes, while leaving the ‘residence subsidy’ (the Mortgage Interest Deduction) of which the upper class benefits most, untouched.

This makes people angry and mistrusting about politics.

Thursday, 29 September 2011

Smartphone war claims another victim: Nokia slashes 3,500 jobs and closes Romanian factory.

One starts to feel sorry for Nokia. One of the first, most successful and innovative companies in the cell phone business is currently like a cornered boxer that receives blow-after-blow from his much stronger opponents.

Although the brand with a 24.2% market share was still market leader in the overall cell phone market in 2Q11 (chart 1), it suffered a loss of 9.6% in market share Y.o.Y.

And if we zoom in to the much more lucrative smartphone market alone, the brand dropped even from a 37.3% market lead (2Q10) to a worrisome 15.7% in 2Q11 (3rd rank), a huge 17.6% drop (chart 2). Winners in this market were Apple (now market leader) and especially Samsung, that almost tripled its market share and saw a mindboggling sales increase of 380.6%.

Chart 1 Top five overall cell phone vendors; chart courtesy of
Click to enlarge

Chart 2 Top five smartphone vendors; chart courtesy of
Click to enlarge
It´s not easy to say what caused this enormous drop in sales in both the cell phone (-/-15.3 mln units), and the smartphone market (-/- 7.3 mln units). But, partially based on my personal experience, I would name the following reasons:  
  • The market for normal cellphones evolved from a growth market to a replacement market and besides that, its market share is cannibalized by the popularity of smartphones 
  • The poor quality of Nokia volume models. Where earlier series (1996-2006) were almost indestructible and with state-of-the-art operating systems, later models suffered from wobbly plastic parts, poor lacquer finish, a flimsy plug on the adapter that often causes recharging problems and very average software. Nokia changed from a dead cert into a dubious choice, if you buy a new cellphone subscription-with-phone-included.
  • The more expensive models are still of excellent quality, but the value-for-money is doubtful in this category.
  • Nokia totally seemed to miss the smartphone boat with its homemade Symbian operating system, that could not by any means compete with Android or Apple. The February, 2011 deal with Microsoft Windows Phone was seemingly enough to scare even the diehard Nokia fans away.

But at least, it was clear that these extremely disappointing results could not be without consequences. And today the consequences were published in a Financial Times ( article, of which I print the pertinent snips.

Nokia to axe 3,500 jobs and close factory Nokia will axe 3,500 jobs and close a manufacturing plant in Romania, as the Finnish handset maker continued its evolution to cope with the growing impact of smartphones on its markets.
Nokia, the world’s largest maker of cell phones by volume, said the closure of the factory in Cluj would result in 2,200 job losses, with a further 1,300 to be axed at its Location and Commerce division, which includes Navteq, the digital mapping group.
The factory, which took seven months to build at a cost of $88m, was only opened in 2008 as a replacement for a plant in Bochum, Germany.
Manufacturing operations at Nokia’s Cluj factory, which makes low-end feature phones rather than smartphones, will be moved to Asia where feature phones are predominantly used.
Thursday’s move is part of a plan announced in April to cut its operating expenses by €1bn over the next three years, which included the axing of 4,000 staff. The 3,500 job cuts at the Romania plant and at the Location and Commerce divisions are in addition to the earlier redundancies.

The situation with Nokia proves that the cellphone market is an extremely tough market, where you are as good as your latest models. 

Reputations are made and broken in less than a year in this enormously competitive, innovative and volatile market. The most difficult job in the world is to come up with a successful turnaround strategy for this once mighty, but currently suffering brand. And I seriously doubt if the cooperation with Microsoft will be the goose with the golden eggs for Nokia.

Tormented aviation industry and China, Russia and the United States cry blue murder: New EU rules for CO2 emission make flying more expensive

The European Union is slowly starting to diminish the effects of the special legal status that is taken by the aviation industry.

As you might know: the aviation industry doesn’t pay excise duty and other taxes on aviation fuel, due to an old, worldwide accepted agreement that prohibits this explicitely. Also the right to produce CO2 was free for the aviation industry, in contrary to other industries like manufacturing, forestry, cattle-breeding and transport that had to pay dearly for these rights.

This is now going to change due to new legislation of the European Union. The Dutch financial newspaper Het Financieele Dagblad ( writes on this story. Here are the pertinent snips:

From next year aviation companies are going to pay hundreds of millions of Euro’s for the exhaust of CO2. German-based aviation company Lufthansa expects additional expenses of €350 mln per year. This was stated by the company.

Cause are the new European environmental rules. Companies that fly inside the EU, will have to pay for their exhaust of greenhouse gasses. Last Monday, September 26, new rules for CO2 emission were set by the European Commission.

The member states will distribute the largest part of the emission rights free of charge to the aviation companies. In 2012, this will be 85% and this will be further diminished to 82% in the years after. For the remaining part, aviation companies will have to purchase additional rights or they should start flying more economically.

After 2013, 3% of the total rights will be reserved for new and fast-growing aviation companies.

The Commission had calculated earlier that the introduction of CO2 emission rights would have a limited influence on the ticket prices. A return ticket from Brussels to New York would be at most €12 more expensive than currently.

The decision led immediately to mixed reactions on Monday. Lufthansa estimated the yearly damage to be between €150 and €350 mln. KLM-AirFrance didn’t yet have an estimation of the additional costs.

The International Air Transport Association (IATA) turned against the European plan from the beginning, and states that the deployment will turn out bad for Europe. According to the IATA, it is not sensible to lay extra charges upon the aviation companies, regarding the current weakness of the European economy.

Trading C02 emission rights is not new. The European manufacturing industry is already tied to a maximum exhaust of greenhouse gasses. If companies want to grow, they have two options: producing more efficiently (i.e. with an equal exhaust of greenhouse gasses) or purchasing emission rights from other companies that have a surplus. Lately the price per metric ton of CO2 emission rights is €14.

The aviation industry didn’t have to pay for their exhaust until now. Also, jet fuel is free of excise duties and taxes. Therefore, the railroad industry is already complaining for years about the unfair competition of the aviation industry.

You can call me a left-wing idiot, but for me this is a good plan. It is ridiculous that the aviation industry is the only transport industry that is totally free of taxes and excise duties on fuel. And the only industry that doesn’t have to pay (in any form) for the massive pollution it causes.

But the exclusion of excise duties for the aviation industry is a worldwide accepted agreement, that made much sense at the moment when it was signed many years ago. For global political reasons, this agreement is not likely to be withdrawn within the next 15 years.

However, nobody can deny that the pollution by the aviation industry is enormous on a global scale; especially in countries with an obsolete air fleet that, as a consequence, uses excess amounts of jet fuel.

Therefore, it is a logical step that the EU tries to do something to stimulate countries and airliners in finding more (fuel-) efficient ways of flying, through the sales / auctioning of CO2 emission rights. Whether this is an effective way, or not is a different discussion.

Nevertheless, I understand the pain of the aviation industry; this industry suffers already for years from minimal net margins and a fierce competition that suppresses the ticket prices. The cost of these emission rights could lead to distortion of competion as European airliners have a competitive edge, due to the received free emission rights.

But this initiative can eventually lead to a worldwide trade in emission rights for the aviation industry. This would help to make this industry more fairly priced against other means of transport, like trains, road transport or container ships. These suffer currently from the unfair advantage for the aviation industry.

You can imagine that many people and countries were not amused. BNR (Dutch Business News Radio; reports on the (anticipated) reaction of other parties towards this EU-plan (link in Dutch). Here are the pertinent snips:

Dutch employers’ association VNO-NCW is fiercely objecting the system for CO2 emission rights that will be introduced in the aviation industry by the EU. Chairman Bernard Wientjes calls it ‘totally unfair’.

This was stated by Wientjes at BNR News radio. According to him, the new system will lead to a trade war.

The United States have already filed a legal case at the European Court in Strassbourg, China reconsiders the purchase of an Airbus plane and Russia considers charging costs for ‘passing the Russian airspace’.

It is logical that the non-EU countries see this as distortion of competion and that they, in the current grim economic climate, take their measures against Europe.

But we should not throw the baby out with the bathwater: the aviation industry needs to be more fairly priced, so travellers and transport companies see the real price of air transport, instead of the heavily subsidized fantasy price is currently has.

Wednesday, 28 September 2011

Will ‘Canary in a coalmine” Greece finally lead to a stronger, more united and decisive European Union?

First to fall over when the atmosphere
is less than perfect
Your sensibilities are shaken by the slightest defect
You live you life like a canary in a coalmine
Pop music can sometimes deliver beautiful metaphores for real life. When contemplating on the situation in Greece, I had to think of the first three lines of this ironic Police-song.

During the last three years, Greece had the dubious honor to be ‘the canary in the coalmine’ for the Euro-zone.

And darn it; what an interesting story this ‘bird’ had to tell:
·   One small group of relatively weak countries (the PIIGS) was (almost) enough to   demolish the Euro and, as a consequence, the whole Euro-zone .
·   The political and economic unity in the Euro-zone was definitely ‘the weakest link’ and it almost led to ‘Goodbye’ for the Euro. In the current structure, it was impossible to make the quick decisions that are necessary to save a currency in distress.
·   The Euro-zone has acted more like 20 frogs in a wheel barrow than as a union over the last three years. Especially in difficult times, politics of choice was the proverbial: “everybody for themselves and God for us all”.
·   Germany, France, Finland and The Netherlands – although perhaps the economic ‘leaders’ of the Euro-zone – are not ‘The Fantastic Four’;
o   Even with the roof and the upper floors of the Euro-house burning, the sense of urgency to form a fire brigade is still missing at the leaders of Germany, Finland and The Netherlands.
o   France’s Nicholas Sarkozy feels this sense of urgency, but is in his own country almost 'presidenta-non-grata'.
o   Germany’s political leadership within the Euro-zone has weakened, due to its current weak Chancellor Angela Merkel.
·    Europe and the US in general share an immensely weak generation of politicians, who are very accessible for the ‘vox populis’ and lack backbone for taking the hard and impopular decisions.
·    The European Commision, on paper the daily executive for the EU and the Euro-zone, is exposed as a toothless tiger with exactly the weak kind of leaders that are favorised by the national leaders of the participating countries: José Manuel Barroso, Herman van Rompuy and Catherine Ashton.

But the Greek debt crisis might be a blessing in disguise for the Euro; finally people start seriously thinking on reinforcing the political union of the Euro-zone and on the deployment of bonds covering the whole Euro-zone: the Euro bonds.

And finally the awareness evolves among the European leaders and citizens that the Euro is a marriage for eternity; not a Hollywood-marriage of which you can easily divorce.

However, the German, Dutch and Finnish people are not yet that far in their mindset and in these countries the populist, anti-European voice is a force to reckon with. But everybody in their right mind knows that it is best for Germany, The Netherlands and Finland  to stick together: losing the Euro would mean losing at least 20% of their yearly exports and perhaps more, is my estimation, based on the German export figures of the last 20 years.

Seen in this light, José Manuel Barroso’s European State-of-the-Union of September 28 was a passionate pledge for reinforcing the European Union before it is too late. And under the current circumstances, I truly hope that it doesn’t fall on deaf ears.

Here are the pertinent snips of Barroso’s SOTU, summarized by the online Canadian newspaper Sympatico ( and accompanied by my comments.

Financial transaction tax
"In the last three years, member states have granted aid and provided guarantees of 4.6 trillion euros to the financial sector. It is time for the financial sector to make a contribution back to society.
"Today, the Commission adopted a proposal for the Financial Transaction Tax. Today I am putting before you a very important legislative text.
"It is not only financial institutions who should pay a fair share. We cannot afford to turn a blind eye to tax evaders. So it is time to adopt our proposals on savings tax within the European Union. And I call on the Member States to finally give the Commission the mandate we have asked for to negotiate tax agreements for the whole European Union with third countries."
I am symphatetic to this proposal for a Financial transaction tax, although I seriously doubt that it will help. It will increase the amount of transactions that are made through notorious tax havens, like The Netherlands Antilles, the Cayman Islands etc. and it will weaken the position of Frankfurt and London, in comparison to Wall Street, Hongkong and Singapore.
Tax evasion is like a virus that should be conquered, as it deprives countries of the money that they need to stay afloat financially. But just like a virus, tax evasion is extremely hard to battle; especially in countries like Greece and Italy, where tax evasion is a national sport.
Slow decision-making:
"The pace of our joint endeavor cannot be dictated by the slowest. A member state has the right not to move. But not the right to block the moves of others. Our willingness to envisage Treaty change will reinforce the credibility of our decisions now."
Barroso is absolutely right here. The Euro-zone has ‘excelled’ in indeciveness, egoism and short-sightedness over the last three years. But unfortunately Barroso has not the stature to directly address this forcefully to the government-leaders of the individual countries. And for a number of EU countries, ‘more Europe is less votes’ for their political elites.
On joint bonds:
"Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all. On condition that such euro bonds will be "Stability Bonds": bonds that are designed in a way that rewards those who play by the rules, and deters those who don't...
"The Commission will present options for such "Stability Bonds" in the coming weeks. Some of these options can be implemented within the current (EU) Treaty, whereas fully fledged 'euro bonds' would require Treaty change."
I’m very much in favor of the fully fledged Euro-bonds, but don’t see this happen within three years, looking at the slowliness of the political processes in the member state. This might be a solution for the next crisis; not for this one.
On economic union:
"We need to complete our monetary union with an economic union. It was an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy."
"In the coming weeks, the Commission will ... present a proposal for a single, coherent framework to deepen economic coordination and integration, in particular in the euro area. This will be done in a way that ensures the compatibility between the euro area and the European Union as a whole."
I miss the words ‘Political Union’ in this statement, but understand that these words are too bold for the current European atmosphere.
On Greece and the euro area:
"Greece is, and will remain, a member of the euro area. Greece must implement its commitments in full and on time. In turn, the other euro area members have pledged to support Greece and each other."
I totally agree on the first sentence, but have serious doubts on the other two sentences. For me, a Greek controlled default (50+% haircut on Greek debt) is the only viable solution.
on Greek economy and lending:
"A program of 500 million euros to guarantee EIB (European Investment Bank) loans to Greek SMEs is already under way. The Commission is also considering a wider guarantee mechanism to help banks lend again to the real economy."
Seeing is believing.
On European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM):
"The EFSF must immediately be made both stronger and more flexible. This is what the Commission proposed already in January. This is what heads of state and government of the Euro area agreed upon on July 21. Only then will it be able to deploy precautionary intervention, intervene to support the recapitalization of banks, intervene in the secondary markets to help avoid contagion."
"Once the EFSF is ratified, we should make the most efficient use of its financial envelope. The Commission is working on options to this end.
"Moreover we should do everything possible to accelerate the entry into force of the ESM (European Stability Mechanism). And we trust that the European Central Bank, in full respect of the Treaty, will do whatever is necessary to ensure the integrity of the euro area and to ensure its financial stability."
It doesn’t matter how big the EFSF and the ESM will be in the future. They will never have the financial fire power that is needed to wear out the financial markets. And as long as politicians in countries like The Netherlands say to their grassroots, that these bail-out funds won’t cost the people any money and don’t need to be bigger than their current size, the financial markets will laugh these funds away.

Barroso’s State-of-the-Union mentioned some extremely important topics and I truly hope that the government leaders take notice of it. But I’m prepared for more stupidity and short-sightedness in the coming months, before the real sense of urgency will evolve. And then it can be too late to save the Euro.

Or just to stick with the analogy of the canary from the beginning of this article: when the poor animal drops, it is time to desperately take measures. And the canary is dropping currently!

Tuesday, 27 September 2011

Dutch mortgage market implodes: 25% less mortgages sold in the first weeks of September, Year-on-Year

There is news that is surprising and there is news that is, uhm,… not surprising.

The following newsflash is definitely in the second category for the steady readers of my blog: The Dutch mortgage market shrunk by 25% in the first weeks of September, compared to September 2010.

The Dutch financial newspaper Het Financieele Dagblad ( publishes this story on the continuing misery in the Dutch Residential Real Estate (RRE) market. Here are the pertinent snips:

The number of applications for mortgages has landed at a new depth. By a combination of new ‘conduct of business’ rules for banks and general insecurity on the economy, the public interest for new mortgages dropped sharply.

It seems that the positive effect of the lowered conveyance duty on the Dutch housing market has already finished, only one month after introduction of this €1.2 bln government measure. The cabinet Mark Rutte wanted to set the stalled Dutch housing market free, by reducing the conveyance duty to 2% from 6% of the net purchase price.

In July, there were temporary more applications, but afterwards it went again down the hill. The Mortgage Data Network (HDN),  a large processor of mortgage applications in The Netherlands, published in a press release that in August only 2000 applications per week came in for a mortgage offer at its website; the first step for acquiring a mortgage.

This was only 50% of the number of applications in July. And not only holiday month August was bad. In the first three weeks of September the market was not much better; only 2400 registered applications per week. This is more than 25% lower than in September last year.

The data of the HDN concerns about 50% of the whole Dutch market. The Land registry offices that register the whole market, have only data on mortgages that have actually passed at a notary. Trends are therefore only visible months later.

Since August, the new ‘Conduct of business code for Mortgages’ came into force. Banks, under influence of the Dutch Authority Financial Markets (AFM), became more strict in their credit supply. A house may only be purchased with an interest only-mortgage of less than 50% of the purchase prices. In the years before, this kind of mortgage could be acquired for the full purchase amount.

Also mounting insecurity on the European economy (Greece) added to this drop in interest.

Again, this news message zooms in on the circumstances that make acquiring a mortgage more difficult or risky.

But again, insiders fail to look at the main causes:
·    Dutch housing is too expensive in general and especially for the starters on the housing market;
·    People that own a house, but want to sell it are prisoners of their extremely high mortgages, while being under water with their house. They can't lower the price of their house, as they would get stuck with residual debt.

In last week’s overview of Dutch housing, you could see that the price growth in all categories of Dutch housing has been extreme (more than 180% in only 13 years), as in a bubble. This bubble is now slowly deflating, but this deflating process will take years and years.

The main reason for this is that the Dutch finance minister Jan Kees de Jager, banks and insurance companies, realtors and the home-owner association all kick the can down the road, hoping to avoid a structural lowering of housing prices in The Netherlands.

But as the Dutch housing market reached ‘Peak Housing Prices’, the lowering of housing prices is inevitable. But it will take a very long time to happen. And all those years the housing market will be locked.

Monday, 26 September 2011

Will the Euro implode? Five possible scenario’s and their outcomes.

Last Friday, September 23 was a typical day at the office:

·        Greece is declared a possible bankruptcy candidate by the new chairman of the Dutch national Bank DNB, Klaas Knot.
·        Dutch state wants to receive €11.5bln in extra loans in the remainder of 2011.
·        Eight Greek banks have been downgraded by Moody’s
·        7 Spanish banks are in desperate need of extra capital to maintain their 5% capital buffer.
·        Europe already supported European banks with €420bln since the crisis started in 2008.

The weekend afterwards was not much better: headlines were shouting that Greece was on its way to default and everybody would already have accepted it.

The IMF failed, the G20 failed and especially Europe failed in finding a solution for the Greek problem, that grew from a little raincloud in 2009 to a tropical thunderstorm in 2011.

It seemed almost too late to take care of the Greeks. Instead, it was rather time to bail-out the French and German banks with their extensive exposure to Greek sovereigns and other loans to Greek banks. 

Therefore, the time seems right for some serious Euro-bashing on the financial markets and I’m sure that will happen in the coming weeks.

But today I would like to look at things from a different perspective: What are the alternatives for this darn Euro?! And are there any alternatives, anyway?

Let’s find out, by taking the five most probable scenarios and putting them to the test.

The scenarios: 

  1. Everything stays as is…

  2. Greece is allowed to make a haircut on outstanding debt, but stays in Euro…

  3. One or more countries leave Euro and return to old currencies

  4. Euro is split up in two or three baby-euro’s: Northern Euro, Central Euro and Southern Euro

  5. The Euro will implode and all members will return to their old currency’s.

Scenario 1:Everything stays as is…

Description: The Euro-zone, IMF and G20 continue their attempts to solve the Greek problem by handing over increasingly large sums of loans, while trying to force vast cutbacks on the Greek population.

Probability: In a normal world, this option would be an absolute no-go area. But one should never underestimate the sheer stupidity that forces the Euro-zone to maintain following the path of maximum frustration (thanks Toddo of for this beautiful proverb).

The discussion in the North-Western European countries is still not about solving the Greek problem before it demolishes the Euro-zone. The tone of voice of the politicians in these countries (i.e. Netherlands, Finland and Germany) is rather about punishing the Greeks for their irresponsible behaviour, installing a Euro commission for budget watching and keeping the EFSF at the current level.

·        It seems the cheapest solution: it is much cheaper to put a few bucks in the EFSF / EFSM and the ESM emergency funds than to accept a haircut.
·        In this solution, the large European banks don´t have to worry on the value of their investments. Greece ´will pay back all loans´.
·        The Euro will remain intact.

·        Nothing is solved really. The Greek drama continues from loan-tranche to loan-tranche and at every new tranche there will be renewed stress and panic under the members of the European Union and on the financial markets.
·        The problems will become bigger and bigger. All parties – countries and banks – with exposure to Greece in any form will be suspicious. Not only countries like Spain, Portugal and Italy will remain in the danger zone as long as the Greek drama is not solved, but also banks like BNP Paribas, Credit Agricole  and Société Générale

Final outcome
In the end, something´s got to give. And that something is Greece… and Spain (?), Portugal (?), Italy (?) and the previously mentioned banks(?). Nobody knows. But one thing is sure: this is not a sustainable path.

Scenario 2: Greece is allowed to make a haircut on its outstanding debt, but stays in the Euro…

Probability: If the Euro-zone can leave the path of maximum frustration, this is the most likely scenario. This scenario prevents Greece from being kicked out of the Euro-zone and gives Greece a second chance to change its habits, after a few years in the penalty box. In the meantime the country gets the proper ´punishment´ by having little to no access to the normal financial markets, but gets on the other hand a chance to clean their slate and start all over, hopefully helped by the other countries of the Euro-zone.

·        When any solution towards Greece is sustainable, it is this one. It will be a relief for Greece to be freed of the debt millstone. The country can start rebuilding its economy and financial system.
·        The country remains in the Euro and continues to keep access to the European export markets.
·        It might be the cheapest solution for the Euro-zone after all. Instead of spreading the pain over numerous occasions, the pain is felt as a heavy blow after the default and then it is over.
·        It is a clear signal towards the Greek population: it is your country that is bankrupted and it is your attitude that should change to regain access to the financial markets again.

·        Initially, this situation might lead to chaos and mayhem in the larger cities of Greece and to increased capital flight of the wealthy Greeks to other country.
·        The large European banks, insurers and pension funds and the ECB will suffer some serious losses. Some banks will need to be bailed-out and some smaller banks might default: the Lehman brothers scenario.
·        There is a risk of contagion, as other Southern countries in the Euro-zone might see this as the solution for their problems. In my opinion, however, this chance is not much bigger than in scenario 1.

Final outcome
After a few years, Greece can return to the financial markets. Just like Argentina did after surviving its default. It will not be the end of the world and also not the end of the Euro.

Kees de Kort, macro-economist at the small Dutch bank AFS Vermogensbeheer ( and by far the smartest analyst that I know in The Netherlands, says this about it (translated to English): ´there is absolutely no reason why a country after defaulting should leave the Euro-zone.

In case of Greece, an agreement can be made about what percentage of the outstanding debt will be written-off and then the consequences will be for the various lenders. Such an agreement can of course only be made, when there are rock-solid agreements on drastic reforms in Greece to prevent a reprise of such events. This is nasty for the people involved, but it would not become worse than this´. I totally agree with Kees de Kort and have nothing to add to this.

Scenario 3: One or more countries leave the Euro and return to their old currencies.

Probability: This is only a probable scenario when the mood of the Euro-zone members gets ´subzero´ and people want retaliation for the money lost on Greece. This is the populist approach, as advocated by the True Finns from Finland and the PVV (Party for ‘Freedom’ in The Netherlands). A mentally sane Europe will never choose for this option.

·        The problem is solved, as the Greeks will never bother the other Euro-zone countries anymore.
·        This solution satisfies – in a populist way – the public anger in countries like Germany, The Netherlands and Finland on ‘those stupid, corrupted and lazy Greeks’.
·        Greek personnel and products will be very cheap, when priced in Drachmes, as this currency will soon not be worth the paper it is printed on. This might improve the export of goods and products.

·        Greece needs to go again through the introduction process of a new currency. This will cost 2-4 years and billions of Euro’s.
·        Middle-class and lower class people in Greece might suffer from poverty, as all foreign products will be extremely expensive after leaving the Euro.
·        The Greek economy will return ‘to the stone-age’ (i.e. the pre-Euro times) and the country will lose track to the development of the rest of Western Europe.
·        The aforementioned French and German banks will suffer enormous losses: either their debt is quoted in Drachmes which will cost those banks money, or Greece will default which will cost them money. It is a lose-lose situation.

Final outcome
The Greek will readopt the Drachme, try to get their debt quoted in Drachmes and devaluate this into oblivion. If Greece can’t get its debt quoted in Drachmes, the country will default after all. This will be a serious blow for the large European banks with substantial exposure to Greece. The populist parties will celebrate this as an enormous victory, but actually it will be a great loss for Europe.

Scenario 4: The Euro is split up in two or three baby-euro’s: Northern Euro, Central Euro and Southern Euro

Probability: This is really a ridiculous idea and I only discuss it for the sake of being complete. Instead of heaving one currency with its disadvantages, but with the power of a well-respected, united currency, two or three smaller fiat currencies evolve without any track record. Can you imagine that? I can’t.

It is not a probable outcome that the Southern-Euro all say: ‘please Northern-Europe, take the current Euro. We will invent a new currency and design new paper and coins. On top of that we will pay all the costs, because we’ll have plenty of money’. So both groups will have to reinvent a currency and decide the exchange rates of their own fictive currencies in the N-Euro (Northern) and S-Euro 1.1.

·        The strong countries would theoretically have a strong and trusted currency.
·        The PIIGS would have a chance to devaluate their S-Euro and thus make their labor and products cheaper. This would reinforce their competitive power.

·        All Euro-countries would have to go once again through a extremely costly introduction of a new currency and many battles will be fought over the relative value of the countries’ economies to set the exchange rates.
·        This process will take 2 to 4 years; just like the Euro introduction and in the meantime, the jeering from the US, China and Japan will sound over the oceans.

Final outcome 
This solution doesn’t solve anything. The problems in the PIIGS will remain the same and their debt will eventually get a haircut: either by devaluating the S-Euro or by a straightaway default of one or more of the countries. Also the N-Euro will not be as strong as the original Euro. The process will cost billions of Euro’s and it will cost years to regain the trust of the financial markets.

Scenario 5: The Euro will implode and all members will return to their old currency’s.

Probability: When I said that scenario 4 is a bad and improbable scenario, this is even more true for scenario 5. This seems like a good dream for all populist parties, but it will create financial chaos in all countries. The whole of Europe will again be ‘lost in translation’  and all countries will have to spend billions of Euro’s and 2-4 years to reinvent their old currencies again.

·        Poor countries will devaluate their currencies into oblivion, in order to create better export markets.
·        Rich countries will have again a sole responsibility for their own currency and The Netherlands with its Dutch guilder will follow the D-Mark 1.1 again very closely.
·        After ten years of confusion, the D-Mark and Guilder will be rockhard again.

·        The whole economic development of the Euro-zone will be thrown back for at least ten years.
·        The export will implode to levels of 15 years back.
·        On a trip from The Netherlands to Portugal, you will need 5 currencies again: Escudo, Peseta, French Frank, Belgian Frank and Guilder.
·        The jeering from the US, China and Japan will be even louder than with scenario 4.

Final outcome 
Although I’m a natural optimist, I am certain that the populist voice in Europe will gain momentum when this option is chosen. This could lead to acrimony within the EU and eventually to the dismantling of the EU. Option of last resort might even be war, when tensions soar beyond the dismantlement of the EU..

The other powerful countries in the world will prosper from this new dividedness within Europe; especially China will do everything to gain influence, by financial enslavement of countries.


In my opinion, there is only one sustainable solution: allow the Greeks their financial haircut, but execute this plan as mentioned by Kees de Kort: Only allow a haircut when a total restructuring of the Greek economy takes place with the help of the other (and stronger) European countries. The same recipe should be used when other Euro-countries are in distress. Don´t try to kick the can, but solve the problem by allowing a haircut and helping the countries to restructure their credit and economy. Then the Euro will have a good chance of surviving.