The economic problems of the Netherlands are a contributor to the harsh treatment of Cyprus

This week has seen a lot of concentration on a small island in the Mediterranean which has moved to a polar extreme of the Euro project. However we can learn a lot more by moving towards the other polar extreme and looking at a country which is on the other side of the Euro balance sheet. The Netherlands is one of the countries which is at the heart of the Euro project and as one of the few remaining AAA rated nations is definitely a creditor nation to the debtor status of Cyprus.

However I have established a theme in recent months that the economy of the Netherlands is definitely struggling.  On the 22nd of February I analysed the position and came to this conclusion.

But when we look at demand we see weak retail sales accompanied by even weaker consumer confidence and a house price fall which is on the edge of being called a plunge. If we consider the boost to consumption that many places saw from such factors as equity release from rising house price then we have to wonder what the effect of them falling will be.

From the point of view of the Euro project this of course means that it has problems at both ends of the spectrum.

The Dutch economy

House Prices

We have been updated today by Netherlands Statistics on this subject.

Prices of existing owner-occupied dwellings were on average 8.3 percent lower in February 2013 than in February 2012

We can also take some perspective from these numbers.

Prices of existing owner-occupied dwellings in February 2013 were at the same level as mid-2003. They were more than 18 percent down from August 2008,  when house prices reached a record high

However February was an improvement on January’s sharp fall and saw a 1.2% month on month rise,which interestingly the statistics service does not emphasise which I suspect is because it is worried about the effect of a change in mortgage rules. But we do know that compared to an index based at 100 in 2010 the underlying index is at 87.1.

For those wondering about the ownership to renting balance in the Netherlands then the number of owner-occupiers was 59% in 2012.

What about consumer confidence?

We see a similar pattern here of a marginal improvement in a deeply depressed series. You can choose here between a marginal improvement or the second lowest reading ever as both are true.

The consumer confidence indicator climbed 3 points to -41, but confidence remains low. With -44, the indicator hit the lowest level ever in February this year.

This is confirmed by the economic climate indicator.

The component indicator economic climate climbed 2 points to -61.

So there you have it marginal improvements in measures near to their all time lows. So things are getting worse more slowly!

Retail Sales are very weak

You may spot the effort here to disguise reality which I have responded too by highlighting the relevant section.

The latest figures show that retail turnover was 0.5 percent down in January 2013 from January 2012. Retail prices were 2.6 percent higher, volume shrank by 3 percent.

Sneaky eh? Also as we progress on we see that in fact this may still have some sugar coating.

The shopping-day pattern was more favourable than in January last year. The positive effect thereof on total retail turnover is estimated at approximately 2 percent.

So we face the possibility of volumes being 5% lower than the year before on a like for like basis. This is a number we associate with the periphery of the Euro area not its heart. Indeed nor is an underlying index for retail trade which is now at 88.3 where 2010=100. As January is a weak month for retail sales I looked back to January 2010 for the best comparison we might get and the number is some 5% lower now.

What about output?

Manufacturing production

We see that this turned further down in January.

The average daily output of Dutch manufacturing industry was 3 percent down in January 2013 from January 2012

A fairly substantial fall which was caused mostly by the petroleum,chemical,rubber and plastic component of the measure.  We also see that the underlying index where 2010=100 is now at 98.5. So we conclude that the export success that the Netherlands continues to have is unable now to offset the domestic weakness.

Indeed if we look deeper into the export performance we see a troubling issue which has been discussed on here before

 Re-exports accounted for approximately two thirds of the 22 billion value growth of exports.

These are

Goods transported via the Netherlands, which are temporarily owned by a resident of the Netherlands, without any significant industrial processing.

Number of bankruptcies skyrocketing

This is the headline from the statistics service which seems less than reassuring so let us take a look.

In February this year, 755 businesses and institutions (excluding one-man businesses) in the Netherlands were declared bankrupt. This is the highest monthly number ever recorded. In January, the number of bankruptcies was also high (734).

They point out that the three month moving average is more reliable which I guess is fair even though if you have two high readings then this can hardly be a surprise.

The three-month moving average stood at 680 in February, i.e. the highest number since the beginning of the time series in 1981

What about construction?

The bad news just keeps on coming in this sector.

The construction sector suffered most from the economic recession in 2012. Output fell by more than 8 percent, turnover by 7 percent

One thing does lead to another.

Residential and non-residential building was hit hardest by the sustained slump on the property market

What about prospects for 2013?

Residential and non-residential building was hit hardest by the sustained slump on the property market……..Architectural firms also received fewer orders for new construction projects

Actually orders for architectural firms took quite a lurch downwards in the last quarter of 2012.

So we conclude that with a fall of 33% in the number of building permits issued the Dutch construction sector looks set for another decline in 2013. As this is the sector that usually leads in an economic recovery there seems little hope here.

With a little help from my friends?

With apologies to the Beatles we can also see that prospects in the Euro area overall are not good right now which will have its impact on the Netherlands ability to export. From Markit.

The flash PMI data suggest that the Eurozone business environment deteriorated at a quickening rate in March

So the promised recovery has faded and turned downwards and even more ominously.

Instead of the eurozone economy stabilising in the second quarter, as many – including the ECB – have been hoping to see, the downturn could therefore intensify in coming months

What about the banking sector?

As we review weak housing markets,consumption and manufacturing we see that many of the domestic customers of Dutch banks must be struggling. We also know that Dutch banks have had plenty of problems as it is. Indeed this phrase from the annual report of the Dutch central bank seems rather ominous if we translate the euphemisms.

Our economy is living proof that financial distortions in the past will take their toll sooner or later.

Indeed it does not seem optimistic at all.

The current poor growth rates find their origins to a large degree in the 1990s, when the economy expanded rapidly, thanks in part to home equity releases following a spectacular rise in house prices, the stock market boom and inadequate pension contributions. Now that house prices have gone down, pension contributions have gone up, and debt has to be reduced to manageable proportions, we are facing the downside: negative wealth and income effects that dampen consumption and economic activity.

Pension funds will not help

I think that this statement speaks for itself.

Insufficient recovery since the outbreak of the crisis has compelled 68 pension funds to curtail accrued pension rights in April 2013. (Out of 381).


I have emphasised the economic weakness in the Netherlands today as it is the other side of the balance sheet from Cyprus. If we look at the position we see that this AAA rated nation is some 5.6% of the backing of the European Central Bank and slightly more of the Euro area “rescue” vehicles due to some nations “stepping out”. So in addition to the problems that this economic weakness creates for the Netherlands we see that it also leads to an atmosphere which creates this.

The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013.

Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.

As the group Hard-Fi put it


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  • Justathought

    Hi Shaun,

    Great analysis as always! Not only the core Eurozone but its populace is slowly waking up, more and more people, I know of within the Eurozone, are harbouring cash, leaving the minimum within the banking system.
    The excellent latest post from Frances Coppola said it all!

  • Economymad

    If failing banks were left to go bust and governments (with the BOE and ECB) were quick at re-imbursing depositors – surely this good money would flood back into other banks and put those into a strong enough position to survive? Am I missing something?

    If the banks were sorted like this then perhaps governments would actually start at trying to fix an rebalance the economy rather than having all policies aimed at propping up failed banks.

  • Justathought

    Hi Economymad,

    “It is time that depositors were told the truth. The lack of a common
    deposit insurance scheme in the Eurozone means that deposit insurance is a luxury available only to those countries that can afford it – which
    are also the countries that least need it. Everywhere else, it is a
    sham.” – Frances Coppola

  • Andy Zarse

    Ah-ha I’ve been waiting for this topic!

    As you know Shaun, I was in Rotterdam last week. My view pretty much ties in with the above. I visited a pensions IT company on friday and although they are personally very busy rationalising platforms etc things generally in the Dutch pensions market are pretty gloomy. There’s trouble on several levels, though it’s fair to say the construct of their pension system is both very different tothe UK on one level (lots of big industry-wide schemes) and very similar on another – (fat deficeits, high inflation/poor gilt yields, poor investment performance etc).

    Moving on from the business side, we paid a visit to the (private) dentist and got an appointment at 24 hours notice for 4pm on a friday. I was in the waiting room for an hour and not one other patient arrived. Clearly, shiny gnashers are not such a priority in these austere times.

    The dinner party chat was all a bit gloomy, nobody is even thinking of moving house and a couple of friends have lost their jobs recently. Many shops have closed down. Even in quite affluent areas, almost whole streets are shut, including a local shoe shop which is now boarded up, but that’s most likely because my O/H no longer frequents :-)

    The Dutch of course, like the Scottish, are notorious for being “careful” with their money. So I was a bit surprised to learn that certain Dutch banks during the last decade had been offering 140% mortgages. Yes 140%. We have just rented out our appartment so owner occupier is now 59% minus 1. There was little prospect of selling it, and the state of the housing market is clearly not helped by the archane legal system. Minimum of 6 months for conveyancing. If you want to let on assured short term lease it has to be done through the local council. Otherwise once tennants are in you really can’t get them out if you want to sell. So IMO there’s plenty the Dutch could do on the supply side.

    Finally, petrol. Unleaded varies between 1.82 I paid on the motorway (I didn’t fill up!) down to the 1.69 i paid at a cut price self-service retailer.

    Nice to see some figures finally on the “Rotterdam Effect”,and it would be nice to know how much of the UK’s much vaunted trade with the EU is of a similar nature.

    So in summary, people have clearly drawn their horns in and are just trying to get by for the moment. I think your comment earlier this week is accurate. . People’s outlooks have changed following the financial crisis. The attitude to Cyprus is a hardline one, reflected by the comments made to the Europarliament today by Dutch Fin Min J Dijsselbllom.

    Anything else, just ask.


  • JW

    Hi Justathought
    Ms Coppola dismisses the notion of the Cyprus CB printing too quickly. They will if there are no other options, but I suspect Mr Putin fancies a vassal state in the med, just in case Syria goes completely.

  • Justathought

    Hi JW,

    As far as I understood and aware of,in order for the Cyprus CB to roll the printing press, approval from the ECB is required. The ECB vote must be taken on the 2/3 majority basis… 17 voters for sure but I am not sure about the 6 directors’ votes should be included in the voting process, if it is the case, then 23 voters…. I am afraid that still the Cyprus’ immediate future lies between the hands of the ECB regardless of Mr Vladimir Putin’s desire.

  • JW

    They could just ignore the ECB. ‘Hair’ and ‘camels’ comes to mind.

  • JW

    Hi Shaun
    Its much more psychology than economics now. Fear is gaining the upper hand.

  • Justathought

    Hi JW,
    With an estimate 50 to 65 % drops in living standard result in one go….

  • mike

    Great stuff!

    For NL read UK. If prices and profits increase relentlessly during a recession such as they have, volumes will shrink, as total dispoable income remains static at best.

    This period has been unprecedented, and will continue to worsen until goods & asset prices are reset. Artificial everything supported by QE & temporary incentives simply only delay that much needed clearout.

    If Cyprus accepts this haircut and EZ bailout they will lose a great opportunity and will just continue with more of the same until next time, in one year maybe. They are so near and yet so far from making this courageous but essential move back to the Cyprus Pound. They must take control now.

  • forbin

    if this is true then the amount needed just to cover the depositors is already too great for Cyprus to pay out

    leaves me to conclude then that bailing their banks would take more – but that can be done ?

    no that’s not logical, captain – spock

    I’d let them go bust but I know this will not happen – the banks run their country , like they run our

    ( if they don’t why are they always getting the cash ? could you see british industry getting any ? and they have/had assets!! )


  • forbin

    Hello Shaun ,

    Do the Dutch have loony budgets like ours? I mean we’re 120B over spend but dumping another 400GBP in my account per year , according to the BBC, into my account . Cutting business taxes , etc does not balance anything , or even attempt to.

    magical growth is required

    but Holland is maxxed out as well

    seems they are having the housing correction that we cannot – wouldn’t it be cheaper for us to reduce house prices or massivly build housing

    ah indeed it would – but it will not happen here – the support of the silly assets called houses will keep the banks afloat – again

    ah our banks – the gift that keeps on taking !


  • Justathought

    Hi Forbin,
    Maybe the truth behind all of this …. if the UK governement had to let go of RBS and others in 2007/8, the cost to reimbourse the depositors would have been astronomically light years away numbers, thus the actual state of affairs..???

  • Rods

    Hi Shaun,

    Another great piece of analysis.

    “Once upon a time there were some very clever men is Brussels who decided that it would be a good idea for the EU to have a common currency with common rules. So they adopted the Euro.

    It was good, in fact so good, that France and Germany the main designers of the rules, decided they couldn’t live within them and they said we are too big for you to stop us ignoring them. The EU huffed and they puffed, but they could not blow France’s and Germany’s rule breaking house down.

    Other countries decided if they can ignore the rules, why can’t we? So they all did and all was good with booming economies and housing bubbles.

    But then the big bad US sneezed and poor Europe caught a cold and found all this rule breaking was not good, as they got into trouble, but they knew their were no worries as their rich neighbour Germany would help them in their hour of need.

    So Germany did help them, but they were not very happy as Germany made them have new rules and horrible medicine.

    But they were happy as all their economies shrank and they all want to keep the Euro, as the EU said all is now good, we have a Nobel Peace Prize to prove it and with the Euro, we are now all on track, for a prosperous future and we will all live happily ever after.”

    That’s tonight’s bedtime fable written for my young daughter.

    Now, back to reality, we were told that the worst of the crisis is over by the IMF and EU which just goes to show that their crisis control and predictions are as accurate as their growth forecasts!

    I didn’t realise when the Eurozone founders talked about converging economies, that they meant them all shrinking their economies down to the PPP of the weakest and poorest member. Where a salesperson only shows the upside of a product like saving on currency conversion costs, that Caveat Emptor still very much applies when a Euro salesperson calls at a Parliament near you!

    The next time the BOE or the OBR tell us we are on-track, I hope somebody asks them why the Government deficit is £48bn higher 2013-14, £60bn in 2014-15 and £67bn in 2015-16 compared to their original plan! Another £175bn our children and grandchildren are going to have to pay in tax!

  • forbin

    I think its still more of a case that even after all this time the actual losses for the UK Banks, and the rest of the western world for that matter are still not yet fully known

    this leads me to believe that they are so bust that no one wants to find out – in case the figures leak …. ooooh er !


  • forbin


    but lets be honest here – paying of the Napoleonic war debt is not a problem ( think its been done now) Countries , such as this one , have lives measured ( hopefully ) for hundreds of years.

    Esp. this country – dane geld ? well in the end the Danes took the country!

    the real difficulty is the interest payments on the hughe amount of debt we have. thats the killer

    If we were growing at 7/8 % like China , it would not matter – but we cant get 3% – and did note that nobody mentioned in the main media the OBR poor track record for forcasts – what ever figure they present – halve it and minus 1% and you’re there !!

    Good grief , to here some say borrow whilst it cheap ! sure right , when the rates go up we’ll be well and truly shafted !!

    what would we spend it on ? more roads airports and schools? sure all are needed but actually we need exports and industry first !!

    oh well let the show go on ….


  • Anonymous

    Hi Justathought

    The Governing Council of the ECB is a member from each country (17 right now) and also the members of the Executive Board (6 right now) so yes 23 votes in total.

  • Anonymous

    Hi Guys

    Cyprus could not pay if either of the two main banks were to fold. As one of them at least is insolvent (Laiki) you begin to see the scale of the problem.
    Part of this does come from having a joint currency. If there was still a Cypriot pound then the central bank could always print more but the ECB is saying “Nein”
    Although of course the print option would have implications for inflation and the exchange rate.

  • Anonymous

    Hi Andy
    I was expecting your reply and thanks for the detail. It is revealing that dentists are feeling the squeeze as if the Netherlands is anything like the UK it has been boom time for some time. I was suprised to see that unleaded even at the cut price station was dearer than the UK (although some of that is due to the recent £ rally).
    I guess ex-Northern Rock executives will be grateful that someone was even more reckless (for those for whom the UK is less familiar Northern Rock offered some 125% mortgages in the UK in the boom times).

  • Anonymous

    Hi JW

    I agree entirely and yet we still see areas where greed is still in charge. For example if we just stay with the Netherlands the AEX index is up 25% or so on the lows of last June.

  • Anonymous

    Hi Forbin

    They have a lower deficit and a lower national debt than us (69.5% on Q3 2012) but I will let their central bank spell it out.

    “The budget deficit is expected to decrease from 4.5% of GDP in 2011 to 3.5% GDP in 2013 and 2014. Because of the strong economic headwinds, the deficit reduction is smaller than foreseen during the recent government formation negotiations.Without the consolidation measures, the deficit would have risen after 2011, thus putting public finance sustainability further in jeopardy. The downside of the lower budget deficit is temporarily higher inflation (partly due to the increase in
    VAT, duties and insurance premium tax), higher unemployment and a substantial reduction in real disposable household incomes in 2012 and 2013. The budget deficit is expected to decrease from 4.5% of GDP in 2011 to 3.5% GDP in 2013 and 2014. Because of the strong economic headwinds, the deficit reduction is smaller than foreseen during the recent government formation negotiations.”

    I think the phrase “expected to decrease” will make its way into my financial lexicon…….

  • Anonymous

    The ECB bank rescue has not been good for Greece and I think Merkel is doing the Cypriots a favour in the longer term, encouraging them to join Iceland.

    I sold the house in England & I’m going totally debt free, with extra money going into construction in Bulgaria – I expect increased interest from Russians fleeing eurozone banks. Also paid off the DSK loan (part of Hungary’s OTP) & playing with OBB (part of National Bank of Greece) either to get paid & waive fees from an unannounced fee gouging collection exercise or be sued for document irregularities and wait years for their money. The Bulgarian bank sector is underregulated & badly regulated. Bank lobbyists interests appear to count for everything & consumers interests for nothing. Going forward the banks who misbehaved, tried to call loans in early and added fees will need to find new clients – it will be a cold day in hell before they get my business.

    This crisis will expose flaws in bank regulation & deposit insurance, eventually leading to a smaller banking sector. A bank’s most precious asset is public trust – you just don’t deal with untrustworthy banks. I expect bank runs in Spain & Italy.

    To bring a European recovery we need a smaller banking sector, with more realistic banker’s salaries and based on old fashioned principles of fair business practices & long term financial partnerships between business & banks.

  • Anonymous

    Followed by an Icelandic style recovery

  • Jacob

    All government across Europe has failed to grasp the nettle so far as I see it. Governments are now fully complicit in the chirade of solvent banking institutions, up to their eyeballs in ever increasing toxic debt, each bailout is another reason as to why they can’t let the deck of cards fall, we staked the house in 2008/2009 and we’ve since mortgaged the future.

    I hope for Cyprus’s sake they see this folly, the better to take the harshest of medicines now and not be shackled in perpertuity to the ever increasing price of propping up a self-defeating financial system.