Hello all foreign readers,
It seems as if our supertiny country has attracted quite some attention these days as all eyes were focused towards the main question: will a wave of populism change Europe? And although on the surface the answer seems a clear NO, there is more to the results than meets the eye.
In my humble opinion, the current results of the Dutch exit-poll show how populism and clientelism have become more prominent here, as in all other countries around the world. So mind you: in the Netherlands we're still moving to less democracy and more populism.
This will be clear after the reading the insights below. But do note that these are based on the exit-polls and not the final vote.
Insight # 1: Dutch voters have learnt their lesson, punished government and no longer voted strategic
What we can see is that both VVD (-10) and PvdA (-20) have been punished for their role in the preceding government. During the last elections, many citizens voted strategically and shifted their votes from their original parties to either VVD (right) or PvdA (left) to avoid the other party to become the biggest.
Yet through a strange turn of events and due to the anxious hunger for power, VVD and PvdA decided to work together. They compromised on fundamental party principles in order to be in power. As such they both disappointed the strategic voters and their party fanatics who assumed that it was unlikely that these two would work together with the enemy, even without additional parties.
PvdA and VVD formed an alliance that was based on very limited support and did not have a majority in the Senate. When started it was clear that they would focus on one thing only: surviving as a government out of fear that in-between elections would lead to a massive victory for PVV.
The first lesson in todays outcome in the Netherlands is that strategic voters have learnt that strategic voting does not pay. In addition, die hard party fans of both PvdA and VVD did not accept the fact that their party was sleeping with the enemy. So first and foremost, both parties are punished for quickly seeking power with the dark side. And the strategic voters have decided not to do this again but vote for their principles.
Insight #2: Dutch are more populist than before, but they come in different clothing
Whereas it looks as if the regular party VVD (31 seats) is the biggest with runners up CDA (19), D66 (19) and PVV (19), we should note that the only non-populist party in this row is D66. Both VVD and CDA made a sharp right turn by taking PVV-like positions on immigration and such.
With this in mind, I think it would be fair to say that effectively we had at least three rightish populist parties on the scene, who together assembled 69 out of 150 seats. This used to be 56 seats (for VVD and PVV) in the previous elections.
On top of that we can see that, even though parties all declared that right-wing PVV would not be invited for government roles (given their unreliable stance some years ago), the parties has won some 4 seats.
Right now, this election evening, most people and foreign media are misstaking the wood for the trees by concluding that the low amount of seats for PVV is a signal that the battle agains populism has been won in the Netherlands. It is with much regret that I need to conclude otherwise: the existing parties have adopted the populism and it is more widespread than before.
Insight #3: Fact free politics are also on the rise in the Netherlands
All over the world we are witnessing new 'leaders' or political activists who don't care about truth but focus on convincing the public by playing on their emotion. They don't provide solutions to real life problems, but are able to amass considerable support, either from within existing parties or as a new political party.
It's the same here. We have narcistic old and new players with a lot of noise, but no true consistent content coming into play from different angles. Among these are the party for elderly, forum for democracy, THINK and PVV. From a number of 15 seats in 2012, these are now expected to gain 28 seats.
Insight #4: Turkish incident helped both VVD and DENK with some extra seats
This weekend, just before the elections, the Dutch and Turkish government ended up in a diplomatic row over unwanted visitors to the Netherlands. This allowed prime minister Rutte (VVD) to pose as a leader, thus winning some seats, while DENK (representing Turkish interests in the Netherlands) avoided to enter the debate. Their existence did allow the irritated Turkish/Dutch citizens to voice their anger on the discrimination that they experience in the Netherlands.
One could compare this to the situation with Eurosongfestivals, where the immigrant population in the Netherlands and Germany have a big vote/say in influencing the Dutch end result.
Insight #5: Better economy allows for a more positive stance
With the economy starting to gear up slowly, there is more room for a positive outlook and progressive choices. Both GL (Greenleft) and D66 (liberals) spreaded a positive message and succeeded in regaining their strategic voters from the PvdA while adding some new ones. Therefore their results improved from 4 to 16 (GreenLeft) and from 12 to 19 (D66).
So did we stop populism and clientelism here in the Netherlands?
While many here in the Netherlands are strongly hoping that our election message to Europe and the world is that populism has been put on hold here, I am afraid that conclusion is not justified. Some of the mainstream parties have adopted the populist positions of PVV, including some measures that are in conflict with treaties and basic human rights. Meanwhile the PVV has still grown and some smaller parties popped up that are more in the personal interest of the party leaders themselves than for the public.
My conclusion is therefore that populism and clientelism is still with us, even stronger than before. Due to its absorption in main stream politics and the specific Dutch electoral landscape outsiders, may be less able to identify this. But I would not be surprised if in other jurisdictions, with other electoral constellations, the trend of populisms and clientelism (Fillon) remains the main trend, just as it is here.
So, the Netherlands may have appeared to have stopped populism, but mind you, we didn't!
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
30/08/2013
Dutch government deeply involved in illusionary budgets and politics (just like the bankers)
In my previous post, one year ago, I outlined that it would be possible that with the PvdA at the helm, the Dutch politics would enter a time of less populist talk and more stability. Boy, was I wrong about that. What happened here in the Netherlands is that the elections turned into a shoot-out between right wing VVD and left wing PvdA. All votes sucked into a battle where right wing voters chose VVD to prevent the PvdA from becoming too big and vice versa.
The end result was that PvdA and VVD both became very big and have a majority in the House of Representatives (Tweede Kamer) but not in the Senate (Eerste Kamer). Rather than seeking a bigger coalition, the two leaders: Rutte (VVD) and Samsom (PvdA) chose to develop a government policy plan within a brief period of time, with very few consultations. This didn't work well for a number of reasons.
It turned out that VVD and PvdA had compromised on important positions by using some simple cards. The result was that the VVD agreed to a very strong income adjustment whereby high income earners would significantly pay more tax than before. This was a PvdA desire that was one bridge too far. After a lot of hassle, the plan was revoked. But it showed the core of the problem: the agreed package of compromises between PvdA and VVD hadn't been thought through sufficiently. This was enough for me to coin their policies: Illusion policies.
Where are we now?
Right now, we are almost one year underway and it seems that the prime Minister has taken aboard some of the criticism that all the government plans were made without sufficient backing in society. As a result he is now setting up deals on healthcare, prison-policy and so on. The number of deals ('akkoorden') is immense and each changes a bit in the start policy of the government. One of the involved social partners at some point in time said: 'I'm getting a bit of tired from al these deals'.
But there is a bigger problem here in the Netherlands. In an effort to fullfil the EU criteria, our government is trying hard to cut expenses. It does so however, without making fundamental choices. It tries to avoid some of the hot issues, such as deductibility of mortgage interest. The reason for this is that ever since the death of Fortuyn, our politicians are scared to lose their votes to the populistic players that promise a lot but cannot deliver a consistent policy (see my previous post).
Meanwhile the public is smart enough to recognize that things aren't going well and they revert to an old Dutch quality and habit: save money, stop spending. Because in this political climate it is quite likely that even if you don't expect it, some sort of measure may affect your personal budget. Until revoked or replaced by an adapted plan or deal.
Much of the macro economic debate focuses on the housing and mortgage market as politicians believe that in this area the solution of the crisis can be found. The paradox here is that polls show that the Dutch public assumes the interest deductibility to disappear and understands that that is necessary. But this government doesn't want to do that and reverts to additional measures to fix the market (a government guaranteed mortgage fund being the latest plan). While in itself useful it keeps consumers in uncertainty as to when the deductibility will be abolished.
Illusionary cuts and budget
We should also note that significant part of the budget cuts of this government only exist on paper. The idea that it is possible to delegate central government task to municipalities while reducing the expenditure with many billions is unreal. It allows the government to book a reduction while municipalities will be blamed afterwards for not achieving their targets.
A similar illusionist trick is done with the government financial assistance (for childcare, raising kids, housing). By reorganising the existing range of reglementations and procedures into 1, it is expected to save us some other billions. Quite unlikely given the bad track record of the government and tax department in automation and procedural change.
Essentially we have thus sent a paper tiger to Brussels stating that we achieve our budget goals, but we will undoubtedly be in for some surprises. Our government is living on borrowed time, hoping that the other countries pull us out of the mud (which might work as we are an open community, earning in the slipstream of Germany). And it would be a wrong idea to see a role for the ECB here. The ECB can't of course solve the deficiencies and absence of our political statesmanship with monetary instruments.
What do the Dutch think of all this?
In my view, those of us who suffer from the budget cuts do tend to align with the populist parties at the left and right side of the spectrum. Other than that we maybe more mature than the politicians assume. Mortgages are being repaid and there is an understanding that we all need to pay our fair share. But the problem is that the political debate is not about fair shares but about finding easy and quick wins in order not to lose votes. There is a longing for stability and trustworthiness which our politicians are unable to provide.
In analogy with the banking sector: the incentive structure for politicians is skewed towards the short term just as heavily as it was in the banking domain. While in the bank domain this is now being corrected, the politicians lack the self-reflection to apply similar lessons to themselves. The result is that the general trust in politicians is getting steadily lower.
Meanwhile the Dutch draw their own conclusions: stop spending, start saving until the outlook improves and becomes more predictable. Unlocking this spending stop will not just require certainty on the mortgage market. It requires more stability and fairness from politicians, but they are too busy going for votes, to notice that.
In sum: we had our opportunity for a Dutch spring here in the Netherlands, but as in other countries, we let the momentum slip away.
The end result was that PvdA and VVD both became very big and have a majority in the House of Representatives (Tweede Kamer) but not in the Senate (Eerste Kamer). Rather than seeking a bigger coalition, the two leaders: Rutte (VVD) and Samsom (PvdA) chose to develop a government policy plan within a brief period of time, with very few consultations. This didn't work well for a number of reasons.
It turned out that VVD and PvdA had compromised on important positions by using some simple cards. The result was that the VVD agreed to a very strong income adjustment whereby high income earners would significantly pay more tax than before. This was a PvdA desire that was one bridge too far. After a lot of hassle, the plan was revoked. But it showed the core of the problem: the agreed package of compromises between PvdA and VVD hadn't been thought through sufficiently. This was enough for me to coin their policies: Illusion policies.
Where are we now?
Right now, we are almost one year underway and it seems that the prime Minister has taken aboard some of the criticism that all the government plans were made without sufficient backing in society. As a result he is now setting up deals on healthcare, prison-policy and so on. The number of deals ('akkoorden') is immense and each changes a bit in the start policy of the government. One of the involved social partners at some point in time said: 'I'm getting a bit of tired from al these deals'.
But there is a bigger problem here in the Netherlands. In an effort to fullfil the EU criteria, our government is trying hard to cut expenses. It does so however, without making fundamental choices. It tries to avoid some of the hot issues, such as deductibility of mortgage interest. The reason for this is that ever since the death of Fortuyn, our politicians are scared to lose their votes to the populistic players that promise a lot but cannot deliver a consistent policy (see my previous post).
Meanwhile the public is smart enough to recognize that things aren't going well and they revert to an old Dutch quality and habit: save money, stop spending. Because in this political climate it is quite likely that even if you don't expect it, some sort of measure may affect your personal budget. Until revoked or replaced by an adapted plan or deal.
Much of the macro economic debate focuses on the housing and mortgage market as politicians believe that in this area the solution of the crisis can be found. The paradox here is that polls show that the Dutch public assumes the interest deductibility to disappear and understands that that is necessary. But this government doesn't want to do that and reverts to additional measures to fix the market (a government guaranteed mortgage fund being the latest plan). While in itself useful it keeps consumers in uncertainty as to when the deductibility will be abolished.
Illusionary cuts and budget
We should also note that significant part of the budget cuts of this government only exist on paper. The idea that it is possible to delegate central government task to municipalities while reducing the expenditure with many billions is unreal. It allows the government to book a reduction while municipalities will be blamed afterwards for not achieving their targets.
A similar illusionist trick is done with the government financial assistance (for childcare, raising kids, housing). By reorganising the existing range of reglementations and procedures into 1, it is expected to save us some other billions. Quite unlikely given the bad track record of the government and tax department in automation and procedural change.
Essentially we have thus sent a paper tiger to Brussels stating that we achieve our budget goals, but we will undoubtedly be in for some surprises. Our government is living on borrowed time, hoping that the other countries pull us out of the mud (which might work as we are an open community, earning in the slipstream of Germany). And it would be a wrong idea to see a role for the ECB here. The ECB can't of course solve the deficiencies and absence of our political statesmanship with monetary instruments.
What do the Dutch think of all this?
In my view, those of us who suffer from the budget cuts do tend to align with the populist parties at the left and right side of the spectrum. Other than that we maybe more mature than the politicians assume. Mortgages are being repaid and there is an understanding that we all need to pay our fair share. But the problem is that the political debate is not about fair shares but about finding easy and quick wins in order not to lose votes. There is a longing for stability and trustworthiness which our politicians are unable to provide.
In analogy with the banking sector: the incentive structure for politicians is skewed towards the short term just as heavily as it was in the banking domain. While in the bank domain this is now being corrected, the politicians lack the self-reflection to apply similar lessons to themselves. The result is that the general trust in politicians is getting steadily lower.
Meanwhile the Dutch draw their own conclusions: stop spending, start saving until the outlook improves and becomes more predictable. Unlocking this spending stop will not just require certainty on the mortgage market. It requires more stability and fairness from politicians, but they are too busy going for votes, to notice that.
In sum: we had our opportunity for a Dutch spring here in the Netherlands, but as in other countries, we let the momentum slip away.
04/06/2012
Eurozone troubles.... all originate in a wish to get back to normal?
In the recent days I've read a book by J. Beyen called: 'het spel en de knikkers'. It's a Dutch autobiography describing the life and career of a banker, central banker, former President of the BIS, Executive Director at the IMF, Minister of Foreign Affairs and so on. Beyen was for example one of the important Dutch delegates at the Bretton Woods conference. And his book - in particular the episode on the golden standard - is fascinating.
Golden Standard as the solution or the problem?
Until the First World War, the golden standard had become the de facto monetary norm for governments/countries. It consisted of a set of fixed exchange rates, which meant that local economies sometimes had to suffer, as devaluation was impossible. On the other hand, it allowed for a lot of international trade and stability and was thus praised and adopted. Until the First World War changed a lot and the golden standard was abandoned.
In his book, Beyen describes the major sentiment of policy makers after the First World War. And he calls it the desire to go 'back to normal'. A central theme in this desire was the re-establishment of the Golden Standard. Beyen also describes that monetary thinking at that time wasn't as advanced as in 1968 (when he wrote the book) He sketches that the system of fixed exchange rates in itself burdened the European economies, but policy makers weren't able to see this at the time: obsessed with getting back to normal.
Current flaws in Euroland thinking: still seeking a back to normal?
The musings and discussions all around Europe these days, in particular the new plans on a banking union, fascinate me enormously. The singlemindedness with which politicians now move forward into more Europe, more joint policy, more deposit guarantee may be variations on a similar desire: back to normal. Back to the Europe from before the crisis, using the same policy tools and concepts that we used before the financial and sovereign crisis broke out.
As a result, we are now witnessing policy makers, fully caught up in their goal to save Europe by designing futher institutions and policies. But, essentially, our politicians and civil servants fail to recognize that the European car doesn't respond any more to twists of the steering wheel. The only thing that has helped (only temporarily) is throwing money at the problem.
Are we missing something here?
While our monetary thinking may evolved quite a bit since the 1930s, our knowledge of policy and strategy making is not as widely and heavily discussed and modeled. In theory we could all be aware of mechanisms such as groupthink, tunnel vision, decision complexity, resource complexity etcetera. But in practice we fail to properly recognize and address the fundamental errors in policy making.
Having read the autobiography of Beyen, I tend to believe that we are now learning new lessons in the Eurozone. And the lessons are not so much related to monetary theories but to international policy making under stress. I therefore hereby propose the concept of policy illusion to be better recognized in the future. It is the understandable tendency of policy makers to continue doing what you were doing all the time, even when the world fundamentally required a different way of looking.
And so we can now see our policy makers making policy by looking so intensely at the rear-view mirror that they will miss the fork in the road ahead.
Golden Standard as the solution or the problem?
Until the First World War, the golden standard had become the de facto monetary norm for governments/countries. It consisted of a set of fixed exchange rates, which meant that local economies sometimes had to suffer, as devaluation was impossible. On the other hand, it allowed for a lot of international trade and stability and was thus praised and adopted. Until the First World War changed a lot and the golden standard was abandoned.
In his book, Beyen describes the major sentiment of policy makers after the First World War. And he calls it the desire to go 'back to normal'. A central theme in this desire was the re-establishment of the Golden Standard. Beyen also describes that monetary thinking at that time wasn't as advanced as in 1968 (when he wrote the book) He sketches that the system of fixed exchange rates in itself burdened the European economies, but policy makers weren't able to see this at the time: obsessed with getting back to normal.
Current flaws in Euroland thinking: still seeking a back to normal?
The musings and discussions all around Europe these days, in particular the new plans on a banking union, fascinate me enormously. The singlemindedness with which politicians now move forward into more Europe, more joint policy, more deposit guarantee may be variations on a similar desire: back to normal. Back to the Europe from before the crisis, using the same policy tools and concepts that we used before the financial and sovereign crisis broke out.
As a result, we are now witnessing policy makers, fully caught up in their goal to save Europe by designing futher institutions and policies. But, essentially, our politicians and civil servants fail to recognize that the European car doesn't respond any more to twists of the steering wheel. The only thing that has helped (only temporarily) is throwing money at the problem.
Are we missing something here?
While our monetary thinking may evolved quite a bit since the 1930s, our knowledge of policy and strategy making is not as widely and heavily discussed and modeled. In theory we could all be aware of mechanisms such as groupthink, tunnel vision, decision complexity, resource complexity etcetera. But in practice we fail to properly recognize and address the fundamental errors in policy making.
Having read the autobiography of Beyen, I tend to believe that we are now learning new lessons in the Eurozone. And the lessons are not so much related to monetary theories but to international policy making under stress. I therefore hereby propose the concept of policy illusion to be better recognized in the future. It is the understandable tendency of policy makers to continue doing what you were doing all the time, even when the world fundamentally required a different way of looking.
And so we can now see our policy makers making policy by looking so intensely at the rear-view mirror that they will miss the fork in the road ahead.
09/12/2011
Eurocrisis at its peak (december 2011)... some forward thinking here
Well, I think the world has all very much suffered its eurocrisis fatique in the last months. Yet it is time for some new forward thinking on the euro. And I'm going to ensure it's a plain vanilla explanation here. The situation is: this euro-thingy was and is a cunning French plan. And we shouldn't fall for the cunning French for a second time.
Let my try to explain this in three simple steps. That will help you understand the world without constantly following tweets and live blogs. It is - after all - not really that complicated, although the rethorics of the French President Sarkozy and the German Bundeskanzlerin Merkel do create a bit of fog.
Step 1: Monetary union means moving money between regions that constitute the union
Let's look at history. In particular the year 1977. A group of experts, headed by Mr MacDougall, wrote a report on the possibilities for a monetary union and the consequence on public finance. It's a beautifully written report in typewriter format, the standard of those days. And it describes the functioning of monetary unions in a numbere of countries, thus providing the European Commission (9 countries then) with a bit of inspiration for the future.
Conclusion four in this report clearly outlines that an economic and monetary union will always (and permanently) lead to a redistribution of money from richer regions to poor ones via a number of methods (taxes, subsidies and so on):
The redistribution through public finance between regions in the countries studied tends to be reflected to a large extent (though not, of course, precisely because other factors are involved) in corresponding deficits in the balances of payments on current account of the poorer regions, with corresponding surpluses in the richer regions. These deficits and surpluses are of a continuing nature. Net flows of public finance in the range of 3 - 10 % of regional product are common for both relatively rich and relatively poor regions, but a few of the latter enjoy considerably higher net inflows, up to around 30 % of regional product.
The report then continues to describe diplomatically that it's too early for a monetary union now. It also becomes clear that the redistribution of income between regions requires a central form of taxation/income for the centre of the Union (the EU itself) and a bigger budget. Because that creates the mechanisms through which redistribution can occur.
2. The euro: cunning French plan consisting of well packaged creeping committments
In an earlier Dutch blogpost I mentioned and honoured the foresight of Bernard Connolly. This former EU civil servant described in 1995 the French policy: use the euro to gain more influence in the relationshop with Germany. Because without some form of cooperation, the German economy would rapidly show its tail lights to the weaker French economy. By introducing the euro, the French got their influence as well as the desired endgoal; a political union in Europa.
The French understood that going into the discussion with their main goal revealed: political union, would not work. So they chose the Monnet-strategy of creeping committments. Just start with a joint currency and understand that economics will then in the end lead to some crisis-moments. Which are then used to further cement the union. They cleverly disguised their main goal (as no one was ready and willing to committ) and suckered the Germans into believing that this 'no-bail-out'-clause was really worth the paper it was written on.
Of course the French were clever enough to understand that in times of crisis, such clauses will be dropped. They also succeeded in making the sanctions of the Treaty subject to political assessment. And thus they put Germany and Europe on the road of small creeping committments were there is only one way: forward. Until in the end, after some crisis-moments, the full policial union would be arrived at.
Step 3: French magic and illusions: confuse the public with the actuality and hide the real rabbit
I think that it's useless to be excited about the events in the market and politics. What's happening now is exactly what was planned by the French. The diverging economies and bad public finances in the EU have become a strain on the functioning of the European Union. So now is the time to cement forward towards the political union. And we see Merkel and Sarkozy using this opportunity to convince their people and local politicians that this is the time to really step up to the plate and cement some solid new agreements in place. And once again, the German-French axis is the dealmaker with the rest of Europe standing by.
The real choice: political union or not?
By using short term rethorics Sarkozy still hides the real choice as the magician hides his rabbit for his audience. And that choice is wheter or not we want a political union in Europe (where rich countries yearly pay the poor ones and where a central EU-taxation exists and is used to redistribute wealth).
Let's be clear: we failed to properly assess the French gameplan in 1994. We got suckered into their game of creeping committments with only one endconclusion: political union. And our politicians didn't see it, were unaware or otherwise incapable of noticing this. But now that we have seen this happening, we can choose to engage in todays rethorics on new pacts and unions or to step back and repeat the main question: do we really want this political union? Is there sufficient solidarity among all countries in Europe to start sending money from rich to poor countries?
The answer and most likely outcome: Marseillaise rather than the ninth of Beethoven
Our true challenge now is not to be confused by the magic, the tricks, the thick air, the fog and the 34th rescue plan for the Euro. So when brushing all that aside, what remains is a lack of solidarity in Europe to go forward towards a political union. But we can also see that our current style politicans lack the courage, guts or vision to really deal with that question openly. Then again, that is also a valid choice. It's the choice to remain the puppet/marionet in the French theatre.
My guess is that Sarkozy is a very smart man who foresees that the European countries will continue to fall for his cheap magic and will remain puppets in the French masterplan. And could that perhaps also be the reason why, at the end of his pro-Europa-speech, one week ago, we didn't hear the European anthem (the Ninth of Beethoven) but the Marseillaise?
Click here to the read the Dutch version of this blogpost.
Let my try to explain this in three simple steps. That will help you understand the world without constantly following tweets and live blogs. It is - after all - not really that complicated, although the rethorics of the French President Sarkozy and the German Bundeskanzlerin Merkel do create a bit of fog.
Step 1: Monetary union means moving money between regions that constitute the union
Let's look at history. In particular the year 1977. A group of experts, headed by Mr MacDougall, wrote a report on the possibilities for a monetary union and the consequence on public finance. It's a beautifully written report in typewriter format, the standard of those days. And it describes the functioning of monetary unions in a numbere of countries, thus providing the European Commission (9 countries then) with a bit of inspiration for the future.
Conclusion four in this report clearly outlines that an economic and monetary union will always (and permanently) lead to a redistribution of money from richer regions to poor ones via a number of methods (taxes, subsidies and so on):
The redistribution through public finance between regions in the countries studied tends to be reflected to a large extent (though not, of course, precisely because other factors are involved) in corresponding deficits in the balances of payments on current account of the poorer regions, with corresponding surpluses in the richer regions. These deficits and surpluses are of a continuing nature. Net flows of public finance in the range of 3 - 10 % of regional product are common for both relatively rich and relatively poor regions, but a few of the latter enjoy considerably higher net inflows, up to around 30 % of regional product.
The report then continues to describe diplomatically that it's too early for a monetary union now. It also becomes clear that the redistribution of income between regions requires a central form of taxation/income for the centre of the Union (the EU itself) and a bigger budget. Because that creates the mechanisms through which redistribution can occur.
2. The euro: cunning French plan consisting of well packaged creeping committments
In an earlier Dutch blogpost I mentioned and honoured the foresight of Bernard Connolly. This former EU civil servant described in 1995 the French policy: use the euro to gain more influence in the relationshop with Germany. Because without some form of cooperation, the German economy would rapidly show its tail lights to the weaker French economy. By introducing the euro, the French got their influence as well as the desired endgoal; a political union in Europa.
The French understood that going into the discussion with their main goal revealed: political union, would not work. So they chose the Monnet-strategy of creeping committments. Just start with a joint currency and understand that economics will then in the end lead to some crisis-moments. Which are then used to further cement the union. They cleverly disguised their main goal (as no one was ready and willing to committ) and suckered the Germans into believing that this 'no-bail-out'-clause was really worth the paper it was written on.
Of course the French were clever enough to understand that in times of crisis, such clauses will be dropped. They also succeeded in making the sanctions of the Treaty subject to political assessment. And thus they put Germany and Europe on the road of small creeping committments were there is only one way: forward. Until in the end, after some crisis-moments, the full policial union would be arrived at.
Step 3: French magic and illusions: confuse the public with the actuality and hide the real rabbit
I think that it's useless to be excited about the events in the market and politics. What's happening now is exactly what was planned by the French. The diverging economies and bad public finances in the EU have become a strain on the functioning of the European Union. So now is the time to cement forward towards the political union. And we see Merkel and Sarkozy using this opportunity to convince their people and local politicians that this is the time to really step up to the plate and cement some solid new agreements in place. And once again, the German-French axis is the dealmaker with the rest of Europe standing by.
The real choice: political union or not?
By using short term rethorics Sarkozy still hides the real choice as the magician hides his rabbit for his audience. And that choice is wheter or not we want a political union in Europe (where rich countries yearly pay the poor ones and where a central EU-taxation exists and is used to redistribute wealth).
Let's be clear: we failed to properly assess the French gameplan in 1994. We got suckered into their game of creeping committments with only one endconclusion: political union. And our politicians didn't see it, were unaware or otherwise incapable of noticing this. But now that we have seen this happening, we can choose to engage in todays rethorics on new pacts and unions or to step back and repeat the main question: do we really want this political union? Is there sufficient solidarity among all countries in Europe to start sending money from rich to poor countries?
The answer and most likely outcome: Marseillaise rather than the ninth of Beethoven
Our true challenge now is not to be confused by the magic, the tricks, the thick air, the fog and the 34th rescue plan for the Euro. So when brushing all that aside, what remains is a lack of solidarity in Europe to go forward towards a political union. But we can also see that our current style politicans lack the courage, guts or vision to really deal with that question openly. Then again, that is also a valid choice. It's the choice to remain the puppet/marionet in the French theatre.
My guess is that Sarkozy is a very smart man who foresees that the European countries will continue to fall for his cheap magic and will remain puppets in the French masterplan. And could that perhaps also be the reason why, at the end of his pro-Europa-speech, one week ago, we didn't hear the European anthem (the Ninth of Beethoven) but the Marseillaise?
Click here to the read the Dutch version of this blogpost.
21/06/2011
Greece: we Europeans need to bypass politicians and support the Greek people
At pressing times like these, it may be time for the citizens themselves to speak out and connect to Greece and its people. The euro has a very positive cost-benefit ratio as it shielded Europe from uncanny complicated situation when the financial crisis hit in 2007. Without it we would have had highly fragmented local financial disasters all over Europe. Politicians are forgetting this too quickly and choosing for populistic lines of reasoning to satisfy what, in their view, is the peoples wish/opinion.
On both a political and human level, there is no other way than supporting the Greek. But we shouldn't let only the politicians and bankers do the work. It is now time for European labour unions, companies, families, sports clubs, stamp collectors and what have you, to reach out to the Greek counterparts that they have been in touch with over the last years.
The message to them could be one of human and moral support, outlining that both the Greek people and the European people are stuck with politicians that sometimes don't do their job right. In Greece they frauded a bit too much and in Europe they are just too populist and lack the leadership to stand up for the euro now. But if we look underneath it all, there is only one thing to do: support the Greek, sympathize with their situation and encourage/support them to make the best of it.
19/05/2011
Will history repeat itself....?
One of these days I was wondering if we weren't heading towards a similar situation as in the run-up to the crisis. A prolongued period of low interest rates. Asset bubbles. Tech-stock and IPO's all over the place. And so on. And I recalled that one of the earlier FSF-reports had some good lines on that matter. The Report on Market and Institutional Resilience in April 2008 noted:
The turmoil in the most advanced financial markets that started in the summer of 2007 was the culmination of an exceptional boom in credit growth and leverage in the financial system. This boom was fed by a long period of benign economic and financial conditions, including historically low real interest rates and abundant liquidity, which increased the amount of risk and leverage that borrowers, investors and intermediaries were willing to take on, and by a wave of financial innovation, which expanded the system’s capacity to generate credit assets and leverage but outpaced its capacity to manage the associated risks.
What I found interesting in the aftermath of the report and its follow up, is that most attention focused on what banks, supervisors could do, but that central banks were kept out of the discussion and follow up. While the man in the street started taking up all the technical discussions in the report (on perverse renumeration inventives, capital buffers, securitisation that got out of hand, US housing market deficiencies), the role of central banks never made it to the spotlight of political discussion. Yet, it is clear that the central banks, providing easy money, played a very important part (as recognized by the words: including historically low interest rates).
And now, three years down the line, we have all fastened seatbelts with all kinds of regulations for banks, against short selling, increased buffers for Basel, risk tax for systemic institutions, new liquidity frameworks, harsher credit rating agencies and so on. But central banks maintain low policy rates that got us here in the first place.... so that makes me wonder: will history repeat itself?
We will soon find out.
The turmoil in the most advanced financial markets that started in the summer of 2007 was the culmination of an exceptional boom in credit growth and leverage in the financial system. This boom was fed by a long period of benign economic and financial conditions, including historically low real interest rates and abundant liquidity, which increased the amount of risk and leverage that borrowers, investors and intermediaries were willing to take on, and by a wave of financial innovation, which expanded the system’s capacity to generate credit assets and leverage but outpaced its capacity to manage the associated risks.
What I found interesting in the aftermath of the report and its follow up, is that most attention focused on what banks, supervisors could do, but that central banks were kept out of the discussion and follow up. While the man in the street started taking up all the technical discussions in the report (on perverse renumeration inventives, capital buffers, securitisation that got out of hand, US housing market deficiencies), the role of central banks never made it to the spotlight of political discussion. Yet, it is clear that the central banks, providing easy money, played a very important part (as recognized by the words: including historically low interest rates).
And now, three years down the line, we have all fastened seatbelts with all kinds of regulations for banks, against short selling, increased buffers for Basel, risk tax for systemic institutions, new liquidity frameworks, harsher credit rating agencies and so on. But central banks maintain low policy rates that got us here in the first place.... so that makes me wonder: will history repeat itself?
We will soon find out.
05/05/2011
Trichet now being careful not to raise the interest rate
Last week we could witness the first press conference of Bernanke, highlighting the thoughts behind the FOMC decision to not raise the interest rate (in this pre-election year). Todays unemployment data may have already been at their table, who knows. Yet our attention was focused in Trichet and the press-conference. And we could note that the questions on this side of the ocean were better. Yet the answers by Trichet were of a different kind than those of Bernanke. Where Bernanke would be getting back on the technical/economical picture and monetary arguments themselves, Trichet very clearly sticks to what he can say and what he must say. He's quite the diplomat, so every word counts.
Essentially, the ECB has decided to not further increase the interest rate and take a wait and see approach. This has to do with most recent figures on retail sales in EU, which weren't really positive. So the ECB will maintain its current stance and will also continue to note that the non-standard measures of monetary policy are clearly temporary (a frase being used so long now, that it starts to wear off and may now become a nice one-liner for future references to situations where politically one has to defend a policy line that legally can't be upheld).
What was remarkable, was that the ECB (having had a meeting with all EU-member states and the EU-commissioner present) was very clear as to the need for debt-laden countries to comply with all agreed measures. He also outlined utterly clear that there would be no writedowns of Greek debt. None whatsoever. So while the last couple of times, Trichet had toned down a bit on his political 'rants' he was now fully back and armed. He was also quite clear as the importance of preventing second round inflation effects. And perhaps he hoped that if he spoke about it clear enough, the effect might not start to occur...
A question by a reporter about how Trichet evaluated the Bernanke-press conference, was of course left unanswered by Trichet. Yet, I guess he had anticipated the question with his press-people, in order to convey a message to the markets. He used the question to explicitly outline that he fully agreed with both Geithner and Bernanke as to the preference and importance attached to maintaining a stable currency exchange rate. And somewhere in the press conference he also spoke about the intricate web of central bankers.
Having witnessed this central-banking-web close by, and appreciating the diplomatic skills of Trichet, there must have been some phone calls between Bernanke and Trichet. I image a call like this:
B: So you;re not going to raise either?
T: I can't tell you of course, we haven't decided yet, but it appears unlikely to me..
B: Ah... well, then, that's good news
T: Tell me, cher-ami, how do you mean?
B: Well, markets may expect more from ECB than you give now, so the euro will slide and I will get the press of my back with their comments as to me, talking the dollar down...
T: Ah, I see, well, if that's your concern I'll see if I can hint a bit around during the Q&A session
B: Ah, Jean-Claude, well, this is all hypothetical of course, as you haven't decided anything
T: No, indeed, but as always I have enjoyed sharing our views on the matter.
B: Same here. Speak to you later
T: Yes, bye bye.
The results of both the press conference and the statements by Trichet speak for themselves. Euro quite a bit lower and everyone now anxiously awaiting tomorrows US-data. Which in my personal view will show that the recovery is not taking off in the US (as it isn't in the EU). Which leaves the stock markets very overvalued and create a dim economic 'muddle-through' perspective. Where some potential for economic growth is left unutilized due to the political choice to increase internal buffers at banks and to force banks into low-risk (thus low-lending) profiles. Which leaves us open to further shopping and take-over by other parts of the world with a bit more cash at hand..
Click here for the Dutch version of this blog-item.
Essentially, the ECB has decided to not further increase the interest rate and take a wait and see approach. This has to do with most recent figures on retail sales in EU, which weren't really positive. So the ECB will maintain its current stance and will also continue to note that the non-standard measures of monetary policy are clearly temporary (a frase being used so long now, that it starts to wear off and may now become a nice one-liner for future references to situations where politically one has to defend a policy line that legally can't be upheld).
What was remarkable, was that the ECB (having had a meeting with all EU-member states and the EU-commissioner present) was very clear as to the need for debt-laden countries to comply with all agreed measures. He also outlined utterly clear that there would be no writedowns of Greek debt. None whatsoever. So while the last couple of times, Trichet had toned down a bit on his political 'rants' he was now fully back and armed. He was also quite clear as the importance of preventing second round inflation effects. And perhaps he hoped that if he spoke about it clear enough, the effect might not start to occur...
A question by a reporter about how Trichet evaluated the Bernanke-press conference, was of course left unanswered by Trichet. Yet, I guess he had anticipated the question with his press-people, in order to convey a message to the markets. He used the question to explicitly outline that he fully agreed with both Geithner and Bernanke as to the preference and importance attached to maintaining a stable currency exchange rate. And somewhere in the press conference he also spoke about the intricate web of central bankers.
Having witnessed this central-banking-web close by, and appreciating the diplomatic skills of Trichet, there must have been some phone calls between Bernanke and Trichet. I image a call like this:
B: So you;re not going to raise either?
T: I can't tell you of course, we haven't decided yet, but it appears unlikely to me..
B: Ah... well, then, that's good news
T: Tell me, cher-ami, how do you mean?
B: Well, markets may expect more from ECB than you give now, so the euro will slide and I will get the press of my back with their comments as to me, talking the dollar down...
T: Ah, I see, well, if that's your concern I'll see if I can hint a bit around during the Q&A session
B: Ah, Jean-Claude, well, this is all hypothetical of course, as you haven't decided anything
T: No, indeed, but as always I have enjoyed sharing our views on the matter.
B: Same here. Speak to you later
T: Yes, bye bye.
The results of both the press conference and the statements by Trichet speak for themselves. Euro quite a bit lower and everyone now anxiously awaiting tomorrows US-data. Which in my personal view will show that the recovery is not taking off in the US (as it isn't in the EU). Which leaves the stock markets very overvalued and create a dim economic 'muddle-through' perspective. Where some potential for economic growth is left unutilized due to the political choice to increase internal buffers at banks and to force banks into low-risk (thus low-lending) profiles. Which leaves us open to further shopping and take-over by other parts of the world with a bit more cash at hand..
Click here for the Dutch version of this blog-item.
28/04/2011
Bernanke sticks to low rates.... risky... but understandable
These days I watched and listened the first press conference by Ben Bernanke, in which he elaborated on the US-FOMC monetary policy. After a nervous start, he started getting the hang of it when it all became 'technical'. Whereas Trichet is a fully certified clueless-empty-can-but-very-capable-regent who brushes off all complicated questions with a number of standard mantras, Bernanke was in good shape. The guy very obviously knows what he is talking about and that is a huge relief in comparison to Trichet. I noticed that in general, also the US-FED-watchers shared the view that this was a good first premiere by Bernanke (see also here).
Wat Bernanke told us, is that the FOMC, with its double mandate on price stability and employment, chose to prioritize the economic growth and employment by maintaining low interest rates for the time being. The quantitative easing will end in June, but there will be reinvestments of matured bonds. The Fed considers a stop on this reinvesting as a tightening of monetary policy and will only do so after due consideration and on the basis of an explicit FOMC decision. So, for now, we will face a prolongued period (at least three months) of low interest rates in the US. Employment is the main thing.
The market effects were quickly visible with a happy stock market and a diving dollar. Meanwhile I was pondering the thought if the economy in the US would really be in such a bad shape that it deserved further easy-money? Or could there be another angle at all this?
I realised that we are in the run up to new elections and recalled literature from a while ago: research by the FED that observed a correlation between the behaviour of the FED/FOMC and the pre-election year. This would be either an explicit or implicit case of the principal-agent situation. Meaning that in the year before the elections, the US Presidents appreciates a solid economy which then creates jobs that he can show off with in the election year. And from that perspective, the FED-decision is quite clear (and a case in point).
Still, this is playing with fire, as we are in the same situation that brought us the financial crisis: a prolongued perod with low interest rates, which may seduce markets into taking too much risk. Which may lead to the situation where we get rid of the hangover by taking a new beer, the day after (as we all know, the recipe for die-hard alcoholism). En also our central bank (De Nederlandsche Bank NV) states a serious warning in its financial stability report which does not sound happy at all:
Just as in the run-up to the crisis, we can observe overliquidity in the worldwide financial system, with global imbalances. These developments may, in the medium term, threathen the financial stability, when once again bubbles in financial markets or unsustainable debts will come into being. We have almost stretched the accomodative monetary policies that we see worldwide, to their maximum limits.
In sum, the historic days are not over yet. As we are very much aware how we came into this crisis, it remains a risky approach to stick to low interest rate policies. Time will tell.
Wat Bernanke told us, is that the FOMC, with its double mandate on price stability and employment, chose to prioritize the economic growth and employment by maintaining low interest rates for the time being. The quantitative easing will end in June, but there will be reinvestments of matured bonds. The Fed considers a stop on this reinvesting as a tightening of monetary policy and will only do so after due consideration and on the basis of an explicit FOMC decision. So, for now, we will face a prolongued period (at least three months) of low interest rates in the US. Employment is the main thing.
The market effects were quickly visible with a happy stock market and a diving dollar. Meanwhile I was pondering the thought if the economy in the US would really be in such a bad shape that it deserved further easy-money? Or could there be another angle at all this?
I realised that we are in the run up to new elections and recalled literature from a while ago: research by the FED that observed a correlation between the behaviour of the FED/FOMC and the pre-election year. This would be either an explicit or implicit case of the principal-agent situation. Meaning that in the year before the elections, the US Presidents appreciates a solid economy which then creates jobs that he can show off with in the election year. And from that perspective, the FED-decision is quite clear (and a case in point).
Still, this is playing with fire, as we are in the same situation that brought us the financial crisis: a prolongued perod with low interest rates, which may seduce markets into taking too much risk. Which may lead to the situation where we get rid of the hangover by taking a new beer, the day after (as we all know, the recipe for die-hard alcoholism). En also our central bank (De Nederlandsche Bank NV) states a serious warning in its financial stability report which does not sound happy at all:
Just as in the run-up to the crisis, we can observe overliquidity in the worldwide financial system, with global imbalances. These developments may, in the medium term, threathen the financial stability, when once again bubbles in financial markets or unsustainable debts will come into being. We have almost stretched the accomodative monetary policies that we see worldwide, to their maximum limits.
In sum, the historic days are not over yet. As we are very much aware how we came into this crisis, it remains a risky approach to stick to low interest rate policies. Time will tell.
Trouble in The Hague and Amsterdam: Ministry of Finance does not favour Hoogduin as DNB-President...
In the Netherlands we are looking forward to hearing from our government who the next president of the Central Bank will be. You know my personal opinion and preference voor van Dijkhuizen as the next President. And this morning the Financieele Dagblad outlined that he is one step closer as it appears that the Ministry of Finance has a strong preference for an outsider candidate rather than the candidate Hoogduin, preferred by DNB itself. Het Ministry thinks that this is necessary to ensure that DNB will effectively change its culture and does not believe that an internal candidate can do this.
Now that the Ministry of Finance doesn't rubberstamp the proposal of DNB (which they used to do until now), the official decision by the Dutch Cabinet has been delayed a couple of times. And the Financieele Dagblad notes a couple of arguments, among which the political colour of candidates, as possible reasons. But we don't get the full picture, as there is also a candidacy for the role of Executive Director Bank Supervision. But we don't hear anything about that appointment procedure.
I have been pondering the continuation of this sequel. I wouldn't be surprised if a new solution to the problem surfaces in which the executive director on Bank Supervision is also named: vice-President of DNB. In that model Hoogduin would be promoted to President and remain the monetary expert he is, while the real weight rests with the Vice-President, responsible for Supervision.
We'll soon discover how this ends: I am most curious!
PS 1: Dow Jones reported this morning that Ministry of Finance, De Jager, has reacted that the political colour of the candidate does not play any role:
'I haven't seen a final list of candidates' according to the CDA-Minister. Hij continues to outline that he is not in a hurry, because: 'we still have until June'.
PS2. The PVV has explicitly noted that they wish the successor for Wellink to be an outsider, in order to change the DNB-culture properly.
Now that the Ministry of Finance doesn't rubberstamp the proposal of DNB (which they used to do until now), the official decision by the Dutch Cabinet has been delayed a couple of times. And the Financieele Dagblad notes a couple of arguments, among which the political colour of candidates, as possible reasons. But we don't get the full picture, as there is also a candidacy for the role of Executive Director Bank Supervision. But we don't hear anything about that appointment procedure.
I have been pondering the continuation of this sequel. I wouldn't be surprised if a new solution to the problem surfaces in which the executive director on Bank Supervision is also named: vice-President of DNB. In that model Hoogduin would be promoted to President and remain the monetary expert he is, while the real weight rests with the Vice-President, responsible for Supervision.
We'll soon discover how this ends: I am most curious!
PS 1: Dow Jones reported this morning that Ministry of Finance, De Jager, has reacted that the political colour of the candidate does not play any role:
'I haven't seen a final list of candidates' according to the CDA-Minister. Hij continues to outline that he is not in a hurry, because: 'we still have until June'.
PS2. The PVV has explicitly noted that they wish the successor for Wellink to be an outsider, in order to change the DNB-culture properly.
05/11/2010
Bernanke playing with fire and burning his fingers... or outright brilliant?
This week is the second round of Quantitative Easing in the American market. Bernanke throws another 600 billion into the market to boost the US into economic growth. Most Dutch economists have mixed negative feelings about this and point out that the US Fed are choosing the lower interest policy weapon since the Asia crisis, to boost the economy. But we should note that the US Federal Reserve has a dual mission. They must:
- guard the monetary base / interest rate and stability of the coin AND
- create employment,
as compared to the European Central Bank that must only:
- guard the stability of the coin / monetary base / interest rate.
Why this interesting difference?
It is all because of the previous crisis, more than 100 years ago in the US, when the Fed was founded and when there was a huge unemployment. That resulted in the inclusion of the employment goal into the FED mandate. And its this goal that is now leading the US Federal Reserve Board to fill up the tank with more gasoline, when it's already full. And we all now what happens in such a case: spill-overs.
The size of the American economy is one, that results in spillover effects that will travel the whole world. Other currencies are experiencing the pressure and one only hopes that the American motor will indeed kickstart as a result of the easing. The latest unemployment data of the US appear to be hopeful, but then again: no one is solving the Fanny and Freddy problem. And we are only starting to discover what the effects will be of the robo-signing during foreclosures in the USA.
So, while in the US we see some extra demand for Treasuries now that Uncle Ben is out shopping, pension funds all over the world are choosing a hands-off approach of periferal treasuries. And that leaves us in amidst historical times that only afterwards allows us a final verdict on Bernanke: was he burning his fingers or being outright brilliant?
- guard the monetary base / interest rate and stability of the coin AND
- create employment,
as compared to the European Central Bank that must only:
- guard the stability of the coin / monetary base / interest rate.
Why this interesting difference?
It is all because of the previous crisis, more than 100 years ago in the US, when the Fed was founded and when there was a huge unemployment. That resulted in the inclusion of the employment goal into the FED mandate. And its this goal that is now leading the US Federal Reserve Board to fill up the tank with more gasoline, when it's already full. And we all now what happens in such a case: spill-overs.
The size of the American economy is one, that results in spillover effects that will travel the whole world. Other currencies are experiencing the pressure and one only hopes that the American motor will indeed kickstart as a result of the easing. The latest unemployment data of the US appear to be hopeful, but then again: no one is solving the Fanny and Freddy problem. And we are only starting to discover what the effects will be of the robo-signing during foreclosures in the USA.
So, while in the US we see some extra demand for Treasuries now that Uncle Ben is out shopping, pension funds all over the world are choosing a hands-off approach of periferal treasuries. And that leaves us in amidst historical times that only afterwards allows us a final verdict on Bernanke: was he burning his fingers or being outright brilliant?
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