Skip to comments.Netherlands, Portugal, the Next EU Chips to Fall?
Posted on 04/08/2013 9:10:06 AM PDT by SeekAndFind
Most attention lately has been on Cyprus, Spain, and Italy. Long-time troubles have been brewing in Portugal and I have an update coming up shortly.
First consider Underwater: The Netherlands Falls Prey to Economic Crisis.
The Netherlands, Berlin's most important ally in pushing for greater budgetary discipline in Europe, has fallen into an economic crisis itself. The once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs.
"Underwater" is a good description of the crisis in a country where large parts of the territory are below sea level. Ironically, the Netherlands, widely viewed as a model economy, is facing the kind of real estate crisis that has only affected the United States and Spain until now. Banks in the Netherlands have also pumped billions upon billions in loans into the private and commercial real estate market since the 1990s, without ensuring that borrowers had sufficient collateral.
Private homebuyers, for example, could easily find banks to finance more than 100 percent of a property's price. "You could readily obtain a loan for five times your annual salary," says Scheepens, "and all that without a cent of equity." This was only possible because property owners were able to fully deduct mortgage interest from their taxes.
Instead of paying off the loans, borrowers normally put some of the money into an investment fund, month after month, hoping for a profit. The money was to be used eventually to pay off the loan, at least in part. But it quickly became customary to expect the value of a given property to increase substantially. Many Dutch savers expected that the resale of their homes would generate enough money to pay off the loans, along with a healthy profit.
No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books.
Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.
The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill. Despite tough austerity measures, this year the government in The Hague will violate the EU deficit criterion, which forbid new borrowing of more than 3 percent of gross domestic product (GDP).
It's a heavy burden, especially for Dutch Finance Minister Jeroen Dijsselbloem, who is also the new head of the Euro Group, and now finds himself in the unexpected role of being both a watchdog for the monetary union and a crisis candidate.
Even €46 billion in austerity measures are apparently not enough to remain within the EU debt limit. Although Dijsselbloem has announced another €4.3 billion in cuts in public service and healthcare, they will only take effect in 2014.
Today is a flight day. Will be back to more normal posting Sunday evening.
Last week, ahead of a ruling by the Portuguese Constitutional Court on whether or not the austerity measures it approved were legal, Portugal's PSI stock market took a dive.
PSI Stock Index
On March 25 the index was at 6023. It closed at 5637 on April 5 a decline of 6.4%
Court Rejects Budget
On April 5, Portugal constitutional court rejects budget articles
Portugal's Constitutional Court has ruled several key articles of the 2013 state budget unconstitutional.Portugal Considers Paying Workers in T-Bills
It rejected four out of nine contested austerity measures from the budget.
It will deprive the state of some 1.5bn euros (£1.3bn) in savings the government had said were necessary to meet the terms of a eurozone bailout.
The court rejected a measure to scrap summer holiday bonuses for public sector workers and pensioners, as well as cuts to unemployment and sickness benefits.
Prime Minister Pedro Passos Coelho did not react to the decision immediately but called an extraordinary cabinet meeting for Saturday.
For most Portuguese workers, the annual tax rises are equivalent to more than a month's wages. The standard income tax rate is rising from 24.5% to 28.5%.
The savings are Portugal's toughest in living memory, aimed at meeting the terms of a 78bn-euro (£64bn) bailout.
The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts, a person familiar with the situation said Sunday.
The Portuguese government warned Saturday that the court's decision will put into question the country's ability to fulfill its €78 billion ($101 billion) international bailout program.
Specifically, the court rejected plans to cut one of the 14 paychecks that public workers usually get each year and to slash 6.4% from pensions for retirees.
By paying one month of salary in T-bills to public workers and pensioners, the government would save an estimated €1.1 billion in expenses, narrowing the budget gap significantly
Mike "Mish" Shedlock
Say what you will about the rest of her legacy, but when it comes to the economic disaster today known as the euro, Margaret Thatcher was downright prophetic. In a delightfully acidic speech delivered before Britain’s House of Commons in 1990, and posted below, she summed up her feelings about European integration: “No. No. No.”
Specifically, Thatcher opposed to the idea of handing political power to a European parliament, giving up the pound for a single European currency, or handing over its monetary policy to a European central bank. As she put it (in the blunt way only British politicians can):
Perhaps the Labour party would give all those things up easily. Perhaps it would agree to a single currency and abolition of the pound sterling. Perhaps, being totally incompetent in monetary matters, it would be only too delighted to hand over full responsibility to a central bank, as it did to the IMF. The fact is that the Labour party has no competence on money and no competence on the economy — so, yes, the right hon. Gentleman would be glad to hand it all over. What is the point of trying to get elected to Parliament only to hand over sterling and the powers of this House to Europe?
I recently read that Geert Wilders’ PVV is gathering steam again now that the crisis is clearly not going to be resolved. He’s vowed to pull the Netherlands out.
Wilder’s better watch his back. The Muzzies want him killed and they are (even as we speak) hiring assassins to do this job.
He’s been dodging bullets for years. I’ve read his book, Marked For Death. He truly does live like a prisoner because of the threats against his life.
Allowing people to borrow more than a house is worth and more than they can afford? What could possibly go wrong?
Banks have much to answer for, but the real root of the problem is government. And raising taxes is the exact wrong thing to do. It will only make the economy tank faster.
Cut government spending and get government out of the protection business for banks and all other businesses. Let the free market work.