Wednesday, April 24, 2013

Onder water

Under waterWhen I tell people that I live in the Netherlands (or, if in the US, “Holland”), their first thoughts turn to dikes, cheese, drugs, and Wilders (or “Liberal Politics”, if in the US).  The Dutch famously live under water (roughly the red part of the graphic to the left) and so they micro-manage the landscape with deft attentiveness.

For much of the financial crisis, they did the same with their economy.  I noted a couple of years ago that growth was good, inflation was low, unemployment (and, especially, among youth) was far below that of the US or UK,  and people seemed generally prosperous and optimistic.

I was, thus, surprised to read the most recent economic statistics.

The Dutch trade surplus has fallen (though still positive); 10-year interest rates and consumer prices are rising (2.9% vs. 1.7 for the Euro area).  Unemployment is 8.1%, among youth it is 10.5% (up from 6.9% two years ago).  Stock indexes are rising, but lagging the Euro zone as a whole.

Or, for the visually inclined, it all looks a bit, well, onder water:

Dutch economy

Spiegel recently printed a good analysis of the underlying causes of the turdown.  I’s mostly rooted in the right-hand graph: drops in real-estate values have hit both banks and consumers hard.  The government has responded with austerity, higher taxes and lower spending, exacerbating the pressures on businesses and employment.  They note that the unemployment rate may be markedly understated if the Zelfstandigen zonder personeel (a large category of 880,000 self-employed freelancers) aren’t fully employed.

So far (knock on wood) my Dutch business is doing fine, bringing in work and paying taxes.  I’ve noticed an increase in quarterly audits by the Belstingdienst, requesting bank records and original copies of invoices each quarter (and raising my accountant’s charges).  My office rent is up 3%; bank fees are being increased.   US firms are complaining about pass-through of the new 21% VAT on my Dutch subcontractors.

DijsselbloemThe commodity that is in shorter supply now is confidence, suggests Dutch Finance Minister Jeroen Dijsselbloem.  He preaches austerity in the Netherlands, proposing to cut over 4 billion euros from the 2014 budget to meet the 3% deficit target.  Similarly, as Eurogroup President, he pitched a tax on depositors as well as bondholders to bail out Cypriot banks.  These measures were reversed last week by Prime Minister Rutte, who promises (unspecified) pro-growth policies that that will make additional austerity unnecessary.

It all sounds a bit like the ‘cut vs. spend’ debates that have dominated political economic discussions in the UK and US since 2008.  I thought the Dutch were immune, managing cash flows as Rotterdam aquariumsurely as they channel the spring runoff through Maastricht.  I suspect they’ll find their tunnel through the issues. 

But not without at least a brief, and uncharacteristic period of being onder water.

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