I have been reading the Dutch/Flemish-language press in the Netherlands and Belgium but haven’t figured out a good way to inject some of the insights into my previous posts. So I thought I would just post up some links here and give a roundhouse view of what those links are saying about what’s going on in Europe. I will do the same for Spanish links I have at a later date.
Note, most of these links are from Belgium.
The first thing that jumps out at me is the interview with Marco Buti, who says point blank that austerity must end as it is “pointless”. That’s huge because he is Olli Rehn’s right hand man. And Rehn has just confirmed that the EC is relaxing timetables for France along with the Netherlands, Slovenia, and Poland. After the Draghi presser yesterday, in which, Draghi repeatedly pointed only to medium-term consolidation, the relaxed timetable on France and the Netherlands and Macro Buti’s upcoming comments make it clear that we have entered a new era of EU policy, as I remarked yesterday. I see France and the Netherlands, where the deficits have breached the Maastricht hurdle, as principal causes for the timetables to be relaxed. But Belgium and Italy as high debt countries whose debt is now increasing due to economic stagnation are two further principle reasons for (front-loaded) austerity to end.
Here is what I have article by article.
- First, Paul De Grauwe is in De Standaard today saying that it is high time that the European Commission recognizes its austerity policy has failed. This is an exclusive double interview with Marco Buti, the right hand man of EC Commissioner Olli Rehn. Buti’s part appears tomorrow in De Standaard. Marco Buti calls for austerity to provisionally stop. According to Buti, it is a “pointless plan”. Wow! Big news in my view
- The second thing I have is actually in French. And it comes from the Belgian government, which today announced that Q1 2013 GDP grew 0.1% after a 0.1% decline in Q4 2012 (pdf here). Belgian GDP at the end of Q1 2013 was therefore 0.5% lower than a year ago, which tells you that the Belgian economy is generally speaking in recession. I am not going to go into great detail here except to say that growth is weak as it is elsewhere in the euro zone. A graph below gives you a sense of how it has developed over the past 10 years. You can see that Belgium, as a core country is fading back into stagnation. And given the country’s high government debt, this is a problem, one good reason the austerity path is being relaxed. The other is Italy.
- Second is a link that I have been meaning to translate for quite some time but time constraints have stopped me. I haven’t heard this in the press much, but De Tijd notes that the Cypriot government considered exiting the euro zone during its crisis. I think this is a significant piece of information because it tells you how touch and go things were behind the scenes. Here is the link, but the information may be paywalled and in Flemish. So I will try to translate when I have a moment.
- I had a bunch of articles on Spanish economic woes and eurozone unemployment from De Standaard as well. I am not going to link to those as they are well-covered in the English-language press. What I did find interesting though was that German consumer sentiment is at a 6-year high. This is telling me that conditions in Germany, while weakening according to recent PMI data, are vastly different than in the periphery or even in core countries like the Netherlands, Belgium and France. The three-speed economy of the eurozone points to a ridiculous lack of convergence that is going to make the politics of this crisis hard to deal with. (link here)
- Let’s talk about competitiveness here for a second. De Standaard again – they say that, “the Belgian implicit tax rate on labor in 2011 was the highest in the European Union, according to a report on fiscal trends that Eurostat published on Monday.” In terms of overall tax bite, Denmark has the highest taxes followed by Sweden, Belgium and France. Finland and Italy are not far behind, all over 40% tax. I gather from the article that Belgium taxes actual wages at such a high rate that this could suppress consumption. The reform crowd will want to see taxes decrease. But how is this possible when you have deficit targets to meet. (link here). De Tijd also has an article on this (link here) where they try to break the tax rates down: implicit labor tax: 42.8%, capital 30.3%, consumption 21%.
- Belgium now has record low interest rates. The 10-year is below 2% now. During another phase of the crisis, Belgium had been de-coupling from the core and drifting toward the periphery. But now we see that they are fully ensconced in the core. If Italy could get Belgian rates of interest – in part, by getting off the excessive deficit list, that would be a big deal. (link here)
- Belgium is not on the excessive deficit list. Nor does the country look to rejoin. After a deficit of 2.9% of GDP in 2012, the country is aiming for 2.5% this year, 2.0% in 2014 and 0.5% in 2015. They are aiming for a surplus of 0.4% in 2016. Now think about this in terms of sectoral balances for a second. Belgium wants to move its public sectoral balance by a full 3.3% of GDP in 4 years. Where is that move going to be offset – especially given the high labour costs? I don’t see it coming from the external balance unless the euro collapses. This forecast is pure madness and it shows you what’s wrong with the economic thinking in Europe. Somehow the Belgians think it’s virtuous to have government surpluses when the shift in public balances to achieve this implies a massive net downshift in private savings. Is that what they want? Incredible. (link here)
- Belgium actually had a deficit of 3.9% in 2012. I know where the 2.9% comes from in the last post, Dexia. Exclude the Dexia bailout and you get 2.9%. Voila, no Maastricht trouble. However, the reality is the complete federal deficit for 2012 was 3.9% of GDP, well over the Maastricht barrier. And this was well in excess of the Belgian government’s 2.8% target. (see here) Note as well that the government debt to GDP came in at 99.6% at the end of 2012. As with Italy, we will find out later this month if Belgium is on the excessive deficit list or not. Despite the general move to relax targets and so on, it isn’t clear that this exclusion of Dexia is going to fly and whether then Belgium will be considered an excessive deficit country. May 29th is when we will find out.
- Financieele Dagblad had an interview with Richard Tol and Michael O’Leary on Ireland a week ago. Tol did a Google Translate of it on the Irish Economy blog. And I have the original link here. The gist is that the two believe the reform in Ireland has been insufficient to make Ireland immune from macro shocks. And I think what this means is, as I have been detailing here, Ireland is still vulnerable to another European-wide economic recession. You may not share their view that the problem is Ireland’s inefficiency and high cost structure as O’Leary puts it. Nevertheless, I do think the article merits reading because Ireland is a stand-out austerity case so far. If the country relapses, it would be a serious blow to supporters of the policy in my view. (link here).
- Falling Dutch house prices are the biggest problem in the Netherlands. Existing home prices were 7% lower in March 2013 than one year earlier, according to the Land Registry. (link here) Prices are now back to the level of August 2003, a drop of 18% from the August 2008 peak. Here are two good graph of the fall in prices.
The tie together on this is that Europe is weak, largely because of austerity. It is clear that austerity is done in Europe, at least the front-loaded variety. And now the question is how exactly backloading deficit targets is going to work.
That’s it for now.