Ireland appears to
have limited options in undertaking any further austerity measures, if the
country wishes to avoid the complete destruction of its domestic market
(internal demand) – while at the same
time it needs to meet its deficit reduction goal for the year 2013;
reductions of 3.5 billion euro’s are needed.
The country’s economic growth rate for the year 2012, is projected at
0.7% and is not believed to improve due to weak domestic demand, coupled with
restricted exports (due to the current debt crisis).
unemployment rate at 14.80% and without any sign of a possible reduction in the
foreseeable future, Ireland's deficit will reach -7.5% in the year 2013 – hurtfully high levels for a country that
continues to suffer from a real estate and banking crisis (although
supported by American and other companies that have settled there to facilitate
their export rout to Europe, having been enticed by the low tax rates).
On the other hand,
it is also impossible for Spain to achieve its lofty goals, according to the
IMF – while at the same time the country
is delaying its request to enter the ESM, to avoid control from its creditors.
Spain’s budget deficit will most probably exceed -7% in 2012 (compared to what
the Spanish government hoped to be -6.3%, while Spanish economists expressed a
more pessimistic -9.4%). For the year 2013, the IMF estimates indicate a drop
to -5.7%, up significantly from the Spanish prediction of -4.5%.
made by the Spanish prime minister to save 40 billion euro's (via reductions in
spending and an increase in tax income) will most likely worsen the current
situation as it will intensify the recession and increase unemployment, pushing the
country to its limit. Therefore, it will soon replace Greece, taking the
reins of the euro-zone debt crisis – dragging along Portugal (to some extent),
which also faces major problems, but manages to stay off-stage.
However, the euro-zone
country facing the greatest problems (outside the euro-zone, Great Britain faces the greatest problems
and will soon have to face a stormy situation) is the Netherlands –
although it has, so far, managed to avoid
Outside of Europe
and the US (a country that could solve its huge public debt and deficit
problems if it would simply increase the tax rate for the wealthy – given the
enormous valuation of private property, well above US$ 38 trillion, compared to
US$ 15 trillion of public debt), the
biggest problems are observed in Iran, which faces a coordinated economic attack
on a global scale.
The results of this
attack are the shrinking of Iranian energy exports by 50%, the free fall of its currency (devaluation), as well as the
magnifying effect on inflation – in combination with an escalating food crisis,
which has led to a major social upheaval.
In general, the
problem of the Netherlands is rising unemployment, as well as the escalating
bad debts of banks, coupled with the
bursting of the property/housing bubble. Before the burst, the housing
prices had followed a steep upward trend since 2001, fuelled by the then new law
that allowed Dutch citizens to deduct the interest of their mortgages from
their taxable income.
The deduction of
interest from taxable income (which was
adopted in order to encourage mortgages for the construction of new homes) eventually
worked as an incentive for the creation of ever-increasing debts by businesses
In particular, like
in other countries (USA, Ireland, Spain), the Dutch citizens not only took on
debt to buy their own homes; they
borrowed money to consume, using their homes as collateral – in order to
benefit from government subsidies in the form of tax breaks.
The result of this
ten year long process was excessive borrowing by the Dutch; Holland has the highest level of household
debt in the euro-zone. Furthermore, the mortgage debt of the Dutch,
relative to Holland’s GDP, is the highest worldwide – a painful lead. (See
TABLE I: Private (household) per capita debt
As seen in Table I,
the average Dutch household owes nearly three times as much as the average
German household and over three times as
much as the average euro-zone household. This reality will soon have a
major impact on the banking system, and after that, on the public sector.
household debt increased after 2001, the property sector overheated, and
therefore, prices continued to climb. After the outbreak of the financial crisis
however, amid fears of a recession and rising unemployment, prices fell by 8%
in just one year – while the number of
new building permits is now the lowest since 1953. Meanwhile, construction
business bankruptcies soared 44% in the first half of 2012.
The properties for
sale today are estimated to be 221.000, up from 150.000 a few years ago, and
with prices in certain areas lowered by more than 20%. In general, there are twice as many properties for sale
in the Netherlands (per capita) compared
to the U.S. – a country that has been suffering a prolonged real estate
This leads us to
the conclusion that the Netherlands will
soon have to face a real estate crisis of its own, the size of which will be
greater than that in Spain – despite the fact that unemployment is
relatively low (6%), but increasing steadily.
to international analysts, 20% of the Dutch live in homes that lost value to
such an extent that mortgage payments are
too expensive compared to the value of homes – a situation that is similar
to that of the U.S.
This situation will
obviously create enormous problems for the banks – with Rabobank having to face
an increase of its bad debts by 75% in the first six months of 2012 (a total of
1.1 billion euro's). The same applies to ABN Amro, with the specialized company
Arcadis calculating the additional bad debts of the bank to be 37 billion euro's.
The total mortgage
debt of the Dutch is around 640 billion euro's
(when Greece’s public debt* is around 290 billion euro's) – against which
the private deposits of the Dutch are just 332 billion euro's.
This means that the
Dutch banks must finance the difference (308 billion euro's) from abroad – resulting in enormous dependence on the
international financial markets. With the country’s GDP at around 650
billion euro's, the total (mortgage) debt of households is scary; nearly 100%
According to a professor
of Finance, "The situation in the
Netherlands is disturbingly reminiscent of that of Ireland and Spain. We are facing
an extremely large private debt, a terrifying real estate bubble, and gigantic
defaults (bad debts) on banks, against which absolutely nothing has been done".
Moving on, if the
real estate bubble bursts, it will have
a major impact on public debt, which is currently reasonable; four out of five
mortgage loans (80%) are guaranteed by a state development tool (national mortgage
guarantee). Under this tool, if any citizens do not pay their loan
installments, the state is obliged to take them on/to bear the expenses – a
real megaton bomb in the foundations of the Dutch government.
According to an
expert, there was the (illusory) impression that the state could secure (by
law) the stability of property prices! This impression was created by the fact
that the state guarantee on loan
defaults ensured property developers low interest rates for a long time – a
practice that today poses a great risk to the credit rating of the entire
country, which currently is still AAA.
government, always according to FOL, now wants to avoid/reduce the risk by
eliminating the subsidies – a move that could prove disastrous for the already
unhealthy real estate market.
Especially when the
growth rate of the Netherlands, a country with a budget deficit (-4.7% of GDP
in 2011), and external debt in the amount of US$ 1.1 trillion, heavily dependent on exports to Germany
(26.2% of total exports), dangerously slows (0.3% last quarter).
As we can see,
there are several countries with major problems – both within the euro-zone and
outside of it. However, only Greece
seems to be in the eye of the storm, confronting, among other things,
continuous attacks from all sides, as well as incredible attempts at
Greece, on the one
hand, is being used as an experimental subject for the imposition of the new
order of things, and on the other hand as
protective smoke (a decoy) for all the powerful countries that confront
much bigger problems – something of course that will be proven.
* We have ecxluded the amount of bank recapitalization
Translation of original:
Sources: Focus (FON), Arcadis
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Vassilis Viliardos is an Economist and an Author
of several books on the Greek economic crisis. He has earned his Economics
degree in ASOEE (Greek University of Economics) and in Hamburg, Germany. He lives in Athens, Greece.