Daily Commentary: On the Dutch leaving the euro zone
As I wrote yesterday, in the past, I have offered up a links post on the most important news items of the day. I am replacing this with a more robust offering that also includes my news commentary in addition to the links. I hope this will put those links in context for you and give you a chance to ping me with specific comments about market and economic news issues you are seeing. This product will retail for $2.99 per month. What I intend to do going forward is put up the links post for a couple of days in the new format for free to give you a feel for what the news commentary will initially look like. Then, soon afterwards, I will start the Bronze Membership.
Here goes
Topic du Jour: Dutch missing targets/leaving the euro zone
Everyone is talking about the Dutch Freedom Party these days. My view: they are a complete non-issue, the leaving euro zone part is total media hype and meaningless. I have strong ties to the Netherlands and have been following things there. About two months I caught an article in Newsweek on Geert Wilders, the head of the Freedom Party. He is a bit like Marine Le Pen in terms of his appeal: anti-immigrant, nationalist and right wing. The Newsweek article made the Dutch look like they were making an abrupt shift from the liberal tolerant society they have always been labelled as over the past few decades to an intolerant and right wing dominated place. This is just nonsense. I sent the article around to several friends of mine to see what they had to say. Here are few snippets:
- "I can assure you that the majority of our country citizens have sane opinions on Islam."
- "Hi Ed, Having the benefit of being in a neutral country I also see the developments as scary. From the outside he is also regarded as dangerous and extremist. Double standards is what the Swiss hate here and so far they have covered it well."
- "Geert is a dangerous animal who continues to insult Muslims… he criticized our queen last week for wearing a head scarf while in Abu Dhabi and Oman (while at the same time insisting every “visitor” to the Netherlands adapt to our culture.… It has become very awkward now that his party is part of the Government coalition. At a minimum this will continue to create tensions in our cabinet while they have bigger fish to fry… but more severe consequences are not unthinkable. Problem is, he desperately wants to stay in the news and quite a portion of our population quite like his rhetoric"
Bottom line: The Dutch have not changed one iota. There have always been elements of disquiet about the liberal sex and drugs policy and cultural integration of immigrants. For example, some of my friends mentioned that the hash cafes are for foreigners and that they and people they know never really got into any of that. Queen’s Day or Euro and World Cup celebrations yes, but no different than in Germany. The majority of Dutch people reject Wilders. He is a media-seeking extremist and his ideas are not shared by the major parties. That he says the Netherlands should leave the euro zone is meaningless. He has no sway on this issue whatsoever.
Remember, I am a eurosceptic who thinks the euro will eventually break up but I am telling you this Dutch story is a non-issue.
On the other hand, the possibility that the Dutch will violate the Maastricht treaty targets is a very big deal. Marc Chandler and Finance Addict have both written on this, so I won’t rehash their points. But what you should realise is that the Dutch will not want to be seen missing their targets. They will definitely close this gap as best they can. And that means the Dutch government will embark on a deflationary policy, joining the periphery, France, Belgium and Austria in this regard. Really, only Germany, Finland and Luxembourg have any leeway on the fiscal front in the euro zone given the present political economic agenda.
That means Europe is going to continue its deflationary policy response. For countries like Spain, where they are openly flouting the Maastricht Treaty by not even attempting to meet agreed to targets, what they want is an expansionary policy from the likes of the Netherlands. They are not going to get it. The Spanish are on their own in this. They had better hope bond markets don’t push their yields up too high.
Here are the links.
"The euro is not in the interests of the Dutch people," said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. "We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on."
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With LTRO II completed last week, over €1tn of liquidity has been injected into the eurozone’s financial system. Private banks were permitted to bid for any amount of liquidity they wanted, the collateral required was defined in the most liberal possible way, and the loans will not fall due for three years. Any bank that might need funds before 2015 should have participated to the hilt, thus eliminating bankruptcy risk fora long time time to come. What can there possibly be not to like about this? A few things.
On the whole I would agree with your analysis, but I think you might want to mentally re-adust your estimates of the size and significance of Geert Wilders’ following. His Freedom party is currently third-largest in parliament, and the spread is narrow. Freedom has frequently been on top of opinion polls, while the two traditional leading parties are at all time lows (and the ruling VVD party has adopted many of Wilders’ ideas _ he is a VVD defector).
His euro position has the potential to give his party a serious second dimension (apart from anti-immigration), depending on how events play out on the ground.
Odds are the Cabinet will survive this round of cost-cutting, but IF it doesn’t, the result of new elections is impossible to predict to say the least. Further gains for both Wilders and the far left would be likely.
The tone of my lead-in makes it seem like I am downplaying the popularity of Wilders. I do realise however that his party has 16% of the seats and so has some sway in parliament. I think his party and Le Pen’s are comparable except that he actually has more mainstream sway since his is an offshoot party. One might compare them to the True Finns.
One thing that needs to be considered is that right wing extremist parties are usually the electorate making a protest at the mainstream parties. This is definitely the case here in the UK. The BNP only ever do well in poor areas and those especially impacted by immigration. In general elections their support evaporates as mainstream parties gain. The problem long term is that the wrong policies are meaning that there will be high unemployment for the rest of the decade and that means extremist parties will flourish in Europe, until there is a change in policy.