So this press release has sparked a few news articles (including in the Dutch media) regarding the fate of the euro. I’d like to see the full report (can’t find it, think I have to pay for it), because I’m not sure if all the i’s are dotted. From the press release:

Headline: To keep the euro alive will require cuts in living standards ‘greater than the UK faced in WW2‘
[...]
For the euro to survive in its current form, five things need to happen:

1) German growth needs to be 3% plus for at least 4 years;
2) A European bail‐out fund sufficient to bail out Spain and Italy needs to be constructed;
3) A system whereby the EU has a some control over economic policy in the weaker economies needs to be constructed and encapsulated in a new treaty;
4) Government spending in the weaker economies needs to be cut by around 10% of GDP; and
5) Living standards in the weaker economies need to be cut by on average 15%.

Based on this they give the euro a 20 percent shot of surviving the next ten years. The WWII comment refers to the fact that the UK cut spending by 14 percent during that period.

I also found an article based on a June 2010 press release from the same company that suggested the euro would be at parity with the dollar sometime in 2011. It’s currently drifting a little higher than $1.30, so that would be a solid 22% depreciation.

If that occurs, it should surely ease some of the current euro woes. German exports will be cheaper for non-Europeans which would boost growth. A cheaper euro would cut back purchasing power (and thereby spending) and decrease imports, which would improve the current account balance in the GIPSIs (Greek, Ireland, Portugal, Spain and Italy). A cheaper euro would also boost GIPSI exports, improving growth and helping them repay their debt.

That being said, most of Germany’s current account surplus comes from its trade within the Eurozone (that is, it plays a role in other euro countries’ deficits), so it’s possible the benefits of a weaker currency would be muted for Euroland countries… But still, I want to see that report and check if the effects of a weaker euro are taken into account.

Also, over what time period would these countries need to shrink their spending? Fifteen percent over 10 years is a lot different than 15 percent of over two.

Finally, what do they mean by the euro ‘surviving’? Does that mean no European countries will use it anymore? Because I can definitely imagine a few countries leaving the currency, but if the bad apples leave, it might swing public opinion in Germany in favor of the euro. They mean ‘surviving in its current form.’ That nuance wasn’t easy to pick up on the first read through.

In short, while the euro is in rough seas for sure, this press release is pretty sensational. If you’re going to publish such a thing, publish your methodology as well.

1) Dark Dark Dark at Amsterdam’s Paradiso, a cool band as well as venue (a converted church).

2) This condom dispenser in the women’s bathroom. At the bottom of the machine it says “It’s pointless to break into this machine. It’s emptied daily.” The condoms or the cash? Also, it’s called Condo Matic. Yes.

Also, I like how they explicitly say “Do not open this vending machine by force” in the English translation. As if all other opening methods were okay.

For those of you who are wondering, 20 degrees is about 68 Fahrenheit, and 12 is about 54. Twenty degrees and sunny is summer weather (except with a warmer ‘low’ temperature).

For example:

• What do the high public and private debt levels mean for the US recovery from the financial crisis?
• By how much did the private sector ‘overspend’ on consumer goods v. investment goods in the past ten years? Is there a reliable way to measure this? (Individual debt v. Business debt?)
• Will the private sector’s overconsumption in the past lead to underconsumption in the future? How much did the overconsumption/accumulating private debt influence GDP? (On a side note, why does Microsoft Word think that overconsumption is one word and underconsumption is two words? Is that really the rule?)

Also: Will we even know what the recovery looks like? Economic performance in the late ’90s and mid-2000s was characterized by two bubbles, Internet start-ups and real estate prices. We’ve gotten used to the idea of a booming economy. Politically speaking, even if this stimulus does ‘work’, Obama could never deliver the kind of economic performance we had before The Fall. And even if it’s unreasonable to think he could, he will still suffer the political consequences.

I recently listened to an interview with Nassim Taleb on NPR’s Planet Money in which he addressed the debt issue. Taleb says governments need to stop spending money to help get us out of the recession, because the problem with this crisis is “a problem of risk” not “a problem of recession.” And more debt equals more risk. In other words, start lowering the public debt and feel the pain now instead of postponing it until the future. Once the debt thing is under control, everybody will be better prepared for the kind of Black Swan event that the financial crisis represented.

I can appreciate this sentiment, but I would have rather that Taleb went into more detail regarding investment and consumption spending-debt as well as private v. public debt. What about the theory that if governments invest now in projects like education, developments in the high-tech sectors, etc, these projects will pay off in the long-term by increasing the future economy’s growth rate? If that growth rate is higher than the interest on your debt, theoretically speaking, you’re okay.

I guess what Taleb’s saying is that if you have no debt, you will be prepared for anything, whereas if you have debt, there’s always a chance that you will get screwed (if your long-term project doesn’t realize the benefits you predicted 20 years earlier, for example). So if you want to make long-term investments, you should only make them when you’ve saved enough money to pay for them yourself? What would happen to the pace of development and innovation? Would that be politically feasible? I just can’t picture how that world work on a macro level, but maybe that’s the whole problem.

Finally, I found this article the other day. It was written in 2001 regarding the minor recession at that time. The fourth and fifth paragraphs from the bottom are extremely foreboding, especially the mention of asset prices (also, if 2001 was considered a ‘dive’, what was 2008?):

Japan is an interesting example. In the first half of the 1990s, many economists began to regard Japan’s problem as one of debt deflation associated with a Keynesian liquidity trap, which basically meant that monetary policy was fairly impotent. Fiscal loosening seemed ideally suited for this environment. Yet the results have been very poor. The budget deficit has increased in size (in the late 1980s, Japan was recording regular budget surpluses) but has been completely offset by a rise in private-sector savings. Put another way, there was no private sector multiplier associated with the loosening of the fiscal purse strings.

Is this story relevant for America today? Well, there are a lot of differences between Japan and the US. There is, however, one similarity. Japan saw a big decline in asset prices at the beginning of the 1990s that suddenly meant that Japanese consumers and producers were a lot poorer. Their response? Increased savings to ensure that there would be sufficient assets around to support them during their retirements. Their reaction to more government borrowing? A fear of higher future taxes, giving them an additional incentive to save out of current income. Of course, the US has not been through such a calamitous decline in asset prices. Nevertheless, household wealth has taken a dive, providing a strong incentive to raise savings out of current income. This “paradox of thrift” suggests that the multipliers associated with looser fiscal policy might, initially, prove to be rather small.

It would make sense that the paradox of thrift would be worse when the interest rate is low (check out the historical federal funds rate, by the way). People might save even more because they can’t rely on the interest rate to beef up their savings in the future.

Whew.

From Buienradar.nl

After the election in June, the biggest parties by total votes were VVD (Mark Rutte) and PvdA (Job Cohen), with the PVV (Geert Wilders) coming in third and the CDA (Maxime Verhagen) rounding out the top four (see table below). NB: I’ve only included the biggest parties in the election. There are a couple small guys who made it into parliament, but their strategic importance is negligible.

Dutch Election ResultsData from NU.nl and NOS

I am fine with all of this. But then came the coalition-formation.

The process works like this: the Queen appoints an ‘informateur’ who interviews the parties to determine who could govern together based on their party programs, or what that party would like to accomplish if they came into power. The informateur asks if parties are willing to compromise on certain points, which points they won’t compromise on, etc. The ruling (typically majority) coalition then determines the cabinet of ministers and the prime minister.

The Queen also suggests which coalition possibilities the informateur should investigate first. In this election, she advised to look into a right-wing cabinet, since VVD was the biggest party and PVV was the biggest winner in terms of seats gained. My problems begin here. If you want a government that reflects the majority of your population, the most logical first choice would be a middle cabinet of VVD and PvdA (as part of a “middle cabinet”). Not VVD-PVV.

Let me explain where I’m coming from. I am not experienced in coalition governments, but in a democracy, the majority rules. The two biggest parties should lead the governing coalition. What if these two parties don’t agree or don’t want to govern with each other, like the VVD and PvdA? It is indeed a difficult situation, but less likely to happen if there is heavy pressure from the beginning of the formation for these two parties to work together. I mean, look at how hard the VVD and CDA are trying with the PVV, even though prominent members of both parties are against working with Wilders.

For old-times’ sake, let’s go through a timeline of the attempted coalitions.

This crowd gathered in front of a big TV set up by a chinese restaurant in Utrecht’s central station to watch the Netherlands play Slovakia (I think) during the World Cup.

This is how the outside of my house looked during the world cup. The inside was more intense, but I didn’t get a shot of it before it was taken down.

I got an idea for a comic a few months ago after studying in the public library all day, but having to pay for the bathroom each time (Europe) and running out of change. It also refers to a Dutch ad campaign to get people to use their pin cards more often. The slogan was “Small amount? You can still pin.” But then in Dutch. In any case, I finally drew the thing this week.

This photo was taken pulling into The Hague’s central station. I took it because of all those construction cranes.

We have a pretty ghetto screen arrangement in my house, because windows in Dutch houses don’t come default with screens. Also, our windows do not lend themselves to the typical screen arrangement. Point is, big bugs keep getting in. A couple weeks ago it was a giant moth, then a bumble bee and, when I came home Wednesday evening, a butterfly.

I love this ad. It’s from an insurance/pension funds/investment agency. It says “We say ‘she’ if that’s what he wants.”

I saw this taped to the bus stop at central station in Amsterdam. I hope it works out for these guys. Well, at least I hope it works out for these guys as long as the person who wrote this isn’t crazy. (For those who don’t already know, Hyves is a Dutch social network site. Looks a bit like myspace.)

Apparently some suspected criminal who did some bad things in The Hague was in my ‘hood in Amsterdam. This is a photo of the police helicopter that circled our place for 30 min. Needless to say, we didn’t go outside.

I’m pretty sure this wasn’t intentional and 80-90% of the people don’t even notice. For the record, “nu” is “now” and “de” is “the.”