The Netherlands and Germany between inflation and recession

For public finances to be healthy, the economy must be sick

The fiscal conservatism of Germany and the Netherlands clearly limits the growth potential of both countries. The 45% of economists and think tanks active in the AIECE research network consider the current monetary policy in the eurozone to be too restrictive, while only 25% consider it to be correct. In particular, the respondents pointed to the governments of Germany and the Netherlands as those that are only insufficiently supporting their economies. The budget deficit of these two countries will amount to 1.6% of GDP this year for the former and 2% of GDP for the latter. By way of comparison, the figure for Italy is expected to be 4.4% and for France 5.3%. At the same time, many countries are struggling with much higher inflation than those between the Rhine and Oder, for example. It’s like between an anvil and a hammer: either you spend less money on stimulating businesses, leading to a slowdown in the economy and ultimately to recession in the country (Germany, Netherlands), or you increase public debt and the budget deficit through excessive spending, pumping money into the economy, which brings inflation with it (Italy, France).

In 2023, it paid off to pursue an expansionary fiscal policy that avoided a recession. In terms of GDP, higher government spending in Italy and France replaced falling demand, leading to positive growth rates. Countries that cooled their fiscal policy achieved lower growth rates and in some cases paid for this with a recession (see the Netherlands, where GDP fell by 0.3% year-on-year according to the latest figures). Denmark stands out from this pattern, as it achieved growth of almost 2% despite its restrictive fiscal policy. However, it is worth noting that economic growth was boosted by the huge success of Novo Nordisk, the manufacturer of weight loss drugs. Without the pharmaceutical industry, GDP would probably only have grown slightly.

At the same time, it should be noted that the higher inflation in countries with a more expansive fiscal policy is due to the fact that government spending has had to react to cost shocks. For example, countries that are more susceptible to supply shocks due to a higher share of food and energy in the basket of goods have taken more comprehensive and longer-lasting shielding measures for ordinary consumers. However, the reversal of these measures is slow, which is also slowing down the disinflation process.

A new threat to inflation is the escalation of wage demands in the major EU economies. Figures from the European Central Bank (ECB) indicate that growth in collectively agreed wages was stable at just under 3% in the fourth quarter. At the same time, these figures are published with a considerable time lag and show a rather outdated picture that ignores the ongoing negotiations between employers and employees. A completely different picture emerges from the internet search data, where questions about pay rises are reaching historic highs in almost all major EU economies. For example, Dutch internet users are now twice as likely to search for terms relating to pay rises than in 2016-2019, i.e. before the pandemic. In such an environment, rapid disinflation is highly unlikely.

Quelle: Google Trends | Gehaltserhöhung = salary increase, Lohnerhöhung = wage increase, Loonsverhoging = wage increase, Salarisverhoging = salary increase, Augmenter = Increase, Aumento = increase

To summarize, the impact of fiscal policy in 2023 has proven to be quite intuitive and textbook, although it is worth noting that the consequences of some fiscal tools will also show up over a longer period than just a few quarters (e.g. investment, education spending, etc.). Countries that pursued expansionary fiscal policies had to accept higher inflation but managed to avoid recession, while governments that focused on central bank support had to accept recession/weaker growth but achieved lower inflation rates at the end of the year.

The political vacuum in France and the Netherlands

To what extent is Marine Le Pen a sincere right-wing, nationalist politician, and to what extent is she simply a conformist who, in her quest for power, step by step, is betraying her ideals? After all, she has long supported the programs of left-wing parties that promote gay marriage, she has begun to acknowledge the leading role of the EU, etc. She has long since abandoned or changed her most radical demands, including the demand for deportation of immigrants. And just because she is still associated with yesterday’s hard line, she promoted young Jordan Bardella; consequently, he became the new face of the National Rally/Rassemblement National movement and a candidate in the elections. The rift between their statements is immediately noticeable: when Le Pen advocates, for example, a reduction in military support for Ukraine, Bardella says that the country must not be overrun by Russia.

Betrayal of one’s own ideals comes at a high cost, as today’s events – July 08, 2024 – attest: the party of the left-turning Le Pen fared much worse than expected in the second round of elections. Bardelli’s new National Front will not come to power, but it may benefit in the long run, since the real goal is the presidency. Now the old/new Front will not be burdened with the cost of holding office and will be able to say for two years that its political opponents defied the will of the French people and “stole” the victory from the right.

What will the Rassemblement National do about the immigration problem if it ever really takes power? Perhaps it will limit itself to deporting foreign criminals (there are estimated to be tens of thousands of them), but it will never prohibit people with dual passports from holding important positions, for example, in diplomacy. That would require constitutional changes and a long march through the institutions, for which the party is far too weak. Polls among the French show that they favor limited migration in Europe and are rather negative about immigrants from outside the continent. Le Pen and her team could capitalize on this sentiment to finally stem the tide of immigration. The hope for such a future appears clearly distant today….

In France, as in the Netherlands, it is the left-liberal media that shapes minds, and these media do not tolerate any other views, and while they talk about tolerance, they prefer to stifle the entire right-wing scene, and – of course – its notorious leader. Gefira, too, has had problems publishing some of her texts in the Netherlands because of her honesty and views. The lying press, as the Germans call it, is a major obstacle in the path of the Rassemblement National to real power. People in France, the Netherlands and Germany blindly believe the media, which are believed to be of high quality, which thus function as leaders of the people. Sad, but true.

The situation in the Netherlands resembles that in France. Gert Wilders also had to find a replacement – someone to represent him in the government – and soften his views: otherwise there would have been no four-party coalition (PVV, VVD, NSC and BBB). The policy of the new government has been formulated a “manifesto” under the title “Hope, courage and pride.” Pathetic slogans like those of Macron. Mock change is the order of the day. Almost nothing is left of the right-wing ideals: the green revolution is still being promoted, taxes are being cut, labor rights are being strengthened, new housing is being built. Housing, of course, for new immigrants, whose influx is to be limited (which promise is this?). Gert Wilders no longer wants to separate the Netherlands from the EU; he just wants to “change the union from within.” That’s why he and his coalition will fail in the next elections, just like Le Pen, because in politics, only courage and consistency count. Those who do not understand this lose. The courage expressed in the manifesto of the new Dutch government is a lie. The new government will be as inept as Mark Rutte’s previous one. 14 years in power and what? What has been realized from the leftist ideals? Mr. Rutte, what do you say, for example, about the issue of women’s equality? The countries with the lowest percentage of women in leadership positions are Cyprus (21%), Luxembourg (22%) and… the Netherlands (26%). Period.

The US economy ahead of the elections

The biggest surprise on the financial markets this year is that inflation is continuing. While investors had hoped not long ago for 4 interest rate cuts by the Fed this year, there are now only 3, and with a significant delay. This underpins the thesis we have often expressed that central banks do not fully understand the dynamics of the current inflation. The indicators suggest that parts of the economy, such as real estate and the automotive sector, are struggling with high interest rates, while other sectors, such as the defense industry, the semiconductor industry, the AI industry and the manufacture of anti-obesity drugs, are experiencing a boom. So, after the pandemic, due to new IT technologies and the war in Ukraine, a two-speed economy has emerged, where monetary policy is more difficult, as supporting the weak parts of the economy can go hand in hand with persistent inflation, which is more costly for companies.

Investors try to glean from the Fed’s statements the level of future interest rates (i.e. how much the money – the loans – will cost businesses in the future). It is often the case that the worse the situation in the economy is, the higher share prices rise as investors hope that in response to weak economic data, the Fed will cut interest rates to stimulate the economy. Just yesterday (July 3, 2024) we had an example of this: the ISM index for the service sector collapsed and – excluding the Covid-19 pandemic – fell to its lowest level in almost 15 years. And Wall Street hit record highs in response.

So investors believe this two-speed economy will continue to work. Meanwhile, fiscal spending in the US is unsustainable in the long term and current government bond yields are increasing government spending related to debt, taking away funds for citizen welfare and infrastructure. The US government has to deal with the risk of an economic slowdown or risk letting inflation run high for longer. So the scenario is: whether Democrats or Republicans win, they will have to increase spending (read: inflation), which will cause the Fed to perhaps raise interest rates even higher.

Investors need to understand that the real killer for stocks is recession, not inflation. Yes, I know that the examples, such as the behavior of the stock markets in Turkey or Argentina, clearly show that high inflation need not be a particular problem for equities in the long term. But one day the moment will come: even large companies will not be able to generate higher profits in the face of expensive loans, high taxes and wages. On that day, it will no longer be worth putting money into shares. Even in the USA.

Upgrading of Russia’s economic outlook

Russia’s economy will expand much more rapidly this year than previously expected (…) Gross domestic product is forecast to rise 2.6 per cent this year, more than double the pace the IMF predicted (…) The Russian upgrade, by 1.5 percentage points, is the largest for any economy featured in an update to the fund’s World Economic Outlook.” That’s what Financial Times has to say.

Russia is expected to grow faster than all advanced economies this year,” announces CNBC and continues that “Russia is expected to grow 3.2% in 2024, the IMF said in its latest World Economic Outlook published Tuesday, exceeding the forecast growth rates for the world’s advanced economies, including the U.S.” The growth forecasts for other countries are: the U.S. (2.7%), the U.K. (0.5%), Germany (0.2%) and France (0.7%), as we can read in the same source.

Also the BBC informs us that “Russia [is] to grow faster than all advanced economies” and refers its readers to an IMF report

Oops… So many sanctions (is it sixteen thousand by now?), so much anti-Russian propaganda, the freezing of Russian financial assets, and all for nothing! Yet, the collective West – its leaders – should have known better. When did ever sanctions had their expected effect? In recent history it was North Korea, Iran and Cuba to name just a few which were severely sanctioned for years and despite those efforts to break their leaders or populations they remain politically defiant. Drawing on examples from more remote history: Napoleon Bonaparte imposed a continental blockade of the British Isles and it, too, was to no avail. The whole continent against one isolated country and the country continued to scheme against Napoleonic France and eventually brought about Napoleon’s downfall.

Notice that it is the Western media and Western agencies that speak about flourishing Russian economy. No propaganda on the part of the Kremlin, you see. The West feels itself compelled to reveal such data, data that prove how ineffective the West’s sanctions are, data that undermine the West’s policies. What are they going to do now? Impose a further two or five thousand sanctions? But then I suppose they have run out of the items they can put on the sanction list… Besides, in the face of Russia’s developing close economic ties with most of the world – be it the BRICS group or otherwise – and in the face of Russia’s self-sufficiency in terms of resources and Russia’s growing autarky, any new sanctions will fail miserably. They will effect one thing, though: they will strengthen Russian resolve to defy the West and to rely on and develop self-sufficiency even more.

The Western leaders must really be uneducated. It was during World War Two that Americans and the British used to bomb German towns and cities on a more or less regular basis, razing them with the ground. The allies pinned their hopes on the calculation that the German people, the common people, being exposed to enormous suffering, would eventually lose faith in the victorious outcome of the war and would rebel against the authorities. As we know nothing remotely resembling a loss of morale or willingness to resist the allies occurred. Rather, quite the contrary was true. The people were united behind their leaders even if some of them did not hold those leaders in high esteem. Does anyone learn anything from the past? Does anyone study past events?

With all the natural resources in their territory, with a well-developed industry and millions of educated people, Russia can really develop an autarkic economy. If additionally the country can rely on the help from China, India, Iran, Brasilia, Vietnam, Kazakhstan, then all the sanctions in the world are doomed. Why impose them then?

To save face. The Western world is in a position similar to that that the American Democratic Party finds itself in: once the party has rolled out Joe Biden, it feels compelled to stick to this candidate for president, even though it is clear that he is a sorry sight to see. In for a penny, in for a pound.

Relevance of century-old observations

“The Germans long before …14 sought to destroy the unity of the Russian tribe forged in hard struggle. For this purpose they supported and boosted in the south of Russia a movement that set itself the goal of separation of its nine provinces from Russia, under the name of Ukraine. The aspiration to tear away from Russia the Little Russian branch of the Russian people has not been abandoned to this day. XY and his companions, the former protégés of the Germans, who began the dismemberment of Russia, continue to carry out their evil deed of creating an independent “Ukrainian state” and fighting against the revival of the United Russia (Единая Россия).”

Sounds familiar? This remark was made more than a hundred years ago by General Anton Denikin, one of the four most recognizable leaders of the anti-Bolshevik Russia during the civil war of 1917-1921. The other three were Alexander Kolchak, Nikolai Yudenich and Pyotr Wrangel. General Anton Denikin fought for a few years in the south of the former Russian Empire against the Red Army, but after some initial successes, he was forced to leave his fatherland. It was at that time that the West was very much interested in disrupting Russia. The two revolutions – the first one, often referred to as the bourgeois revolution, took place in February and the second one, the Bolshevik revolution, took place in October 1917 – were sparked off with the support and blessing of the Western powers. The British had a hand in dethroning the tsar in February 1917, the Germans substantially supported the Bolshevik party in October 1917: the leaders of the coup d’état that was to take place in October were transported in a sealed train from Switzerland across Imperial Germany to Sweden, from where they made their way to Petrograd (that’s how in 1914 the German-sounding Saint-Petersburg was renamed after Russia began the hostilities against Germany). Americans, too, chipped in. While Vladimir Lenin enjoyed German protection, travelling across Germany, Leon Trotsky, having spent a couple of years in New York with his family and two sons, was financed to cross the Atlantic and be on time in Petrograd to disrupt the Russian state. It was not only the financial and political support that helped the revolutionaries of all persuasions to bring about the collapse of the empire: national or ethnic resentment was also exploited, with the Germans advancing the idea of a Ukrainian nation as separate from Russians.

There were a number of Ukrainian leaders at that time, with Symon Petliura being one of the most recognizable. He was backed by the Germans, he was later backed by the reborn Polish state. The Polish troops together with some of his Ukrainian units advanced towards Kiev and even occupied it for a week or two in 1920. Quite a Maidan, was it not, even if short-lived? These are the events that General Anton Denikin referred to in the text at the opening of this article. The full date the part of which we intentionally deleted was 1914, while the letters XY stand for no less a person than Symon Petliura.

In 2014 we saw a kind of historical repeat. The Western powers made themselves felt in Ukraine, but especially in Kiev, and caused the legitimate president to flee the country. Also, a crawling civil war commenced in the Donbass, while Russia in response to all these events reclaimed the Crimean Peninsula, all of which led to the war that broke out eight years later. Today Anton Denikin might write something like this:

“The collective West long before 2014 sought to destroy the unity of the Russian tribe forged in hard struggle. For this purpose they supported and boosted in the Ukraine a movement that set itself the goal of antagonizing Ukrainians and Russians. The aspiration to tear away from Russia the Little Russian branch of the Russian people has not been abandoned to this day. Volodymyr Zelensky, Yulia Tymoshenko, Leonid Kravchuk, Petro Poroshenko, Vitalii Klichko (you name them) and their companions, the protégés of the West, who began the dismemberment of the Soviet Union, continue to carry out their evil deed of creating an independent “Ukrainian state” and fighting against the revival of the United Russia (Единая Россия).”

by the way, the phrase United Russia (Единая Россия) that Anton Denikin employed overlaps one to one with the name of the “Putin” party, which holds power in this largest post-Soviet republic.

This time, too, it is the United States, Germany and Great Britain along with Poland that are busy playing Ukrainians off against Russians. This time, too, they have found present-day Petliuras ready to serve them. Today, too, war is being waged, and today, like yesterday, it looks like Ukraine is on the losing end. So it goes. Will we be witnesses to yet another historical repeat in… 2114/2124?

During World War Two, after the Germans had attacked the Soviet Union, they approached General Denikin, who lived at that time in France, with a proposal of backing the Third Reich against the Bolsheviks. Anton Denikin was very much opposed to the Bolshevik rule in Russia, which is putting it mildly. Yet, he did not for a moment think it right to ally himself with the enemies of Russia, even Red Russia. Anton Denikin flatly refused and warned those Russians – and especially Ukrainians – who were willing to serve the Third Reich against the Bolsheviks. Anton Denikin tried to convince them that they were going to be miserable tools at the hands of the Germans, to be discarded the moment they were not needed.

It is said that the civil war in the Soviet Union did not end in 1922 – when Denikin, Wrangel and Yudenich were forced out of Russia, while Kolchak was taken prisoner and put against the wall – because the civil war in the form of resentment and a deep division running through Soviet society festered. It only ended when the Soviet Union was attacked by Germany. It was only then that the overwhelming majority of Soviet citizens of whatever political persuasion rallied around the Soviet leaders to defend Russia. Has not the same been happening since 2022 in Russia? Even those Russians who did not hold Vladimir Putin in high regard changed course and rallied around him. War and especially the resultant hardships were supposed to turn the people against the Kremlin: as it is, the opposite is true. Sure, there are some who have betrayed their country – there were some also during World War Two, like General Vlasov – but the majority have expressed their unwavering support for the leadership. Does anyone learn anything from the past? Does anyone study the past?

Serfdom enhanced

A few centuries ago it was all visible. A peasant – a serf – was obliged to work, say, three days a week for his landlord, and he was obliged to give away a part of the agricultural produce from his household. The amount of work and the amount of the produce were all visible, palpable. If a landlord wanted to extend the time of work done by his serfs for his benefit or take away from the serfs more than was prescribed, the serfs would have rebelled because it was a matter of survival and the maintenance of the standard of living. A serf needed the three remaining days to work for the upkeep of his family; the serf needed to have the rest of the agricultural produce at his disposal for his family to survive. If a serf had been forced to work four rather than three days and give away more than usual from his produce, he would have had less for himself and his family. In other words, working as much as before, he and his family would have had less. The serf would have known who was to blame for this.

Today it is all for all practical purposes invisible. A government prints more and more money and causes inflation. The government does not need to raise taxes. The amount of the tax that is levied on workers may stay the same. Still, due to inflation, labourers or present-day serfs, although they work as much as before, can buy less and less. Of course, sooner or later the present-day serfs notice that they are worse off, but they notice it belatedly and – what’s worse – there is no one person, known to them by name, who is to blame. Yesterday’s serf could have rebelled against his landlord and oftentimes he did; today’s serf can rebel against… inflation, which means against nobody. Yesterday’s serf could have threaten his landlord with a pitchfork – and sometimes it happened. Today’s serf can cast his vote from time to time, to vote out of office some, and vote into office others and, as a result, receive more of the same in terms of economic policy. None of the politicians that currently hold power can stop inflation, even if he wants to. The purchasing power of the present-day serf is constantly diminished, and though the present-day serf is not referred to as serf but, rather, as a citizen with a batch of human rights, he can do nothing about being robbed of the fruits of his work.

Historical record shows that prices used to be stable over decades. Our day-to-day experience teaches us that generally in a longer perspective prices can only rise. If they level off, then but for a short time, while they never fall if viewed over a longer period.

What a choice!

By a guest author.

Is this supposed to be a leading nation, a torch of democracy, a superpower, the place on earth where millions are flocking to? Good heavens! The debate held between former President Donald Trump and President Incumbent Joe Biden has made a depressive effect. The country – or a nation, as Americans love to say, though a nation they are not, rather a motley of peoples and races and creeds – that claims to have the best economy the best political system, the largest number of Nobel Prize winners, the best scientists and technicians, the best universities, the best this and the best that, that country has put forward two men to run for president, neither of whom is someone I would like to follow even if paid for. Neither appears to be a man under whom I would ever like to serve; neither inspires, neither instills admiration or awe or respect; neither grabs my attention in any positive way. Watching and listening to the debate was a huge waste of time. Bland, uninspiring, predictable guys, with nothing whatsoever to say, with nothing to impress the audiences, with nothing whatsoever to propose.

Not that they are exceptions in the long line of American presidents and presidential candidates. Most of their recent predecessors were as bland, unimaginative and uninspiring as they make them. Be it He-Clinton or She-Clinton, be it Obama or Kamala-the-laughing-Harris… Some have taken credit and continue to take credit for being female or non-white, the first female or the first non-white holding such a high post… as if that were the most important thing about leading the allegedly best country the world has seen. What a shame, what an embarrassment, what a humiliation! Leaders of much, much smaller countries – think of Robert Fico (pronounce: FEE-tsaw) of Slovakia or Victor Orbán of Hungary – are far, far better, smarter, cleverer, more prudent, and better educated. Unfortunately, a Fico or an Orbán with their common sense and education are not at the helm of a superpower but at the helm of the superpower’s vassal states. What a pity! If we could but trade Fico or Orbán for the likes of Biden, Trump, von der Leyen, Macron, Scholz, Stoltenberg… Sadly, that’s not what we can do. Sadly, we are forced to suffer the policies of the loons and morons with their religion of climate change, war on Russia, ever more pandemics, ethnic replacement and their contempt for human biology (like when individuals can decide what sex they are) and sound morals (like when yesterday’s shame is today’s pride and the other way round).

But you know what? People are still viewing America as the Mecca of the world, as the Promised Land, while Americans (in fact a concoction of nations and races and creeds and – to be up to date with terminology – the many genders) are still envied and somehow regarded as a chosen people. And this chosen people, this exceptional people are now divided over which of the two embarrassments will lead the fifty states towards the abyss. Watching the two guys – Donald and Joe – I just could not help thinking about the many emperors of ancient Rome: those, too, were for the most part disappointing in any respect and by any measure. The empire was big and yet it was inevitably on a crash course with the external and internal forces that were about to smash it, disrupt it, make it into nothing. And still, and despite all that, even long, very long after the Empire had collapsed, the many nations regarded it as a wonder of wonders: the so-called barbarians modelled the administration of their kingdoms that arose on the ruins of ancient Rome on that of the Roman Empire and continued to use Latin – the Roman Empire’s language – for centuries after the demise of the Empire. Among the dead languages Latin used to be the most alive. The same fate waits English, whose vocabulary is – what an omen! – for the most part Latin, including such common words as tent, tender, money, castle, street, city, human, treat, language, animal, apply, delete, record, intelligent, army, suggest, support, sex, gender… – the list is unending.

Consider also how American public and administrative institutions along with some of the most famous symbols are modelled on ancient Rome with the words like capitol, senate, the phrases e pluribus unum (=one [state] from many [states]), or novus ordo seclorum (=a new order of the ages) and annuit coeptis (= he favoured the commencement) that appear on the Great Seal of the United States and the dollar banknote. The United States with its many military bases around the world (more than eight hundred) make one think about the Roman legions also scattered around yesteryear’s world, while the form of the American republic seems to be evolving towards a dictatorship and then… monarchy. You don’t believe it? Rest assured these processes are already under way. You haven’t noticed? Not easy to notice. Such changes take time. They seem to happen quickly only when viewed through the pages of a historical book. There, you turn another page and the political system has changed or a war has been won or lost or a country has been conquered. In reality it all takes time which makes the changes imperceptible to the common man. 

Of the 300 million inhabitants, some of whom have graduated from the famed Ivy League, this world’s leading democracy has been able to roll out an octogenarian and almost an octogenarian with little or nothing to say. But then why should we wonder? A Biden or a Pelosi, an Obama or a Clinton have been almost all their adult lives in politics. They are no scholars or scientists, no real entrepreneurs or thinkers. They have been focused on making their careers and – especially – on making money. Accordingly, they are capable of changing their mind as often as required by the circumstances and they only care about their image. The speeches that they make – or rather read – are the usual stuff prepared by other people. They have learnt how to smile and how to wave hands; they have learnt how to play up to the audience by saying sweet little nothings; they have been groomed to be what they are and they have been paid for it. They are prisoners of the system and their ambitions. Just as it was in ancient Rome. All those emperors, dictators, generals and senators with their petty interests and warped psyche, with their conspiracies and civil wars, with making their weight felt at the expense of the smaller countries. And the same populace around them, then and now, demanding bread and Olympic games, or cheap gas and Hollywood-like entertainment. Roman gladiators have been replaced with Super Bowl players while Roman self-pride (we are the best in the world) has been replaced with American self-pride (we are the world’s best).

The world’s leading democracy! Dear me! Just listen to them candidates, to the content of their statements, to the mutual accusations! Glean the information from their speeches and from the media about the several millions of aliens entering the United States and occupying it piece by piece, and confront it with the pathetic declaration of the need to stop Russia because otherwise it will… occupy Europe! What if Russians decided to do it the way those millions of aliens are doing every year, settling in the United States and feeding on it? Would such occupation be palatable?

One can only wish the big United States had a Viktor Orbán or a Robert Fico! The world would be a nice place to live. Just imagine a debate between a Viktor Orbán and a Robert Fico, will you? You’d taste common sense and it would be a pleasure to listen to. Sadly, our choice is between a total globalist and a semi-globalist; between two peace-loving leaders of the best ever democracy who nonetheless cannot extricate the United States from wars and conflicts; our choice is between someone who has already during his term been undermined by his administration and someone who during his term is being controlled by his administration. What a choice!