The Dutch Housing Bubble Deflates

One of the so-called 'core' countries of the euro area, the Netherlands, is in danger of experiencing a collapse of its housing bubble, similar to what occurred in Ireland and Spain. The Netherlands may therefore soon become the next 'problem child' of the euro area.

The WSJ reports:


The slump in the Dutch housing market deepened in July as prices posted the steepest drop on record, highlighting the challenges facing the Netherlands ahead of next month's general elections.

With prices now plumbing levels last seen in 2004, the downturn is weighing heavily on household consumption and has raised concern about the country's huge mortgage debt pile, among the largest in Europe.

House prices fell 8% from a year earlier, statistics bureau CBS said Tuesday, the largest decline in the 17-year history of the agency's house-price index. Prices fell 4.4% in June and 5.5% in May.

"This is more than we had expected. The rate of decline has been volatile, but this is bad news," said Rabobank economist Maarten van der Molen.

House prices have fallen about 15% since their peak in August 2008 amid a stagnant economy, more stringent bank-lending criteria and weak consumer sentiment.

The fall in house prices in the Netherlands isn't as severe as the housing crashes that have hit Ireland and Spain, but it remains one of the biggest threats to one of Europe's so-called core economies.


(emphasis added)

Obviously this is getting serious – when house price declines accelerate amidst the 'largest mortgage debt pile in Europe', there could be sizable economic repercussions in store. Given that the Netherlands are among the countries that are expected to form the euro area's 'bedrock' that will bail out the periphery, this is exceptionally bad news for the eurocracy. One should definitely keep a close eye on developments in the Netherlands over coming weeks and months. Note also that there is a general election on September 12, the outcome of which could be crucial for the future of euro area's bailout policy.


Greece to be Spared, Sort Of

As we expected, Greece can actually hope for some leniency from its creditors. Bloomberg reports that 'Merkel Allies Signal Greece Concessions' (as an aside, the language used in these headlines becomes ever more dreadful).


Concessions are possible for Greece so long as Prime Minister Antonis Samaras shows a willingness to meet the main targets set out in his country’s bailout program, a senior lawmaker with Chancellor Angela Merkel’s party said.

A precedent for program adjustments was made with the first Greek bailout, when the country secured lower interest rates and longer maturities on bilateral loans than those originally set, Norbert Barthle, the Christian Democratic Union’s budget spokesman in parliament, said today in a telephone interview.

“Small concessions are feasible provided they are strictly made within the framework of the second aid program,” Barthle said. “For instance, the interest and maturity on loans could be adjusted, as in the case of the first aid package for Greece.”


(emphasis added)

Well, it's quite simple actually: either Greece gets concessions, or it keels over and defaults for a second time right away. It seems likely that no-one is really worried about Greece's fate and whether or not it defaults again, as it is widely expected that it will happen anyway. However, the timing is once again highly inopportune. If Antonis Samaras plays his cards right, he could get some relief from the toughest 'troika' demands.


Markets Still Yanked Around by Hopes and Fears in Quick Succession

The looming showdown over Greece's bailout program seems to have the markets on edge today – see the below chart depicting yesterday's and today's action in Spain's 2 year government note yield:



Yesterday's and today's action in Spain's 2 year note yield….down, up, down, up – these are huge intra-day swings for a short term government note yield actually – click for better resolution.



The CDS charts below are as of Tuesday's close, so they do not yet reflect today's volatility, but we nonetheless show a few of those we tend to keep a very close eye on at present:



5 year CDS on Portugal, Italy, Greece and Spain – still easing as of Tuesday – click for better resolution.



5 year CDS on Latvia, Lithuania, Slovakia and Slovenia – CDS on Slovenia remain elevated, while the others appear to be trying to put in a low – click for better resolution.



Our proprietary unweighted index of 5 year CDS on the senior debt of eight major European banks (BBVA, Banca Monte dei Paschi di Siena, Societe Generale, BNP Paribas, Deutsche Bank, UBS, Intesa Sanpaolo and Unicredito – white line), compared to 5 year CDS on the senior debt of Goldman Sachs (orange), Morgan Stanley  (red), Citigroup (green) and Credit Suisse (yellow)  – CDS on banks continue to ease – click for better resolution.



5 year CDS on Morocco, Turkey, Saudi Arabia and Bahrain – a slight dip on Tuesday, but these continue to require close scrutiny as a potential early warning signal of looming troubles in the Middle East – click for better resolution.




Charts by: Bloomberg, BigCharts



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5 Responses to “New Troubles May Loom in Europe”

  • therooster:

    The elite set the stage for the removal of debt and the return of bullion based currency in REAL-TIME when the fixed peg of $35/oz was severed in 1971. They cannot finish the job and implement bullion based currency by way of any top-down support, however. A top-down process would be too powerful and abrupt which would crash the dollar. The elite are simply relegated to their prescribed role of “carrying the stick” at this point. It’s up to a market driven , organic process to monetize gold …. bottom-up. Follow the script. The bankers have done well playing out the roles of the “necessary evils”.

  • JasonEmery:

    Yeah, didn’t crude oil go from $3/bbl, before Nixon took us off the gold std.,to $12/bbl, then vault to almost $40/bbl within 10 years? That’s a whole lotta inflation goin’ on. But they didn’t put a moratorium on bridge building due to increased suicides.

    I predict that most of us will survive the coming hyperinflation. Not so sure about democracy, but the latter is a hollow shell of its former self anyway.

    It is a little early to draw conclusions, but with silver now outperforming gold by a wide margin, I assume you know what that means…………….

  • ab initio:

    What me worry?

    With Draghi and Asmussen now stating the printing press will be forthcoming and Euros will be printed up in unlimited quantities. No shortfall will be problematic – it can all be papered over.

    And for now the money printers also have no issues with their fiat currency and sovereign debt markets. No currency crisis or bond market revolt. What’s not to like about this picture!

  • It seems that the inevitable has now happened: global easing around the world is propelling a new commodities boom. This could be the final and very aggressive leg of a 10 year bull run.

    I predict all the press-noise about the Euro over the last year will now die-down as we undergo another central bank infused run. They certainly let the markets go a bit tetchy over the summer, but seem to have relented now. Hold on to your hats!

    Long-term, the Euro is in a mess, but ditto UK, Japan, China, USA. One couldn’t honestly say the problems are very much worse in Europe than elsewhere. We do live with global socialism these days. Japan has government debt well over 200% of GDP and America has a socialist president

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