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Possible importance of results of Wednesday, September 12 Netherland’s general election result

By September 17, 2012

And so it continues against austerity in Spain!

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Today’s Detailed Commentaries Eurozone >> Netherlands: Possible importance of results of Wednesday, September 12 Netherland’s general election result Why read: Because last week the Netherlands held its fifth general election in ten years, and the outcome may weight on what happens in the end in the Eurozone. Commentary: In 2011 the Netherlands was the fifth largest economy in the 17 country Eurozone, and (by coincidence) the seventeenth largest economy in the world (source Wikipedia). This makes it a Eurozone country with an important voice.
Last Wednesday (September 12) Dutch voters elected the incumbent (what is described as ‘conservative liberal’) VVD party headed by Mark Rutte. In summary:
  • Rutte’s party did not gain a majority in the Netherlands ‘lower’ House of Parliament, having won only 41 of the 150 available seats. Hence a another Dutch coalition government will have to be agreed in order for the Dutch Parliament to go forward;
  • as noted, Dutch coalition governments have had a recent history of being short-lived;
  • the Dutch populace in the end rejected what is referred to as ‘euroskeptic parties’, leading to the suggestion that the Dutch are broadly in favour of austerity measures as the Netherlands faces weak economic growth, increasing health care costs, and what may prove to be a housing bubble; and,
  • there is a suggestion that going forward a new coalition government might favour the ‘less austerity’ policies of France’ over the ‘more austerity policies’ of Germany, and therein lies what strikes me as a possible important developing issue.
My current views:
  • it is unfortunate, for three reasons, that the Netherlands is faced with a further minority government in these difficult economic times:
    • first, in any Parliamentary system of government, I believe minority governments are inherently less efficient and cumbersome than are majority governments. Less things get done in equivalent time frames, and what does get done is almost always subject to more compromise than is the case where a majority government prevails;
    • second, minority governments continue at the behest of the coalition partners that form them, and they can be ended quickly – with the continuing threat of another general election; and,
    • third, and I think importantly, minority governments work better in good economic times than bad economic times, because the decisions required by governments in good economic times – while often critically important in long-term retrospect – can be better procrastinated over than they can be in bad economic times, when crisp decisions without lengthy debate and compromise ought to be the ‘order of the day’.
  • because minority government election results inherently mean procrastination in decision making, and because introduction of what I think are immediate and necessary austerity measures are difficult at best (as evidenced by events in Greece, Spain, etc.) the Netherlands election result:
    • while not as negative as it might have been had the ‘euroskeptic parties’ gained a significant say in the Dutch Parliament;
    • is nonetheless not an election result that is likely to result in a more constructive Eurozone outcome than existed before the Dutch election.
    Topical Reference: Dutch Voters Choose Pro-European parties, from Spiegel Online, September 13, 2012 – reading time 3 minutes. Eurozone >> Spain: And so it continues against austerity in Spain! This past weekend 1.5 million people were reported to have ‘taken to the streets’ in Spain’s Catalonia Province over austerity issues and secessionist demands. Spain’s Finance Minister is reported as ‘pleading for time’ and saying “sacrifices are absolutely unavoidable”. The referenced article is one to read and think carefully about in the context of how large Spain is in a Eurozone context (4th largest economy by GDP), how much money may be needed to bail Spain and its banks out (the answer is ‘a lot’), whether Spain is going to prove to be ‘too big to save on the terms its citizenry may demand’, and how close to the brink is the Eurozone. Spain is clearly an important place to watch in the coming weeks. Topical Reference: Spain shuns further cuts as unrest grows, from The Telegraph, Ambrose Evans-Prichard, September 16, 2012 – reading time 2 minutes. Brief Commentaries prompted by world headlines (collective reading time 2 minutes) World: Youth Unemployment: Sudan demonstration at the German embassy I have frequently expressed concern in this Newsletter that youth unemployment is a major problem, and that ‘idle hands are the devil’s work’. You might want to read the referenced article that discusses the underlying reasons thought to have promoted Friday’s demonstration at Sudan’s German embassy. The article ends with the statement: “It is something that obviously has to do with a lot of frustration with a lack of perspectives for many people here which makes it easy to mobilize them for escalations like this. I (the article’s author) think the majority who took part in this violent escalation are frustrated people who live in very dire social economic situation. And they feel they somehow need to channel their frustration.” In consider this to be an important general observation in the context of what I see as likely societal unrest in many countries. Topical Reference: The dire economic situation makes it easy to mobilize angry young people, from Deutsche Welle, Matt Zuvela, September 14, 2012 – reading time 2 minutes. Middle East >> Iran >> Israel: Escalation of Israeli concern over Iran needs continuous monitoring How likely is conflict between Isreal and Iran? I for one have no ability to assign a probability to such a thing. That said, an article Sunday reported that warships, aircraft carriers, minesweepers and submarines from twenty-five nations (one other article reports ‘from twenty-nine nations), including Britain and the U.S., are “converging on the Strait of Hormuz in an unprecedented show of force as Israel and Iran move towards the brink of war”. Obviously something one ought to follow closely, whether one participates in the financial markets or not. Topical Reference: US And Britain Send Warships To The Persian Gulf To Prepare For An Israel Strike On Iran, from Business Insider, from The Telegraph, Sean Rayment, September 16, 2012 – reading time 3 minutes. Also see Iran warns ‘nothing will remain’ of Israel if military action begins, from NBCNews, from the Associated Press, Ali Akbar Dareini, September 16, 2012 – reading time 3 minutes. Brief Country Risk Commentaries prompted by world headlines (collective reading time 2 minutes) Africa >> Cote d’Ivoire: More on proposed Cote d’Ivoire gold mining windfall tax Further information has been reported on the windfall tax on gold mine profits being planned by the Cote d’Ivoire government. That tax is reported as being 19% on profits based on what is described as ‘an indicative cost of production of $615 per ounce. ‘Indicative’ is an interesting and worrisome word, if it means that Cote d’Ivoire plans to generate its own corporate profit calculation based on an assumed fixed production cost of $615 per ounce. Further, the question has to arise, why 19%, why not 30%, etc. Perhaps the answer to that rests:
    • in my view that there has to be a ‘tension’ between what governments need (or are willing to push for), and what mining companies will give up but continue to stay in business; or,
    • 19% is a Trojan Horse number, thrown out by the Cote d’Ivoire government to see how much ‘sticking power’ it has with the gold mining companies currently operating in that country.
    The referenced article also points out that Ghana, Cote d’Ivoire’s contiguous neighbor, proposed a 10% windfall tax in its 2012 budget, but has delayed implementation because of concerns such a tax may ‘do more harm than good’. Again, the issue of ‘tension’ between a country’s interest in development, and its revenue generation, has to come into play. What transpires in Cote d’Ivoire is but one more example of the importance of being aware of ‘Country Risk’ when trading and investing. Topical Reference: Ivory Coast considering 19% windfall tax for gold mine profits, from Mineweb, from Reuters, Aloucoumane Coulibaly, September 15, 2012 – reading time 2 minutes. Important Snippets From Today’s Commentaries Snippet #1: In any Parliamentary system of government, I believe minority governments are inherently less efficient and cumbersome than are majority governments. Less things get done in equivalent time frames, and what does get done is almost always subject to more compromise than is the case where a majority government prevails. Snippet #2: I think importantly, minority governments work better in good economic times than bad economic times, because the decisions required by governments in good economic times – while often critically important in long-term retrospect – can be better procrastinated over than they can be in bad economic times, when crisp decisions without lengthy debate and compromise ought to be the ‘order of the day’.

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Ian R. Campbell——

Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges.
Note: The Commentary and information above is provided ‘AS IS’ and solely for informational purposes, not for trading purposes or advice.