Europe: Who Pays Who?

Where are we heading with Europe? Let's examine some main topics that illustrate Europe's future direction.

EU Budget Development
The European budget comprises roughly 130,000 Million Euros yearly. The ongoing (2013) budget process in terms of 'net contributions' (= Benefits -Contribution) per country is not transparent. Only the figures until 2011 are available.

Let's take a look a the net contribution development from the start of Europe (2000) until the last available data in 2011. Countries that (net) receive money are 'placed above the x-axis, countries that (net) have to pay money are placed below the x-axis.

Clear is that the amount of money that is transferred from the North&West European countries to the South&East European countries is growing fast from around 15,000 Million Euro in 2000 to around 34,000 Million Euro in 2011.

In a stable Europe the net contributions should decline and vary. However, the opposite is the case!

Who Pays, Who Receives?
It's interesting to look at which countries in Europe are financing other countries.

Take a look at the 2011 transfer of money between all European countries. To create a clear overview, the numbers are rounded in Millions. As a consequence some rows or columns  might not exactly sum up to their total.

To illustrate this table:

• In 2011 Poland received 10,975 Million Euro, of which The Netherlands payed 711 Million Euro of the total of 2,214 Million Euro The Netherlands (net) payed
• Germany payed a net total of 9,003 Million Euros, of which 1,217 Million euro was payed to Greece

It really gets frightening when we analyse the total amount of money transferred between 2000 and 2011:

This table tells us inter alia:

• Over the period 2000-2011 a total amount of 253,119 Million Euro was transferred from North&West to South&East Europe. The end of this imbalanced flow of money is not yest in sight. The future looks dark, due to the current crises in Greece and Cyprus, as well as the worrying situation in Spain and Portugal. 
• Spain has already received 63,563 Million Euro of which 22,115 Million Euro was payed by Germany.
• Germany pay 88,067 Million Euro to support other structural failing European countries, and will continue to do so...... 

Declining Support
On top of the bad financial perspective as presented above, PEW Research recently published, the next survey results:

Only in Germany a small majority still 'believes' in Europe... Other European countries have given up on Europe. Overall, the support for an 'Integral Europe' is declining...

Let's end with the trust European countries have in each other. I leave the trivial conclusions up to the intelligent readers of this blog.. Please don't laugh, while examining the outcomes.

Conclusion
Europe..., how long will it last....???????

 Sources/Links
- Spreadsheets with data used in this blog
- EU Budget 2011
- Folketinget: Net EU Contributions
- PEW Research: The New Sick Man of Europe: the European Union

Willem-Alexander, the New Dutch King

Today - April 30, 2013 - is a special day for The Netherlands.

After 123 years of Dutch queens and a 33-year reign of Queen Beatrix, Willem-Alexander (46) has become the new king in the Netherlands. He's also the youngest monarch in Europe.

A Modern King
Willem-Alexander, a modern King who - together with his wife Maxima and their three lovely daughters - makes his first 'statement' by demonstrating he stands with and for the people that he represents, as his complete family spontaneously appears on stage together with the world's No. 1 DJ Armin van Buuren and the the Dutch Royal Concertgebouw Orchestra.

New Challenges
In his inauguration speech Willem-Alexander stated he's taking the job at a time when many people in the Netherlands feel vulnerable and uncertain. Vulnerable in their work or health. Uncertain about their income or home environment.

Unemployment
And indeed, according to Eurostat unemployment rates in The Netherlands (6.4%) and Europe (10.9%)  are spiking. In Spain even 26.7% of the population is jobless....

Moreover, younger people (under age 25) suffer most from unemployment:

A new generation with good intentions
Willem-Alexander stated that he's concerned about these developments and will contribute to a better world through cooperation, by strengthening the bond of mutual trust between the people and their government, maintain our democracy and serve the public interest.

We need a positive new generation with people like Willem-Alexander.
Let's hope he succeeds! 

Sources 

- Picture: Volkskrant

- Eurostat Unemployment Rates

S&P-500 or Bonds?

On March 28 2013 the S&P 500 hit a new record

1,569.19  6.34(0.41%) Mar 28

Key question is of course will 'L'histoire se répète".....???

Now, take a short look at the (above) S&P 500 last decades development.

Let nature do its work by drowning your brain in the unstoppable growth of debt and considering the fiscal cliffs and endless Quantitative Easing  (QE) programs.

Ask yourself... will new QE-X programs really offer any help....

Without any doubt or any complex investment analyses it's clear that we're heading for a Jungfrau's downfall.

The question is not if, but when exactly and how deep?

S&P 500 

Every year Aswath Damodaran, professor  of Finance at the Stern School of Business at NYU, updates the S&P 500 yearly total return and compares it with the yearly performance of 10Y U.S. Treasury Bonds and Treasury Bills.

Last year's (2012) performance comes down to:

- S&P 500 : 15.83%  ('stocks')
- T. Bills               : 0.05%
- 10Y T. Bonds : 2.97%

Let's take a look at a more general summary of his conclusions: 

Difficult Choice
Most financial institutions (pension funds, insurers, investment funds, banks) are at the crossroad of taking difficult decisions. Investing in 10Y Bonds with an artificial and historical low interest rate of around 2-3% with the risk of depreciation in case of raising interest rates, due to inflation or otherwise. Or going for 'risk' by investing in S&P 500 like funds with relatively high risk.......

In order to get more sight at this 'risk' issue, let's take a look at the 10 and 5 years development:

From this quick investigation it becomes painfully clear that - despite whatever the risk free rate may be - all risk indicators (sharpe, Sortino) point out that the risk on s&P 500 stocks is not adequately rewarded. The M2 (Modigliani risk-adjusted performance) indicator expresses that same fact more intuitively by showing a  10y S&P 500 fictive return of 4.2% if we correct the 10Y average performance of 7.9% for the additional risk level of S&P 500 stocks (against the risk level of 10Y bonds).

Sharpe, wider and in detail
As becomes clear from the next historical sharpe chart, the last decade is not really convincing that an S&P
 500 strategy will pay out......

Take a long Breath...

To confidentially execute a S&P 500 investment strategy it takes a period of 17 years (or more) to avoid an average negative return, as the next charts shows.

In practice this implies that mainly pension funds - with long investment horizons of 15 years and longer - can benefit more or less long-term riskless  from a S&P 500 investment strategy.

However, even from a 17-year cycle perspective it's clear we're still in a  long-term downward trend.

Don't worry, if 'math' shows we're out of options, we can always pray!

Links

-  Damodaran Blog: A Sweet Spot for US Equities: Opportunity and Dangers
- Yahoo S&P 500
- Spreadsheet: historical returns S&P 500 - Bonds
- Spreadsheet: S&P-500 Analysis