Venezuela: The crisis is far from being over

Venezuela is in crisis. Its economic activity is collapsing, its inflation rate is skyrocketing and the value of its currency is falling like a stone. People are leaving the country as soon as possible as they perceive that there is no future.
People are starving. The average weight of the population is lower year after year. According to a Survey on Living Conditions (ENCOVI), the average weight of the Venezuelans was 11 kilos lower in 2017 than in 2016 and in 2016, 8 kilos lower than in 2015. That’s a real measure of a deep crisis. According to this survey, in 2014, people out of poverty represented 51.8% of the population. In 2017 it was just 13%. In other words, 87 % of the population was considered as poor.
When the oil price is high, as it was the case before mid-2014, the situation is manageable but as soon as it falls there are no capacities to create new revenues.
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The real GDP level is now 40% lower than in 2015 and the inflation rate has an hyper-inflation profile. The cup of coffee with milk, reported by Bloomberg, shows how prices are slipping. The inflation rate is already forecast at 1 000 000% this year. Continue reading

New currency in France – Uncertainties and Instability

Here is my weekly column for Forbes in France. My column is available here in French

Europe is a key factor in the presidential campaign, even though this theme gained minimal coverage during the two televised debates. Europe is a key differentiating factor for the four candidates who are leading in the polls, and so it must be the main decisive factor in the elector’s choice between the candidates. 

The aim for two of them, Emmanuel Macron and François Fillon, is to intensify existing institutions although the exact ways to achieve this are not the same for them both. But neither wants to leave the Eurozone.
However, for the two other candidates in the top 4, Marine Le Pen and Jean-Luc Mélenchon, Europe marks a clear area of watershed as regards’ France’s position on the European institutions. They both intend to start negotiations with Europe to change the relationship and give France back its decision-making power. In the event of the likely breakdown of these talks (the remaining European Member States would not necessarily want to change the existing framework), both intend to take France out of Europe, backed by a referendum.

In both cases, currency would be at the very crux of the new framework that France would need to set up.
In Le Pen’s opinion, a national French currency is the key to ensuring independence for the country. Meanwhile, under Mélenchon, the euro would become a common currency and no longer a single currency, which would imply the creation of a new currency for France. As the other members of the Eurozone would probably not be favorable to this new framework for the euro, this would be tantamount to France leaving the Eurozone and creating a French currency.

Looking beyond these factors, neither program explicitly outlines the currency framework the candidates would set up. What we do know is that in both scenarios, the central bank would lose its independence and would be used as an instrument to finance state spending. In other words, the state would have the wherewithal to create its own currency to finance its own spending: economic history tells us that this type of situation triggers inflation and fuels macroeconomic, financial and monetary instability. French savers would be directly hit. Continue reading