Venezuela shifts currency exchange rate. Norway heads to the polls for parliamentary elections. Climate summit in Canada co-hosted by EU and China. Juncker gives State of the European Union speech. All in The Week Ahead.
Venezuela shifts currency exchange rate
Venezuelan President Maduro announced that this week the government would be dropping the dollar as the means of exchange for its official exchange rates and instead would adopt a basket of other currencies, including the yuan. However, as the exchange rate is not set by market forces but by government intervention, a black market for currency has flourished that puts the current bolivar at roughly 20,000 bolivars to 1 dollar, making the impact of this shift limited. The announcement was made at the National Constituent Assembly, a body explicitly designed and elected for the purpose of negating the opposition-led National Assembly.
With a growing number of democracies raising the alarm on the Maduro administration, and with massive humanitarian crises underway, it’s difficult to know how long this precarious situation will last. Maduro has long prioritized making debt repayments to avoid default, but with cash reserves estimated to be under $10 billion and already frozen out of several major debt markets, it is highly likely that Venezuela will not have the cash to sustain its debts. Absent an infusion of capital from another country — likely China — there is a strong likelihood that Venezuela will default on at least one of its debts within the next 6 months. Should that occur with debt markets locked out the bolivar will depreciate further and the provision of basic foodstuffs and medical goods will become even more difficult.
Norway heads to the polls for parliamentary elections
On Monday Norwegian citizens will vote to elect the 169 members of the national Storting, with polling uneven but showing a fairly consistent close race between Labor and the Conservatives. Both parties are likely to emerge with similar seat numbers but with neither having enough support to secure a majority. Conservative Prime Minister Erna Solberg was previously able to cobble together a functional majority with four political parties: the Conservatives, the Liberals, the Progress Party, and the Christian Democrats. The highly conservative, anti-immigrant Progress Party has received substantial attention from the Norwegian media and the Norwegian left, which is hoping to be buoyed by opposition to the controversial political party.
The election is likely to be affected at least somewhat by the Oslo-periphery divide: despite receiving support from several parties with strongholds outside Oslo, the current government has enacted a number of policies that are viewed as taking power and agency away from the local communities and toward the central government. The Center Party in particular has criticized this approach as well as Norway’s participation in the European Economic Area (EEA). Should the Center Party emerge with enough seats to be kingmaker, it’s likely coalition support for Labor will be made conditional on demands for a public inquiry into the country’s EU relationship — a demand not likely to be strongly considered by pro-EU Labor.
Climate summit in Canada co-hosted by EU and China
This week, the environment ministers of China, the EU, and Canada will meet for a ministerial meeting in Montreal on climate action and implementation of the Paris Agreement. The meeting reflects the fact that despite the U.S. administration’s withdrawal from the Paris Climate Accords, the political will among remaining parties is strong enough to sustain it. In addition to the EU, Canada, and China, approximately two dozen other countries will be participating. The meeting will also be the last major ministerial before a December 12 summit in France to provide members an update on implementation.
By providing a flexible structural framework for implementing emissions reductions, the Paris Accord has helped to bolster important markets by creating stability in the knowledge that governments will remain committed to reductions. The renewable energy sector has seen substantial gains in the past few years as technology has advanced and reduced costs. Climate change considerations has trickled down into city planning, corporate strategies, global value chains, and consumer relations. Activist investors are demanding more specific climate goals for major U.S. firms, cities and states are making their own emissions targets and encouraging energy efficiency and shifts to renewables, and voters, particularly young votes, are becoming increasingly interested in climate change.
Juncker gives State of the European Union speech
On Wednesday, European Union President Jean-Claude Juncker will deliver the State of the European Union address. He is expected to largely leave out any mention of Brexit and approach the speech from a more personal perspective: “The 2017 speech is indeed more important than the 2018 one. So I think about delivering my own view on things.” His speech is slated to look at the European Union beyond Brexit and the refugee situation and focus on the upswing of the EU: with populist right wing political forces defeated in the Netherlands, France, and Britain over the course of 2017, Juncker is looking to adopt a more forward-thinking and long-term approach. Discussions of defense cooperation between EU member states is likely to get at least a nod of attention, as well as expanding the European Stability Mechanism to stabilize not just individual member states in times of severe economic crisis, but act as an IMF-esque backstop if national populations are suffering. Another topic of discussion is likely to be the creation of an EU Finance Minister, which currently has the support of the French and German governments.
Although trying to look ahead, Juncker will also have to contend with the growing East-West divide between EU member states: last week the Polish President argued that a multi-tiered approach to European integration, where presumably Western states would integrate with new systems first followed later by the major East European states, was a non-starter. Most Eastern European states are also against further integration. How Juncker will be able to thread that needle as his presidency comes to an end may end up being his most important challenge.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
This edition of The Week Ahead was written by GRI Senior Analyst Brian Daigle.