The Punishing Toll Of Venezuela's Pulverized Economy

Economists say it's worse than the Great Depression. Money is worthless in the ruined South American country, and too many are going hungry.

In Maracay, Venezuela on May 21
María Teresa Ronderos


CARACAS — In Caracas, people walk. There are few city buses or cars on the streets, their parts are limited. In total, 3.3 million Venezuelans have left, of the people remaining, few ride bicycles either, as they're afraid they'll be stolen. People get to work or as close as they can on the subway, which has few working trains left; some people may have to walk two or three hours to get to where they must.

The city feels empty, peaceful even, with its enormous mango trees, wide avenues and air you can breathe for a change. It is, of course, an illusion of tranquility. One only need look at the run-down facades of the buildings, the closed shops, the people's faces ...

How do they keep going? The minimum monthly wage, fixed in mid-May at around 40,000 bolivars (a little over $7), buys you a kilogram of flour and a kilogram of pasta, according to a local street seller. With that kind of income, families can only afford about 6,000 calories worth of food per day, half of what they require. Hunger is stunting growth in 22% of children.

It is, of course, an illusion of tranquility.

Professor Steven Levitsky has called it a collapse of historic proportions, recently telling Harvard University's ReVista this is worse than the Great Depression of the 1930s or the chaos of the Weimar Republic after World War I. This is not a theory. Every Venezuelan feels it. One female professor lost her husband, perhaps prematurely, because the right medicines were hard to find. On top of that, her university salary has been pulverized: It's worth the equivalent of $20, enough for only two or three dinners. She has five different jobs and survives only because one of them pays in hard currency.

There is no exaggeration here. Venezuela's currency has lost so much of its value that it costs too much to even charge money. Nobody pays for subway tickets anymore, nor their water or gas bills. An electricity bill arrives from time to time. Drivers fill up their gas tanks for free and leave the station attendant a 50-bolívar tip (about one cent of a dollar).

In Valencia, Venezuela, on May 21 — Photo: Juan Carlos Hernandez/ZUMA

It is a tragedy. The economists Mark Weisbrot and Jeffrey Sachs wrote a controversial article in April 2019 that in 2017-18 there were 40,000 additional deaths in Venezuela due to the lack of medicines and food. This exceeds the number of victims during the worst year of Colombia's decades-long civil war. The article maintains that the blockades and sanctions imposed by the U.S. government since August 2017 violate various international human rights norms. They have curbed oil sales to a minimum and prevented a renegotiation of the state oil firm's debts or sale of assets for cash. The two conclude that sanctions are not hitting the government, rather the most vulnerable Venezuelans.

Other economists from Harvard dispute their findings and say Venezuela was finding it hard to access international loans before U.S. sanctions. Oil production was already in free-fall in the first half of 2017, with an output of 242,000 barrels a day. Food imports fell 71% in 2016, and imports of medicine and medical equipment fell 68% between 2013 and 2016.

They have no choice but to resist

It is perhaps a sterile discussion, as people barely survive in this economy and nobody inside Venezuela or abroad finds a way out. Venezuelans have no choice but to resist and protest at the risk of having a red mark daubed on their front door and losing the regime's miserable food handouts. They can complain and possibly go to jail, leave, or walk until they find a way to get by.

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European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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