It was curious to see how fast they had disappeared, during the month of September and while the Euro had reconnected with $ 1.40 + +. Nobody heard Mr. Gallois speak about this a year ago on the same subject… No, everyone was waiting for Pittsburgh and even Mr. Gallois had no right to speak in the meantime. Yesterday, he said in Le Monde that things could go really bad for Airbus.

And he is right, because I think that this time the threats are much more serious. After Pittsburgh, nobody believes Geitner and Obama and their discourse about the strong $… that has moved towards the interior of the U.S… In reality, the $ is now a borrowing currency with its 0% rate policy, which will certainly continue for sometime. There is no question in my mind that Obama is thinking first of his 10% unemployed. The weak dollar is a blessing for him and the hypothesis of a 1.65 average is a reason for a real cry of joy.

The 13% budget deficit is going to translate more and more by the slow but progressive conversion of the central bank reserves.

From Pentalog’s point of view, we have never been better equipped to deal with this situation as our three production currencies are dropping against the euro and even the dollar for 2 of them.

Let’s go back to the 3 countries in question:

- Romania: our wages are determined in euros and payment is made in Leu. Our employees will have more and more Leu, since the latter has a strong chance of dropping further below the euro. In other words, for quite awhile we could be close to the status quo on our production costs. Salaries, for companies that pay in Leu are also blocked, which minimize the wage demands of new employees.

- Moldova: The currency (Moldovan Leu), has also been dropping in front of the two major world currencies which interest us. Our salaries are determined in Euros. Again, another period of status quo is likely in perspective. The wage levels asked for in Euros could possibly fall in the coming months.

In Romania, as in Moldova, we could possibly see timid reductions in costs, given the fact of the rising number of job applicants and reduced demand on other budgetary items (buildings, vehicles, air transport …).

- Vietnam: Our salaries are established in $, but paid in Vietnamese Dong. Now the Dong is under performing against the $ which is under performing against the Euro. Our production, invoiced in €, is particularly interesting today. Many developers are looking for employment and the wages requested have dropped slightly. We have renegotiated our premises rental rates down sharply and we have even found space at 10 $ / m2 monthly, which is less than € 7, where we were offered space at $ 17 in early 2009! We’ve moved in the space of 6 months, from rates higher than what we had seen in provincial Romania, to prices lower than 30%.

In short, at present, we are “relatively” protected from the risks of this currency crisis and are instead on the right side of the mathematics. However, the possibility of a violent push of inflation could relativise these protections, without destroying them. I am thinking in particular about the threats to energy and raw materials which would inevitably create serious problems, particularly in emerging countries such as Moldova or Vietnam.

Currency problems are more likely than the financial crisis to have serious negative consequences. But the commentary of this type could easily slide into cynicism. Here I have tried to stick to simple facts.