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There’s
a certain irony to the Asian Development Bank holding
its annual meeting in Europe.
The
Manila-based lender did so this week in Spain, one of
the 11 nations that in 1999 embraced a single European
currency. The euro area has since grown to 15 members
and many in
Asia want to
replicate the enterprise. Much of the talk in Madrid
surrounded accelerating that process.
There’s
no firm timetable, nor do Asian leaders regularly refer
specifically to an Asian euro. They prefer to couch it
in terms such as “regional integration” and “economic
interconnectedness.” The ultimate goal is a common Asian
currency shared by as many as 16 economies.
That
ambition made the location and timing of this year’s ADB
meeting strangely apropos, just as the euro suffers
tensions of its own. There’s much Asia can learn from
Europe’s experience.
The euro
improved economic efficiency in a region with output
comparable to the United States’. Exchange-rate
volatility has been eradicated and financial markets are
deeper and more flexible. Intra-European trade has
blossomed. The euro is becoming a viable alternative to
the dollar, which has fallen roughly 45 percent over the
last six years.
Europe’s
monetary union isn’t perfect. One problem is the euro’s
strength, which is crimping exports. There’s a bigger
one: European Central Bank policies are at odds with the
conditions of some economies.
Spain
is a case in point. Europe’s fifth-biggest economy is
grappling with the fallout from a housing bubble.
ECB’s
example
In
recent years, weakness in economies such as Germany
prompted the ECB to pursue accommodative monetary
policies. That was hardly what Spain and Ireland needed
and the result was predictable American-style asset
bubbles.
Now that
Germany is performing well, Italian Prime Minister-elect
Silvio Berlusconi and French President Nicolas Sarkozy
want the ECB to cut interest rates.
Europe’s experience demonstrates the difficulties of one central
bank controlling money in more than a dozen separate
economies.
Traveling around Europe, one also hears much griping
about how the introduction of the euro sparked inflation
that isn’t captured in official data. Anyone who visited
Italy, Portugal or Spain before and after the euro may
be tempted to sympathize with such theories.
Europe’s
troubles may pale in comparison with what Asia will
experience on the road toward its own single currency.
Asia’s trust gap
It took
Europe 30 years of planning, negotiation and hard work
to create a single currency. The process unfolded amid
relative trust after World War II. The continent was
endeavoring to maintain peace and build prosperity at a
time when the United States and Soviet Union were
engaged in an arms race.
Asia
lacks anything approaching that trust. Tensions over the
past mean its three biggest economies—China, Japan and
South Korea—are barely on speaking terms. Hu Jintao’s
trip to
Japan
this week is the first by a Chinese president in a
decade and marks an important step forward. Asian
relations still have a long way to go.
In
Europe’s case, political will to integrate helped
overcome economic hurdles. In
Asia politics are a big hurdle.
“I can’t
see any political will within
Asia for the creation of a totally independent monetary authority
like the ECB,” says Simon Grose-Hodge, strategist at LGT
Group in
Singapore. “None of them would agree to such an
organization unless they ran it.”
Slowly,
surely
Asia’s
economies are far more disparate than Europe’s. Take the
10-member Association of Southeast Asian Nations, or
Asean, which exists to promote regional growth and
cooperation. It includes economies that aren’t remotely
comparable. Singapore’s per-capita income is about
$29,000, while
Cambodia’s
is $500 and Myanmar’s is so low that the World Bank
doesn’t even list it.
The
region also lacks a European Union-like structure, a
Nato-like alliance or an Organization for Economic
Cooperation and Development to push integration. Still,
officials at the ADB are working to catalyze the
process.
In
Madrid this week, finance ministers from 13 Asian
nations agreed to create a pool of at least $80 billion
in foreign- exchange reserves to be tapped by nations in
case they need to protect currencies.
“Asia is
coming together slowly, but surely,” says Masahiro
Kawai, dean of the Asian Development Bank Institute in
Tokyo. “There is very clear momentum in that direction.”
Asian
euro
The wild
card is how the current food-price crisis affects
cooperation. Jong-Wha Lee, head of the ADB’s office of
regional economic integration in Manila, says the events
of 1997 brought Asia together. “The crisis was a
watershed,” he says. “It sharply focused the region’s
attention on its interdependence and shared interests.”
The
question is whether surging commodity prices and
resulting increases in poverty will hinder regional
integration. Will the increasing scarcity of food,
energy and other commodities fuel a return to an
every-nation-for-itself mindset? Only time will tell.
None of
this means an Asian euro is doomed. Yet the idea that
Asia can achieve what Europe did anytime soon is
fanciful. And given the challenges
Europe faces, one
wonders if it can muster the will to try. |
