Friday, November 11, 2011

An Asian Euro?

Facing the prospect of a united German empire under Kaiser Wilhelm I in the late 1860s, the northern lawmaker Eduard Lasker, who supported a united Germany but disliked the ways of the Bavarian south said something to the effect of “The girl is ugly, but we must marry her anyway.”

That seems to be the feeling nowadays in Berlin and Paris. Both German Chancellor Angela Merkel and French President Nicolas Sarkozy have been frustrated and angered by the unwillingness of both Greece and Italy to pursue economic reforms.

This long-running drama holds several lessons for Southeast Asia — in particular the member states of Asean as they embark on the road toward greater economic integration.

For Greece and Italy, the political costs of reform are great. Their labor unions oppose cuts and threats to their privileges. People are protesting the harsh austerity policies call into question the future of sacred social welfare perks. Politicians, after spending decades hiding the true cost of the welfare state, are afraid to push for reform.

Patience is wearing thin in Berlin and Paris. Last month, both Merkel and Sarkozy demanded that Italian Prime Minister Silvio Berlusconi get his country’s economy in order. Last week, they told Greek Prime Minister Papandreou, after he had announced a referendum to decide whether Greece would accept the austerity policy, that the question should be “Do you want to stay in the euro zone or not?”

Both Merkel and Sarkozy knew they had to act vigorously, as the taxpayers of France and Germany — not to mention other wealthy Northern European countries ¬— were angry, unwilling to support what they saw as profligate countries of Southern Europe spending their hard-earned tax money. In essence, both were afraid that the European currency would collapse, and with it, the European Union.

Thus the paradox: On one hand, they disliked what they believed to be irresponsible behaviors of Italy and Greece. On the other, they had to stay married to the “ugly girls” in order to save the union. The problem is that the market today no longer believes that the rich Northern European countries are committed to the marriage.

Asean should take warning from the EU’s dilemma. Unlike the EU, Asean does not have a single currency. Its institution is not as strong as the EU, since it remains content with working relationships in various sectors, notably the economy and social issues.

At the same time, there is a desire for stronger economic integration in order to boost regional economic growth, with the final goal of a single currency. Already there are plans to integrate regional economy by 2015.

The question is whether the commitment will remain strong when bad times arrive. There is still much distrust among Asean countries, with conflicts flaring up regularly along borders. Because of Asean’s ineffective arbitration systems, countries like Malaysia have resorted to taking cases to the International Court of Justice instead of trying to solve problems bilaterally or regionally.

There are also still questions of whether members are honest in their bookkeeping and in reporting their economic indicators. The root of the European crisis was because Greece had been cooking its books, misstating its economic indicators and in turn misrepresenting its budget deficit. Can Asean countries be trusted in their bookkeeping, especially when many of its governments remain unaccountable to their people?

Moreover, there is the question of whether Asean could act decisively in time of crisis. The Asean bureaucracy grinds slowly and there is potential for a crisis of confidence in crucial times. Powerhouses France and Germany display economic leadership in times of crises that is clearly accepted by the EU members, but Asean has no such members than can step up to the plate.

These problems are not deal-breakers for Asean, but they should be considered as it pursues its path to greater economic integration. Rather than aiming for an unrealistic target with a short time frame, Asean should instead first strengthen itself as an institution, giving it power to solve problems when troubles arise.

The devil is always in the details, and Asean should take care to find any skeletons that might be hiding in its closets. Otherwise any effort to increase Asean economic integration is doomed from the beginning. By Yohanes Sulaiman lecturer at the Indonesian National Defense University.

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