Jakarta Globe, William Pesek, May 02, 2010
Funny how Asia’s biggest idea, a single currency, is suddenly a taboo topic.
Take Japanese Prime Minister Yukio Hatoyama, who came to office in August with big talk of an Asian euro. His push reinvigorated longstanding dreams of strong regional cooperation and Europe-like stability and peace.
Well, try finding a senior official in Tokyo making that case nowadays. Scandals have befallen Hatoyama’s government, the latest involving the indictment of his party’s No. 2 official, Ichiro Ozawa, over campaign-finance allegations.
The rest of the region is focused inward. Reining in the stimulus of the last two years is the issue of the day. So is keeping inflation from setting back living standards. Political challenges abound from Beijing to Bangkok.
Yet history will show the real culprit behind Asia abandoning its single-currency dream is Greece. If Asia does consider adopting its version of a euro in our lifetimes, here are four lessons it should learn from the chaos in Europe.
One: Be careful what you wish for. Asian policy makers have long had a romanticized view of Europe’s efforts to join economies. One central bank, one set of banknotes, open borders, honest-to-goodness free trade, peace and prosperity as far as the eye can see. Until just a few months ago, it was possible to ponder the wonderfulness that could be if only Asia had a euro.
That was until Greece, whose economy is smaller than Iran’s, pulled the rug out from under Asia’s prototype. A cut in Greece’s credit rating by Standard & Poor’s to junk this week quickly drove up borrowing costs in Italy, Portugal and Ireland. Debt woes in Spain, whose economy is bigger than Canada’s, also are unnerving markets.
Far from taking care of an economy’s problems — such as chronic budget deficits, low tax collection, bloated pensions or rigid labor markets — monetary union may exacerbate them. Were it free to, Greece could devalue and deflate a bit of the negativity plaguing its outlook. Asia’s challenges dwarf Europe’s and this region needs maximum flexibility with which to react to any and all shocks.
Two: Odd bedfellows should never pool their money. Thirty years of planning, negotiation and hard work presaged the euro’s introduction in 1999. It was built amid relative trust after World War II, when the continent was endeavoring to maintain peace and spread prosperity. Political will overcame economic hurdles that cropped up along the way.
Asia lacks anything approaching that trust. Three of its major economies — China, Japan and South Korea — are barely on speaking terms. Officials can’t seem to agree on whether India, Asia’s third-biggest economy, would be invited to the party.
And talk about disparate. Consider the 10-member Association of Southeast Asian Nations. The living standards and governing styles of the members aren’t remotely comparable. Within Asean, you have Singapore with per-capital income of $34,760 and poor Myanmar. Its income levels are so low that the World Bank doesn’t even list them.
“If there’s a problem with this in Europe, then to me they can’t even think of a euro in Asia,” Bill Hubard, London-based chief economist at MIG Bank, said.
Three: One size never fits all. A single interest-rate apparatus can be a disaster. Tensions fly when an economy such as Germany’s needs lower borrowing costs while another, say Ireland, needs to clamp down on credit growth. Differing fiscal trajectories are another obstacle.
Europe has a monetary union; it needs a fiscal one, too. The European Central Bank’s mandate just isn’t big enough to maintain calm. If Asia were to resume enjoining monetary policies, it should also do so in the government- spending realm. A fiscal authority needs to be created.
That means a high level of statistical honesty and a bigger loss of economic sovereignty than Asians might be willing to consider. Once Greece was exposed cooking its own budget data with the help of Goldman Sachs, investors wondered about other weak links. Asia won’t have the kind of patience that investors have shown Europe.
Four: First things first. An Asian euro should be about economic realities, not come in spite of them. Politics are an important aspect, though. Asia lacks a European Union-like structure to push integration. Asean has a checkered track record, and the 21-member Asia-Pacific Economic Cooperation group is little more than a talkfest.
The first step is creating a free-trade zone. Asia has been working on that. Like all trade agreements, though, officials cherry-pick easy industries for liberalization. In Asia, agriculture and textiles are often third-rail issues.
Given Europe’s troubles, you have to wonder why Asia would even try. Thanks to Greece’s woes, it might not — certainly not in my lifetime.
William Pesek is a Bloomberg columnist.
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