An Asian euro? Not so fast By William Pesek Jr. Bloomberg News MONDAY, MAY 23, 2005
You would have thought that Norbert Walter had belched loudly in a crowded room. In fact, the Deutsche Bank chief economist merely raised doubts about Asia creating its own counterpart to the euro. It was a bold act, considering that he did it at a conference that was meant to accelerate economic integration in Asia.
"I think Asia would have a very hard time recreating what Europe has done," Walter said in Istanbul on May 5. "And after all, it's not like Europe is doing so well right now anyway."
Walter's comments silenced a packed room at the Asian Development Bank's annual meeting. Monetary integration is a primary goal of the bank's new president, Haruhiko Kuroda. The Istanbul conference focused on speeding up a process that has been unsteady, at best, in Asia.
Walter has a good point, and it's not just because the French may vote "no" in this month's referendum on the European Union constitution. Or because Italy has fallen into recession. Or because the strong euro is undermining Europe's growth outlook.
Asians tend to have romanticized notions of Europe's success in joining its economies. The prevailing view among policy makers and business people here is "we want that." That would include a single currency, one central bank and the promise of borderless trade and migration.
"Asia has been moving toward greater integration, and that will only accelerate in the years ahead," Ong Keng Yong, secretary-general of the Association of Southeast Asian Nations, or Asean, said at the development bank's meeting.
Yet the road to the euro took about 30 years of planning, negotiation and hard work. The process also unfolded in an environment of relative trust. World War II was long over and Europe was endeavoring to maintain peace amid an arms race between the United States and the Soviet Union.
That Asia lacks that sense of mutual trust is an understatement. In fact, its three biggest economies - China, Japan and South Korea - are barely on speaking terms.
"In Europe years ago, there were no doubts about who the economic leader, or leaders, were," Walter said. "In Asia you have three guys - Japan, China and India - who all want to be the leader of Asia."
Asia's economies are more disparate than Europe's. Asia also lacks a NATO-like alliance or an Organization for Economic Cooperation and Development to push for integration. The Asia-Pacific Economic Cooperation forum is hardly useful in that regard, nor is Asean much of the time.
While the 10-member Asean is perhaps the best group to discuss a shared Asian currency, it's anything but optimal. Within it, you have democracies, Communist regimes, authoritarian governments and military juntas. Next year, Myanmar, despite a dismal human rights record, is set to host Asean's annual meeting.
Still, it's not hard to see why Asia is looking to Europe. After a couple of years in which the euro plunged, it stabilized and did its architects proud. Now, Europe is grappling with the flipside of the problem: a strong currency that is crimping its global competitiveness.
Even so, the worst fears about the euro have not been realized. Concerns about labor mobility did not prove valid; Italian workers don't seem any more willing to move to Ireland for a job than they were in 1999, and vice versa.
The effectiveness of the European Central Bank's one-size-fits-all monetary polices is admittedly a work in progress. Nevertheless, the whole effort hasn't unraveled, as many predicted.
Yet, Walter said that a vote of "no" in France on May 27 would raise doubts about the stability of the euro zone and cause considerable volatility in currency markets. And new EU members could experience speculative attacks on their currencies.
Such volatility and persistently high unemployment may make Europeans long for the days when they controlled their own destinies. Voters may grow reluctant to adhere to the stipulations of the Maastricht Treaty, which imposes fiscal and inflation-rate constraints on members. And the pact has already been watered down.
Walter is not the only economist wondering if Asia should follow Europe's example.
"Asian countries should realize and analyze Europe's experience carefully," says Richard Werner, chief investment officer at ProfitFundCom in London and a longtime Asia observer. "It's a problem to turn over sovereignty to one central bank and the unelected officials who run that central bank."
What if, for example, Italy's latest downturn leads to a populist campaign to abandon the euro and again recirculate the lira?
The problem for the euro zone is that it has no strategy for dealing with a rejection of the EU constitution, never mind an economy trying to exit the euro.
None of this means the euro is doomed. Yet Asia's belief that its economies can do what Europe did anytime soon is just fanciful. And given the challenges that Europe faces, one wonders if it even should try.
