Experts caution against hurried monetary union

Luke Anami, The Standard (Kenia), 09.04.2012

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East African Community (EAC) States should not rush the signing of a monetary union if the eurozone experience is anything to go by, economic and monetary experts have warned. […]

Drawing from the European experience, experts are now cautioning that an effective monetary union — which is currently being negotiated by EAC member States — is hugely predicated on a working customs union as well as a functional common market.

"European Monetary Union (EMU) came almost 50 years after the European Union came into existence," Janis Emmanouilidis, a senior policy analyst at the European Policy Centre, a think tank in Brussels told Financial Journal .

"But it came after agreements on trade, internal market, and more others were put in place," he said.

While Europe has taken more than 40 years shaping its economic and monetary policies, the EAC has had a rushed creation of a customs union - which seeks to facilitate free movement of goods and people.

"It would be economic suicide to try and create a single currency for goods that were not able to move freely across the borders," Janis Emmanouilidis said in reference to the fact that Customs Union, which was formed in 2005, was not fully operational.

"The success of the East African monetary union will hinge on whether the customs union and common market are working or not," he said. […]

The report attributed this pattern to poor infrastructure, emergence of non-tariff barriers, coupled with a harsh global environment, which meant that EAC did not reap the benefits integration.

"EAC will have to undergo similar processes the EU went in a move to achieve a monetary union," Janis Emmanouilidis noted.

"But first things first — the customs union must be effective and running as experience of the EU has shown."

Despite the all the preparations, of course it has not been smooth sailing for the European Union. In fact, EU governments are facing a crisis of monumental proportions — both economic and financial, but also social and democratic.

The worst hit countries so far are Greece, Portugal, Ireland and Spain. Janis Emmanouilidis blames the zone’s woes — the worst crisis to have ever affected Europe since the World War II — on lack of enforcement of the EU agreements and laws.

"The eurozone crisis exposed mistakes and flaws in the construction of a monetary union. We did not have an economic union as strong as the monetary union that we developed," Janis Emmanouilidis said.

"As a region, we had an insufficient, financial mechanism to check flaws in our systems. The result was a high debt, characterised by an increase in unemployment." […]

But there is also a more direct sacrifice that taxpayers of the integrating economies will have to bear.

"Within the framework of the EU, countries with strong economies such as Germany and France are key to helping to resolve the crisis in Greece and other countries in southern Europe. This basically implies that strong economies must be willing to assist the others," he said.

"I understand Kenya has a stronger economy compared to the rest," Janis Emmanouilidis, also an expert in institutional reform said. […]

For the entire article see here.


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