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Analyst: Euro Launch Is A Model For Arab World
By Lamya Tawfik
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| The euro: Can the Arab world do it? |
CAIRO, January 3, 2002 (IslamOnline) – A few days after the launch of the euro, and a week after the GCC summit spoke about launching a single currency in eight years, analysts are now looking at ways in which the European experience could be applicable in the Arab world.
Speaking to IslamOnline, Magawri Shalaby, an economic analyst in the Egyptian Ministry of Foreign Trade, said that the launch of the euro is an unprecedented event with colossal magnitude.
“Twelve countries uniting their economic powers is not an event that could be looked lightly upon,” said Shalaby.
He added that any country that does not consider it a major event is either not grasping the effects of the euro on its economy or is trying to belittle the event for its own reasons.
“The U.S. for instance does not want to give heavy media attention to the euro because it will deal a heavy blow to the U.S. dollar,” he said.
Some of the U.S. economic analysts, said Shalaby, are claiming that the euro will not hold up very long. “This is not true. There were a lot of procedures and precautions that the 12 countries took before they decided to use the euro. It did not come overnight.”
“It was kept in an incubator since 1999, and the euro ‘baby’ is now healthy and strong and will be able to stand in the face of any shocks that could happen. The factors of success is much more than that of failure.”
Regarding the problems that could face the euro, Shalaby felt that there are three factors that could be taken into consideration.
The first is the growth rates in each country. “It is well known that the value of the currency is tied to the growth rates in the country in which it is used. There fore it is essential to avoid any economic crisis for the coming period.”
He added that it would be difficult to assess the success of the euro in a month or two from the time of its launch. “We need at least a year to be able to say whether the euro experience has failed or succeeded,” he said.
The second is the fact that the euro should not be affected by the monetary or economic policies of European countries. Policies like taxation, inflation and others could have serious ramifications on the euro, Shalaby said.
The third factor is isolating the European Central Bank from the political circumstance of the country in which the bank is set up.
Concerning the Arab countries being affected by the euro, Shalaby said that it would depend on the kind of relationship each country has with the EU.
Foreign trade will have an important effect, since the EU countries which have started using the euro will insist on pricing their import and export goods by the euro and that will in turn make it stronger, he added.
An Arab country that has a high rate of trade with the EU will be affected more.
“The average rate of foreign trade with the EU in the Arab world is 34 per cent as opposed to an 11 per cent rate with the United States.”
However, the economic strength of the EU will also be seen in the fact that the import from the Arab world will decrease, as they will apply the concept of ‘trade diversion’, benefiting one another and trading internally, only resorting to foreign trade for the items that are lacking among themselves, Shalaby added.
In the oil sector however, it is quite unlikely that the euro will have a strong effect. Shalaby said that because of the fact that the oil barrel is priced by the American dollar and because it is a consumer market, most of the companies involved in the sector are American and will continue to use the dollar for its transactions.
If the Arab world wanted to unify their currency, they need to make use of the European experience and do it gradually.
They need to first form a unified market and gradually crown it with the unified currency, Shalaby added.
They need to have a mechanism that would distribute the responsibilities and the benefits of the new system, he said. “It is unreasonable to expect the same from a rich country and a poor one.”
Shalaby suggested that the voting system in the Arab world must also change. He added that the current system depends on a consensus. This must change to a majority vote, said Shalaby.
There must also be a system to force the countries to adhere to the decisions that were taken in the meetings and a system of penalties if the countries refuse to adhere, he suggested.
However, it is important to give countries with special circumstances a period of grace before they start applying the decisions of these committees.
“To do that, one country must lead the way. All countries need to agree on one country to lead the way otherwise plans don’t get executed,” he said.
Shalaby felt that it would be easier for the GCC countries to come up with their unified currency rather than the entire Arab World because of their common geographical, economic and strategic interests.
However, he felt that it is essential for the entire Arab world, if it wanted to survive the world’s harsh economic situation, it needs to have a unified currency.
A way to do that is for the private sector to initiate steps in economic unity and then put pressure on their respective governments to do the same, he suggested.
“We need to look at the European model and use what suits us and do the same. The European dream has materialized into the euro and ours is still just a song,” said Shalaby, referring to a famous Arabic song that spoke of the Arab dream and included singers from all parts of the Arab world.
“If they can’t do that and follow the steps that I’ve mentioned, then they could at least unite as consumers and get discounts for buying in bulk!” he added.
In their recent meeting in Muscat, the GCC summit decided to reduce the unified customs tariffs on goods imported from outside the GCC to be 5 per cent by January 1, 2003 instead of 2005 as per the previous agreement, reported the UAE daily Gulf News.
The council also approved the unified system and law of the GCC customs and endorsed its executive regulations.
Another major landmark decision taken by the summit was regarding the establishment of the GCC monetary union. The communiqué said that the steps taken to achieve monetary union should be crowned by the release a single GCC currency in January 2010, eight years after the introduction of euro, the paper reported.
"These decisions are very late but they are welcome," said leading Saudi economist Ihsan Bu-Hulaiga, calling on Gulf leaders to follow the European Union example, reported Agence France-Presse (AFP).
"What we need now is a mechanism to implement them according to a strict calendar," he warned.
"Experience has taught us that GCC decisions meet with sluggishness, bureaucracy and routine," said the member of the kingdom's consultative council or Shura.
He also questioned the capacity of the hereditary Gulf monarchies, united by oil, geography and language but torn apart by disputes, jealousy and mismanagement, to found a central bank.
"Our countries suffer from debt, chronic budget deficits, rising unemployment and an overabundance of foreign workers," the economist noted, reported AFP.
Amer Dhiab Al-Temimi, a Kuwaiti economist, said it was "unfair to compare the GCC with the EU".
"We have to benefit from the experience of European countries without however forgetting that our countries are very young," he said.
Temimi also saw the need for institutions. "The most important thing is to set up follow-up structures with the power to implement these decisions," he said.
The European Union (EU) has insisted the GCC countries, which rely on oil for 80 percent of their income, establish a customs union before reaching a free trade agreement which the two blocs have been discussing for 13 years.
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