Political Economy of the EMU Negotiation and its Implications to East Asia

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Political Economy of the EMU Negotiation and its
Implications to East Asia

• Heungchong Kim (KIEP, hckim_at_kiep.go.kr)
• Sung-Hoon Park (Korea University,
  shpark_at_korea.ac.kr)

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Contents

• A Brief History of EMU
• Criteria of Comparison
• - Structure of Monetary Cooperation
• - Players and their roles
• East Asia
• - Three pillars to go
• - The roles of China, Japan and Korea

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Motivation

• Enhanced degree of Cooperation in East Asia -
  CMI
• Recent trend in the Trade Integration of East
  Asia Kim (2002) et al.
• EMU Negotiation process(late 1980s early 1990s)
  and the roles of each member states

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Brief History

• Before EMS
• - Werner Report (1970)
• EMS (1979 1989) - ERM
• EMU
• 1989 - 93 Delors Report (1989)
• 1994 - 98 EMI, convergence criteria
• 1999- ECB and euro

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Some Reflections

• No concrete and precise plan in the first stage
  evolutionary process
• No regularity in the development of the process
  pause, back and leap
• Sticking the principles and allowing exceptions
• ? but, share (almost) common goal

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East Asia, where are we now?

• Less Integrated in trade
• Much less integrated in the financial sectors
• More diversities in the development stages and
  size of the economies
• Lack of common citizenship Common concept of
  East Asia

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Criteria of Comparison

• Structure of Monetary Cooperation
• Players and their roles
• And others

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Structure of Monetary Cooperation

• Three pillars of the Monetary Cooperation in
  Europe
• - The Fund
• - Exchange Rate Mechanism
• - Macroeconomic Policy Coordination

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Progress in East Asia

• The Fund CMI, not enough for any further
  financial crisis
• Exchange Rate Mechanism No.
• Macroeconomic Policy Coordination Not yet.

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The roles of the players

• Long way to go to AMU
• The EMU process would hardly give any lesson to
  Monetary Cooperation (Integration) in East Asia.
• The process can contribute to creating ideas in
  any types of coordination, cooperation,
  integration process in East Asia.
• In the course of monetary cooperation (possibly,
  integration), the roles of players need to be
  discussed.
• A la Germany, France, Commission, Benelux, UK,
  and others

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Germany

• Kohl (1982 98) No political regime change
• The first stage of EMU started in July 1990
• - W. German, EMU would take similar shape of
  the German reunification, negative side effect
  emphasized. ex) Excess subsidy, tax burden,
  monetary integration with less disciplined
  countries. burden on German government, but
  strengthening strategic position of Germany in
  the EMU negotiaions.
• Key bilateral relations
• Netherlands, Luxembourg and the UK
• Agenda for Political union weakened by lessened
  incentives and weakened driving forces in German
  society

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France

• Mitterand (1981 95) No Political Regime Change
• Ownership of European Integration
• Globalization and French Europe
• Key bilateral relations
• Flexibility in the screening process of qualified
  candidates
• Monetarist Approach
• German reunification and the Negotiation

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UK

• Stands on the boundary line of Europe
• Perfer FTA to more deepened integration
• Awkward partner
• Thatcher (1979 90) Eurosceptic, Trans-Atlantic
• Gradualism in the introduction of single currency
• - currency competition, hard ECU
• Economist approach multi-speed EMU

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Commission

• Similar to France Flexibility in the screening
  process of qualified candidates
• - opt-out, no rigid convergence criteria,
  fiscal federalism
• Perfer something must be materialised.
• Delors

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Some Reflections

• Strong ties in the Key bilateral relations
• Core executives
• An importance of a single, independent
  institution outside of each country, that is, the
  Commission
• Synchronization of political and economic cycles
  is important..

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The roles of Asian states (I)

• Murase (2004)
• Key bilateral relations between China and
  Japan
• - the biggest powers in the region, probably
  most influential, experience of war in the past
• - Japan need to contribute more money and
  bigger vote right
• Japan not the same road that Germany has gone
• China long way to go to be a la France

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The roles of Asian states (II)

• Murase (2004) Korea as representative of
  smaller countries in the region
• - information warehouse on experiences in the
  transition to an industrialized nation
• - representing the interest of smaller nations
• - supplementing Sino-Japanese Leadership
• - The role of Benelux

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The role of Benelux or Commission?

• No common strategy in the Benelux
• - Netherlands as another Germany
• - Belgium as another France
• Korea as another Commission
• - strong incentives toward regional
  integration (security, economy, geography)
• Alternative commission in Korea

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Thank you