What should be done for ASEAN Economic Community: Lessons from Euro zone crisis
2012/06/28 Leave a comment
Euro Zone and ASEAN Economic Community
Euro Zone is an economic and monetary union, which European Union countries have adopted euro as their common currency to pursue economic welfare and foster regional synergy with stabilized exchange fluctuation. Benchmarking such type of economic and regional integration, 10 ASEAN countries including Thailand, Malaysia, and Singapore have agreed on formating Asian Economic Community(AEC) and realizing its four primary objectives-single market and production base, highly competitive economic region, region of equitable economic development, and region fully integrated into the global economy-by 2015. Through AEC, ASEAN is expected to expand its leverage while combining the market of 600 million people and 2 trillion dollars GDP.
However, as there was an outbreak of euro zone crisis, concerns about modelling AEC was raised and the progress for it has been slowed down. According to Wall Street Journal on May 30th, 2012 Indonesian President Susilo Bambang Yudhoyono warned that the member states should not rush to adopt the common currency and to become an integrated economy, but build more structured and coordinated policy. In addition, he highlighted ASEAN Governments need to learn a lesson from Euro zone crisis. Then, what has to be learned and considered for a successful establishment of AEC?
1. Bridging the economic gap between member countries
The structural root cause of the Euro zone crisis lies here: sharing the same currency among countries with different economic conditions. The monetary integration was supposed to secure the stability of exchange rate in order to increase trade volume in the region and achieve member countries’ economic development. But at the same time, this came to lose the price function of exchange rate which reduces the imbalance among rich and poor countries. And finally it turned out to deepen the economic gap and trigger the debt crisis.
This consequence of Euro zone implies ASEAN countries should acknowledge the economic gap between member states in the process of realizing AEC. The below chart which depicts the GDP gap among ASEAN countries obviously shows some countries’ economies are much bigger than the others. For example, Thailad’s GDP ($345 bil) is 44 times bigger than that of Laos ($7,891 bil). As a result, not to repeat the same crisis as euro zone, ASEAN needs to go through detailed negotiations with regarding the existing gap.
2. The need of strong leadership in the region
The absence of leadership is regarded as the decisive factor that led to the euro’s demise. Since EU consists of several countries with their own interests and political stances, it is difficult for the euro zone to come up with a centralized authority that can legislate and enforce monetary policies. Rather, leading members still put their own profits before the region’s problems.
This issue can also be identified as key challenge for AEC. It is expected that the underlying problems of political uncertainty and regional conflicts, such as Thailand-Cambodia border issue, will make AEC difficult to cooperate within the economic bloc. Therefore, it is essential for them to organize monetary authority and structured management system for economic governance.
Accordingly, ASEAN should take account of the economic gap among member countries and a strong need of governance system to successfully establish AEC. In doing so, it will become important economic bloc along with the rapid expansion of economy in the region.
CHOI SO YOUNG(firstname.lastname@example.org)