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Single GCC currency

Single GCC currency

Arab News is imagining a time when the US dollar is no longer the world’s reserve currency. In this editorial, the paper examines the euro’s troubles and what they mean for the GCC.

December 30, 2010 12:33 by

Europeans will remember 2010 as the first real test of their 12-year-old single European currency, a test which many in the markets believe is likely to continue relentlessly well into the new year.

There are implications well beyond the euro zone, and not just for the international currency markets. How the euro manages to survive and the extent to which the European Central Bank and EU finance ministers are jointly prepared to enforce relatively simple fiscal discipline upon all member states, will very probably define how the project for a single GCC currency will advance.

2010, of course, was supposed to be the year that a single GCC currency would finally emerge after some 30 years of discussion. Now the project has been put back again, this time to 2015 and there are those who believe that even five years’ hence will still be too early.

This is not of itself actually a bad thing. There are lessons to be learned not just from the creation of the euro but how this so far unique experiment will weather the economic and financial storms in which it is currently sailing. Among the weaknesses exposed in the creation of the euro was its revolutionary rather than evolutionary nature. That a single EU currency was the logical outcome for the world’s wealthiest internal market of 501 million people with a customs union and free movement of capital and workers, was never in doubt. But it was always going to be a question of timing.

It remains a strong argument that the creation of the euro was premature and was driven more by political European federalist rather than purely economic considerations. The biggest bit of politicking was the immediate fudging on the fundamental rules on government debt to productivity ratios and fiscal imbalances. Founder-member Belgium, for instance, was well outside the debt ratio limit but was admitted because its figures were improving. The later joining of Greece should never have been permitted but by then the tough core rules had been diluted.

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