The pan-African project and the EU fiscal unionBy L. MUTHONI WANYEKI | Monday, March 19 2012 at 13:33
At the beginning of this month, the European Union signed a new “fiscal compact” — the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union.
The questions are whether the “fiscal compact” is what is required and whether it will bring the results demanded.
Why does this matter for us? Well, Europe is still Africa’s largest export market — with 22 per cent of our exports ending up there (27 per cent if we include the UK).
Commodity exports are inevitably volatile. But, as the recent kerfuffle about who’s responsible for the shocking drop in value of our currency shows, we are also vulnerable to what happens in the Eurozone — debate on our own contributions to that vulnerability notwithstanding.
In addition is the more long-term question as to what lessons we can (and must) derive from the Eurozone given our own plans for regional integration.
Within our regional East African Community (EAC), we’re at the stage of a Customs Union — with the full Common Market due this year. Next up is the monetary union.
We could be looking at the United States (US) as an example for monetary union—its federated structure provides some of the safeguards that current Eurozone arrangements do not.
Particularly with respect to the requirement for some level of fiscal union so as to enable inter-state transfers to states in crisis—without mass protests from states not in crisis.
Think, for example, of how Germany’s being portrayed as the difficult and stolid player in all of this, refusing to bail out Greece without conditions.
But we tend to look more towards the Eurozone. Partly because the financial crisis has shaken everyone’s belief in the dollar as the top currency.
The Brazil, Russia, India, China and South Africa group has reiterated its desire for the International Monetary Fund to move to using its Special Drawing Rights as the reserve currency instead of the dollar.
The US currency is now seen as being too volatile. The US was seen as protecting its own interests above all in its management of the crisis.
There is still concern that its injection of liquidity may fuel inflation and the dollar depreciation—not good for states like China holding the amounts of the dollar reserves that it does.
And there is concern that US structural weaknesses (its high fiscal and current account deficits) are not yet being addressed.
Adjustment is inevitable—it can no longer be deferred or deflected onto others.
It is not, however, that the BRICS want the euro to replace the dollar as the top currency—what they seem inspired by is the idea of regional monetary unions as a balance to a crumbling unipolar situation.
'Six pack' rules
Initiatives in Latin America through Mercosur or in Asia either through the Association of South East Asian Nations or from a bottom-up approach by China (knowing it cannot impose its yuan on anybody) are gathering momentum.
Here, the African Union’s plan for regional integration on the basis of the RECs is well underway—despite the political hurdles (think of what it’ll take to deal with inflation in Zimbabwe) and despite the inconclusive evidence to date as to whether or not we meet the old optimum currency area criteria—or as to whether or not expected benefits will outweigh costs.
There are two governance problems within the Eurozone.
The first has to do with the current division of labour with respect to control of monetary and fiscal policy—the former under the European Central Bank and the latter under states.
The fiscal compact—together with the scorecard and the ‘six pack’ rules passed last December—are meant to increase collective surveillance and control.
So that everyone has a clearer sense of what’s going on within states’ economies and will act pre-emptively.
But will they do what’s needed? Sanctions for non-compliance are now meant to be automatic.
But they don’t make sense—what’s the point of a deposit-turned-fine for a state like Greece that’s broke?
In trying to find a middle-ground, the Eurozone seems to have ignored the fact (or considered it too costly and unachievable) that a border solution’s required—either getting out or stepping fully in.
Meaning either exiting or moving towards some sort of fiscal union which, inevitably, requires enhanced political union.
The second has to do with democracy. The demonstrations continue in Greece—and they are ugly demonstrations.
The people seem to want out of Europe and a return to the drachma.
All unions are in the streets. Politicians are scampering away from the fragile government trying to enforce the solution decided for it by the rest of Europe and the international financial institutions (IFIs).
The government is between a rock and a hard place. And the Greek dilemma is one to which we should pay the greatest attention—what is the import of removing economic policymaking from the (however nominal) accountability provided by elective democracy (as insufficient as elective democracy is)?
These tensions are not absent here. We see it in the debate on the state of our currency, the anger at our Central Bank’s Governor (both justified and not) as well as the repeated calls for price controls on one thing or another.
We have to find a way to more directly surface these tensions and more constructively discuss them—in ways that take popular concerns (if not solutions) into account.
I’m a believer in the pan-African project. I always have been.
But what’s happening in the Eurozone shows just how much more attentive we all need to be to what’s happening within the EAC and the AU.
L. Muthoni Wanyeki is doing her graduate studies at L’Institut d’etudes politiques (Sciences Po) in Paris, France
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