The Euro: a viable alternative to the U.S. dollar<\/p>\n
The European Commission and Bank Negara Malaysia sponsored the
\nEuro Conference in Kuala Lumpur last week. One of the noted
\nspeakers was Klaus Regling, director general for economic and
\nfinancial affairs at the European Commission. He gave his keynote
\naddress on the role of the euro on the global economic landscape.
\nRiyadi Suparno of The Jakarta Post interviewed Regling, who used
\nto live in Jakarta for two years as a representative of the
\nInternational Monetary Fund, to get more of his thoughts on the
\neuro and the possibility for the Association of Southeast Asian
\nNations (ASEAN) to learn from the European Union.<\/p>\n
Question: You talked about the role of the euro in the global
\neconomic landscape. How has the euro actually changed the
\nlandscape?<\/p>\n
After six years (since its introduction), it's very clear the
\neuro has brought significant benefits to the euro area, that
\nthere is more macroeconomic stability, that there is no more
\nintra-euro area exchange rate crisis. In the past, whenever an
\ninternational crisis happened we had tension in Europe, and
\nthat's very expensive in terms of lost growth and lost
\ninvestment.<\/p>\n
Transparency has improved because everything is in the same
\ncurrency, in one price. So, it's easier to compare prices.
\nCompetition has increased, and economists know that increased
\ncompetition leads to more growth, to more prosperity. So, all of
\nthese are positive for us internally.<\/p>\n
I know from a conference attended by private investors that
\nthe euro is increasingly used in Asian countries. As bankers
\nexplained, this is positive for the borrowers and investors in
\nAsia. And that's important, that the euro is bringing benefits to
\nthe people outside the euro area.<\/p>\n
So, the benefits are there very clearly, and at the same time,
\nwe know that we have to increase our efforts to have higher
\ngrowth rates in Europe. We have a response agenda that describes
\nall the structural reforms that we have to do in order to raise
\npotential growth through a productive labor market, and reform to
\nbring down unemployment and to raise growth. This is a process
\nthat will take several years, but we have started this.<\/p>\n
The euro has undoubtedly become the second most important
\ninternational currency after the U.S. dollar. And there is some
\ntalk in this region, including in Indonesia and Malaysia, to
\nshift some of the central banks' reserves from the U.S. dollar to
\nthe euro. What do you think about this issue?<\/p>\n
It is true that the euro is the second most important currency
\nin the world. Of course, there is quite a distance between the
\ndollar and the euro, but the distance is getting smaller.<\/p>\n
I think it's good for international monetary system not to
\nrely on one currency but to have another currency, that is not
\nquite as important yet but getting closer. That's good for
\neverybody.<\/p>\n
But, it's up to different countries in the world to decide on
\nhow they make use on this situation, that the euro has become an
\nalternative to the dollar. So, countries can use it, but it's up
\nto every country, Indonesia, Malaysia, and others, to decide in
\nwhat form and to what extent they want to use the euro. And, I
\nwill not give advice on that.<\/p>\n
Some have expressed concerns that if big countries in Asia
\nlike China shift their reserves away from the dollar to the euro,
\nit could create international instability. What's your opinion
\nabout such concerns?<\/p>\n
Again, it's up to China to decide what to do. We know that
\nChina, like many other countries in Asia, has already increased
\nthe share of the euro in their foreign exchange reserves. So,
\nthis is an ongoing process, and it has not lead to any
\ninstability. But, the speed and the extent to which it happens
\nmust be decided by the country concerned.<\/p>\n
Supporters of integration believe that ASEAN should follow the
\npath of the European Union in its moves toward better economic
\nintegration. In what way do you think ASEAN can learn from the
\nexperience of the EU?<\/p>\n
ASEAN is different from EU. So, I don't think it's possible to
\ncopy the European experience because European countries are
\neconomically speaking fairly homogeneous, therefore, it was
\neasier to create a monetary union. Also, one must always remember
\nthat monetary union and the euro is the end of a 50-year history
\nof an ever-closer integration.<\/p>\n
But maybe, that's a lesson for ASEAN that it is a long process
\nand takes time. One cannot do it the other way around. One cannot
\nstart with a common currency and do the integration later. There
\nhad been a lot of integration in trade and capital flow
\nrelations, and it must happen before a common currency is
\npossible.<\/p>\n
So, it takes time but also takes a certain sequence of
\nintegration steps. And ASEAN is doing that. ASEAN is beginning to
\nhave a very close cooperation among the central banks. There is a
\nswap agreement thing that in Europe happened in the 60s, for
\ninstance. There is increasingly capital market liberalization.
\nCentral bankers and finance ministers talk to each other more
\noften now than in the past. All these are important for more
\nintegration. In that sense, maybe Europe can be an example, but
\nour countries are different otherwise.<\/p>\n
You talk about the sequencing of the integration process. Can
\nyou elaborate further on what comes first and what comes next?<\/p>\n
Often, one starts with trade integration, trade liberalization
\nand that what happened in Europe in the 50s and 60s. That's
\nhappening now in ASEAN. Then, the next step would be the
\nintegration of the financial markets, the capital markets, by
\nabolishing capital controls. This in Europe took 30 years and the
\nlast removal of capital controls only happened in the early 90s.<\/p>\n
It has started in ASEAN, and it will take some time and it
\nmeans many things. It means the banking system has to be strong
\nenough; the banking supervision has to be adequate in the
\ndifferent member countries. They have to be harmonized to some
\nextent. All these are preconditions if one wants to do the final
\nstep, a common currency.<\/p>\n
Looking into the current situation in ASEAN, do you think it's
\npossible for ASEAN to eventually adopt a common currency?<\/p>\n
I would not exclude this, but this is certainly something that
\nwould take decades to get there.<\/p>",
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