Eurozone crisis impact on Asian economies
Mr Ryuzo Miyao, a member of the Policy Board of the Bank of Japan addressing the Panel Discussion at the Asian Development Bank Institute said I am honored to be invited to this panel discussion at the Asian Development Bank Institute. In discussing today’s topic, “the Eurozone Crisis and Its Implications for Asian Economies”, I would like to speak briefly about three key aspects. I will begin with reviewing the current
Eurozone crisis, then consider its implications for Asian economies, and lastly I will outline the Bank of Japan’s contribution to regional monetary cooperation in Asia.I am sure that most of today’s audience is already familiar with developments in the current Eurozone crisis, but I would like to emphasize two points about the nature of the crisis. The first is that the Eurozone crisis highlights the difficulties of so-called monetary union without fiscal union. Eurozone countries introduced the single currency, the euro, under the European Central Bank, while each member country maintains its own fiscal sovereignty. However, there have been ongoing intensive discussions, since even before monetary union began, especially in academic circles, about the necessity for an adjustment mechanism in the form of fiscal transfers, labor mobility etc., if a common currency is to work. Thus, the issue of how to manage fiscal policies under a single currency regime is one of the most fundamental and most enduring challenges for the Eurozone. Second, as long-term interest rates in member countries converged at low levels following the introduction of the single currency, the Eurozone enjoyed the benefits of the expansion of trade and investment. At the same time, however, it also gradually accumulated economic and financial imbalances, such as loose fiscal spending and a bubble in the real estate market. Because these imbalances were built up over a period of more than a decade following the introduction of euro in 1999, it would not be surprising if it takes a long time for the Eurozone to achieve a full recovery. If this is indeed the case, we must be aware that there is a risk of the crisis becoming a severe headwind against the global economy in the longer-term perspective. I will come back to this point later. III. Implications for Asian economies
It took about 50 years, from the signing of the European Coal and Steel Community Treaty in 1951, for Europe to achieve the introduction of the euro. Meanwhile, the possibility of deeper economic and financial integration in Asia, and in particular the introduction of an Asian single currency, has been discussed at various levels. There may seem to be little possibility, at the present time, of a common currency being established in Asia, but the day might come some time in the future when the introduction of an Asian single currency might be discussed as a concrete option. In preparation for such a future possibility, I think it is important for
Asian countries to deepen their understanding of the implications and lessons to be learned from the current Eurozone crisis. I would like to touch briefly upon three issues.
First, as we all recognize, the Eurozone crisis has had a notable impact on Asian economies through several channels: through trade, through the financial system and through asset prices. Although Asia has been enjoying relatively high economic growth, it would be overly optimistic to expect a complete decoupling of Eurozone economies and Asian economies. Considering in particular the degree and persistence of the Eurozone crisis, we must be aware that the downside risk continues to weigh on the Asian economies.