Eu­ro­zone cri­sis im­pact on Asian economies

The Pak Banker - - Front Page -

TOKYO

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.

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