Europe’s woes provoke soul-searching on African monetary union
by David Marsh
Mon 20 Dec 2010
For many years, the legacy of the colonial past and their own exemplary economic performance after the Second World War gave the Europeans cult status in money matters across Africa.
Now, with deep strains gnawing away at economic and monetary union (EMU), could all this be about to change? Quite a turnaround here. A continent that for decades has been a byword for grandiose economic mismanagement is now starting to ask whether Europe’s governance problems make it the right model to follow.
These reflections have been prompted by a week of discussions with central bankers and economists from African countries. In the wake of the great changes wrought by the demise of the Soviet Union and the transition to post-apartheid South Africa in the early 1990s, it was natural that the Africans turned to Europeans for direction – and in particular the new dynamic EMU model led by Germany and France.
All the greater recently has therefore been the consternation of African economists and technocrats at the increasing difficulties in the euro area. The path towards EMU for several states in Africa looks less straightforward than imagined.
From central bankers across the region, I was asked many questions. How can better-off states in monetary union protect themselves from contagion risk by less well-managed members? Doesn’t a fiscal union need to be brought in at the same time as monetary union? How do African politicians not at all used to sharing power intend to handle the losses of sovereignty inevitable in EMU?
There is a positive side. Developing countries now have a ringside seat to analyse the successes and shortcomings of the European monetary experiment and learn appropriate lessons.
Many building blocks for African Monetary Union -- improved fiscal performance, enhanced trade integration with neighboring countries, modernization of financial markets -- are necessary requirements for future growth. So Africa’s EMU drive can catalyse useful developments in economic policy that need to be done anyway.
African EMU needs to come only after proven economic convergence: what the Europeans used to call the ‘coronation theory.’ European tenacity needs to be combined with African patience.
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