Clash of cultures
Why Europe is no longer a role model for Asia
by David Marsh
Wed 8 Jul 2015
Europe’s disarray over the euro exposes a clash of cultures between Europe and Asia. Since the Asian financial crisis in 1997-98, Asia has been far more successful in putting its house in order than Europe in weathering its own crisis since 2010.
In general, Asians have shown disappointment and incomprehension at the Europeans’ incapacity to prevent the euro system descending into a tangle of muddle and fiasco – and at Europe’s lack of strategic thinking in losing control of a project originally designed to secure its own destiny.
In 1999 the euro appeared for many Asian central banks – especially for the Chinese and Japanese, the world’s No.2 and 3 economies, with the largest currency reserves – as an instrument of economic salvation, an alternative to the monopoly power of the dollar. But reality has lagged sadly behind ambition.
Asia’s previous tendency to look to Europe for a lead in enhancing economic and political integration has been replaced by disillusionment and a dull feeling that Europe is no longer in pole position.
The big reserve-holding countries invested initially in the euro with eagerness and alacrity, believing that, before long, some form of European state entity would arise to add essential backing to the new currency. When, 16 years later, the Asians look at the map of Europe, they still see a maze of provinces and principalities of indeterminate loyalties, inconsequential leadership and uneven performance. There is no European state; what stands behind the euro remains obscure and incomplete.
For Asia, Europe’s misfortunes have provided a salutary reality check. The Asians, at home in an amorphous continent of swirling diversity, considerably more heterogeneous than Europe, have never developed concrete plans for an Asian currency, but they saw Europe as a template for possible action. After the European debacle, Europe has slid down the league table of role models. Prospects for any kind of Asian currency look even more distinct. Gradualism is the key to integration. This is the soundest approach.
Asia is making efforts to increase trade integration, harmonise financial markets and improve regional monetary co-operation, partly to build up financial safety nets as an alternative to the IMF. This is step by step, not a Big Bang.
Asian governments know that the key to any kind of monetary experiment is achieving consensus in politics, which – in view of myriad disputes and rivalries – is a long way from being established. Europe has shown the danger of putting the political cart before the economic horse.
As the centre of gravity of world money and finance shifts slowly eastwards, Asian monetary authorities have no wish to bank fully on the dollar or the euro. The future lies in internationalising Asian currencies – including the yen and the renminbi – in trade and investment and enhancing regional co-operation to lower dependence on the west.
The contours are emerging of a more integrated Asian economic and financial area. Asia and the world need to act to improve the governance structures of international financial institutions. The managing directorship of the IMF should pass next year either to an emerging market economy or to a country in Asia (or both). The important point is to find a process that will lead to the right candidates coming forward in time – and then to enact a selection procedure producing a result that commands the support of the governments that count.
David Marsh is OMFIF Managing Director. This is an extract from a dinner speech at Bangko Sentral ng Pilipinas in Manila during the Second OMFIF Main Meeting in Asia on 6 July.
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