In the wake of Eurozone crisis, is a common currency still viable for EA?
Posted Sunday, October 30 2011 at 18:27
To the East African Community, the European Union has been like an elder sibling: The perfect role model to its regional integration campaign and the embodiment of what it hopes to achieve.
Last year, the EAC Council of Ministers turned to the European Central Bank to conduct a study on the establishment of a Monetary Union which involved designing a draft protocol.
Lately though, the EU is turning out to be a source of sobering lessons on the risks that could be visited upon the EAC member states by forming a monetary union.
The Eurozone is currently grappling with a debt crisis in some of its member countries that has sucked in the entire 27 member bloc.
As the crisis rages on, opinion is split over whether the EAC, which has set 2012 as the target for establishing a monetary union, and other African regional economic communities such as the Southern African Development Community interested in going down that road, should go ahead with their plans.
Prof Gilbert Khadiagala, head of the department of International Relations at the University of the Witwatersrand in Johannesburg, says that the EU’s woes should force a reconsideration of East Africa’s ‘politically-driven fast-track integration’ which has not been thought through.
“Politicians talk about common currency and monetary union without thinking clearly about how this will be achieved, so I think the EU crisis is a wake-up call to the bureaucrats and politicians who dream of fast-tracking,” Prof Khadiagala said.
He argues that regional integration at the moment, should focus more on trade expansion and infrastructure co-ordination rather than ‘the more dangerous phase of monetary and currency coordination’.
According to him, the existing arrangements for co-ordination of currencies by central banks to facilitate regional trade are enough. A common currency would make countries answerable to a central authority, usually the head of the regional central bank, who would be the custodian of monetary policy.
However, Prof Calestous Juma, an expert in international development at Harvard University in the US contends that it would be illogical to argue that a common currency would not work for East Africa simply because Europe is experiencing difficulties with its integration efforts.
“This is not to argue that East Africa will not have its own challenges.
In fact, the introduction of the Customs Union has initial teething problems many of which have been ironed out,” Prof Juma adds.
He insists that a common currency is workable in the EAC, since it would not be an entirely new concept.
“The region had a common currency before and so there is a historical basis for monetary integration provided it is accompanied by fiscal integration,” he says.
This is in reference to the original EAC, which was established in 1967 but was disbanded a decade later.
It is in that same period soon after independence that Prof Khadiagala sees circumstances that are somewhat similar to what is unfolding in the present.