Not so long ago, it was popular for
university students in these parts to write term papers on comparisons between
the economic integration of the European Union and the Association of Southeast
Asian Nations' economic cooperation after the formation of the Asean Free Trade
Area in 1992.
Such
interest in this European-Asean parallel has dried up following the global
financial crisis that convulsed the United States and other Western economies
in 2007-08 and the spiralling crisis of the euro, the EU's main currency.
In its
place, the hype and hoopla from classrooms and boardrooms to the highest halls
of global diplomacy are all about Asia. The focus is not just on Asia but more
specifically on the eastern swathes of this massive continent. It has become a
cliche to refer to this new fad as the "Asian century" or the
"Age of Asia" as power shifts inexorably from west to east. Some
point to China's rise and its inevitable dominance as Pax Sinica, which
ostensibly follows recent centuries dominated by Great Britain and the US in
succession.
Emerging
dynamics and contours in Asia provide limited credence to the new hype. But
Asia, particularly East Asia, has a long way to go towards regional greatness.
To make headway, it will have to avoid Europe's distant past of war and
conflict and more recent decades of a misguided union. Charting East Asia's own
course requires incrementalism and pragmatism, a bottom-up approach towards
growing connections among East Asian states, economies and peoples, not a
visionary and top-down pathway of integration. To connect rather than to
integrate is thus a vital distinction.
While
the crisis in the eurozone countries is attributable to myriad causes, runaway
public debts and sclerotic economic growth rates are the usual culprits. The
monetary union of the eurozone economies also lacks the required fiscal unity
to make the euro stick. Ultimately, monetary union in the face of fiscal profligacy
has unravelled the euro. The only country in recent history to have succeeded
with complete economic union, with seamless fiscal and monetary policies, is
the US. And the Americans have their civil war to show for it. The dollar was
achieved a century and a half ago at great costs and untold lives lost.
More
fundamentally for the Europeans, the European project has reached its limits
because its manifestations of capitalism, democracy and welfare have not added
up. Capitalism is fundamentally uneven and inequitable. Democracy aims
inclusiveness and egalitarianism. In between, welfare states in the eurozone
have played the redistributive role of spreading concentrated capitalist wealth
to promote political equality.
But
welfare policies did not take enough from the rich to give to the poor. The
state in most eurozone countries became the indebted intermediary of
redistribution, steered by power-holders who are incentivised to spend and win
elections. After so much debt accumulation, the reckoning was bound to come. It
has been ferociously unleashed by the markets against weaker economies of the
euro, particularly Portugal, Ireland, Italy, Greece and Spain. As markets can
be irrational when collective psychology sours and herd instincts kick in, the
risk of contagion in the eurozone has grown.
To be
sure, the eurozone's economic system in particular, and the EU's more broadly,
was set up to achieve the political objective of preventing war and conflict by
tying member economies together. While it achieved greater political harmony,
the expansion to include more and more members in the euro scheme loosened the
economic basis of shared prosperity. It now threatens the political pact that
has been achieved so far.
The
Greeks' opposition to economic austerity and contradictory aspiration to remain
in and benefit from the euro is a case in point. Greece wants to have its cake
and eat it, too. Something will have to give. The next election in Greece will
be a vote for or against the euro. If the Greeks demand growth without
sufficient austerity, its exit from euro will be imminent and can be saved only
by the stronger economies' willingness to subsidise Greek profligacy.
Either
way, the European project will be eroded and may not survive in its current
shape and form. The Europeans should consider a retreat to previously looser
macroeconomic policy coordination short of outright integration and a single
currency, as seen in the 1990s prior to the euro's launch. Or they could opt
for dual-tier euro application, a single currency for the stronger and more
disciplined economies and macroeconomic policy coordination for the rest.
For
East Asia, there is no schadenfreude in watching the euro wilting under market
pressures. Anaemic growth in the eurozone will present East Asia with a trade
adversity at minimum as European demand slows. And some of the knock-on effects
for East Asia's financial institutions will increasingly emerge.
But
East Asia has so far proven remarkably resilient. Not long after the false dawn
of the East Asian miracle, a World Bank study of East Asia's economic dynamism
from the early 1990s, much of the region was ravaged by a financial crisis in
the late 1990s. East Asian economies regained their footings with painful
adjustments, boosted in the 2000s by China's economic boom following its World
Trade Organisation entry, even while Japan's economic malaise continues.
Macroeconomic balances in East Asia are mostly robust, thereby providing some
shock absorbers from the eurozone crisis and global economic slowdown. The
region also trades and invests within more than ever, with China as the main
locomotive. Whereas the largest export markets for East Asia were in the West
two decades ago, these have now increasingly shifted to the East.
But
economic integration in East Asia remains a pipedream. Certainly,
intra-regional trade and investment will rise but North America and Europe will
remain significant markets. Regional institutions for integration are still inchoate.
The Asean Plus Three (APT) scheme, which arose in response to the regional
financial crisis in the late 1990s, has made some progress, as seen in the
US$240 billion in swap agreements under the Chiang Mai Initiative
Multilateralisation. However, these liquidity windows to combat speculation and
short-term shocks have not been tested.
An
APT-driven research agency, known as the APT Macroeconomic Research Office
(Amro), has been established, but it is nowhere near setting up an Asian
monetary body that could rival the International Monetary Fund. Even the Amro
directorship had to be split between China and Japan due to bilateral tensions.
And East Asia has no regional trade liberalisation vehicle of its own, only a
labyrinthine set of free-trade agreements and wider trade forums such as the
Asia-Pacific Economic Cooperation. Nevertheless intra-East Asian trade and
investment patterns and growing micro- and sectoral-level linkages, such as
supply chains and logistics, portend promise of deepening regional cooperation.
If the
economics of East Asia holds much promise, its politics is cause for alarm.
East Asian states suffer territorial and maritime tensions from the Korean
Peninsula and South China Sea to the Mekong subregion and the Thai-Cambodian border.
East Asia also faces the political modernisation challenge, whereby growing
incomes will lead to growing demands for political rights and freedoms. China
has bucked this trend by remaining authoritarian with high growth, while
Myanmar is an exception of low development with demands for democracy. But
others from Thailand, Malaysia, Indonesia, the Philippines to South Korea and
Taiwan from earlier generations have all succumbed to the correlation between
development and democracy to varying degrees. Democratisation will be East
Asia's daunting challenge as it grows.
While
Europe got its politics basically right after World War II, it now faces
problematic economic integration in achieving its political aims. For East
Asia, its economies look good but its politics within and between its states
appears more worrisome. This is why East Asian leaders keep harping on the
theme of connectivity rather than integration.
To be
integrated is to be fully connected. To be connected does not require complete
integration. Connectivity for East Asia, a theme and objective that underpins
Asean as it moves towards its own kind of community in less than three years,
is necessarily organic and makeshift. No one knows how it will end up. The dire
lessons from Europe should make East Asian states reach for more on political
cooperation and its sociocultural linkages while keeping dynamic regional
economic partnerships away from euro-style integration.
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