A Brief History Of The Future Jacques Attali Pdf Downloadl
Donnell Simon
This chapter examines the extent to which regional attempts at monetary and trade cooperation or coordination have affected the behavior of the global economy and the functioning of surveillance. Often regional monetary arrangements were an attempt to preserve a greater element of rules in a world that had moved after 1973 away from rules, and was managing itself in a more informal way through persuasion.
Elsewhere many attempts to form regional trading associations had generally encountered little success. The Latin American Free Trade Association (LAFTA) concluded in 1960 aimed at establishing a free trade area within 12 years, but failed because of resistance to abandoning the tariffs required for the import substitution strategies that were popular at that time with its member states. The Central American Common Market of 1960 also failed in economic terms, and developed instead into an institution for regional political cooperation. The goals of the largest African agreement, the Economic Community of West African States (Ecowas), launched in 1975, involved eliminating internal trade barriers by 1989; but they were not met.
Regional trade links worked best in a very clearly defined geographic area (as with successive Australia-New Zealand pacts, or with the increased integration of Argentina, Brazil, Paraguay, and Uruguay in 1995 as Mercosur), and where they were concluded by countries with a basic commitment to a free trading regime (as with the Canada-U.S. Free Trade Agreement of 1989 and its extension to Mexico as the North American Free Trade Agreement).
Even such a brief survey of the patchy history of regional integration shows the extent of the unrealized hopes, and of the problems involved in this type of attempt to deal with issues of cross-national cooperation. Five hard questions inevitably arise in the discussion of regionalism and its economic prospects:
(1) The Map. Any successful regionalism quite literally comes up against boundaries. Once regional models are successful and attract would-be new members, the question of their frontiers inevitably creates controversy. What are the limits of Europe or of the Asia-Pacific region? Is it legitimate for Morocco to apply for membership of the EC on the grounds that the Mediterranean is a European lake, or for the United States to feel itself part of Asia because it has a long Pacific coast? Why not a global model Europe, or a global model Asia?
Regional monetary arrangements may often be of great assistance in creating a stable framework of expectations. They may also, however, too easily be pushed by the political expectations of participants to defy market logic for a considerable period of time; in consequence, they may lead to distortions, the adoption of policies that are less than optimal, and economic losses. The existence of the region creates more temptations for the exercise of power politics than does the broader context of the global economy. This is why in the past some powerful states have been tempted by regionalism.
(4) The Restrictions. Regional monetary agreements, whether involving the establishment of a fixed but adjustable parity structure or the creation of full monetary union, require tighter rules than those that govern the international monetary system. This difference in the degree of constraint between globalism and regionalism is of course much more evident in the much looser and less rule-based international system that has prevailed since 1973. The relatively limited flexibility of regional systems may make it rather hard to respond to external or internal shocks. It also poses peculiarly difficult conditions on the operation of global or multilateral surveillance for the member countries of such regional agreements.
(5) The Excluded. Trade integration has a trade-diverting as well as a trade-enhancing effect. The external tariff of the EC has been high, and has historically acted as a barrier to the entry of goods from neighbors, and from developing economies. Especially when other economies face problems in development, such obstacles may be a major threat to stability. In this sense, regionalism can never simply be an issue that only affects those participants in successful experiments in regional integration; it also changes the economic possibilities and chances for those outside the regional blocs.
The arguments about regionalism are still alive. The dramatic change of the global political environment at the end of the 1980s encouraged thinking about a new world order, in which new forces might emerge to fill the vacuum left by the collapse of one of the superpowers. A unipolar world almost inevitably provoked the search for some alternative model. In Europe, the end of the Cold War, and the obsolescence of security-oriented thought, led to the conclusion that economics would determine power much more straightforwardly in the new global order than it had in a world under the sway of the superpowers. The same calculation had enormous and obvious appeal to that region of the world, Asia, whose growth was fastest. (See, for instance, Figure 14-2.)
The development of regional institutions in Asia was much slower than in Europe. Part of the secret of European success lay in the delicate economic and political balance achieved between the interests of the two states at the heart of the historical origins of the EC, and in the initial high priority given to fundamentally political objectives (creating peace between France and Germany after a struggle lasting three quarters of a century). Economic and political integration appeared acceptable and unthreatening to smaller states because it rested on a fundamental bilateral rapprochement of two core states, France and Germany. These states, of roughly equal demographic she (until the 1990 unification of Germany), balanced each other, and the resulting relationship prevented the dominance of any single state in the new regional order. It is impossible to find in Asia two states that would play the bilateral role of France and Germany in the European setting. Japan and China are too different in size, in economic structure, and in their history for a Japanese-Chinese axis ever to possess that stability that turned the Franco-German alliance into the effective political anchor of a regional grouping.
What is the connection between successful institutional development of regional policy-coordinating mechanisms and the capacity to serve as an example to other economies? What role do monetary mechanisms play in providing stability? Europe in the course of the 1980s developed an effective integration, which would make it more difficult for other countries to join. East Asia, where such initiatives were much less successful, became a much more appealing model to a much wider range of developing countries than Europe could hope to represent. It is also a more successful illustration of the domestic policy benefits to be achieved as a consequence of effective multilateral surveillance. In Europe regional institutions were too well developed for that surveillance to be as effective, and the economic performance both at too high a level and insufficiently dynamic to really serve as a useful pattern for countries contemplating the path of economic development.
European regional integration in the 1980s came to depend on two economic pillars. The first was the mechanism evolved at the end of the 1970s to deal with international exchange rate instability and strengthened in the first half of the 1980s in response to U.S. indifference to the international value of the dollar. The second lay in the promise of further political integration with corresponding repercussions for fiscal and monetary policy. For much of the 1980s, Europe appeared to have produced a stable and successful solution to the classic problem of the coordination of policy across frontiers.
The liberalization of short-term capital movements, which formed a part of the move to closer integration, prompted large capital inflows into those EMS members with higher interest rates and inflation levels, and made more difficult the control of inflation. Italy in January 1988 lifted controls on trade-related short-term capital movements, and in October ended most restrictions on capital movement by residents. By May 1990, the liberalization was complete. Capital inflows into Italy, which had already risen in 1988, surged in 1990 (see Table 14-1). In January 1990, France lifted the ban on French citizens holding deposits denominated in foreign currency and removed restrictions on lending by nonresidents. Spain in June 1989 joined the EMS in the wider band arrangements originally (in 1979) agreed for Italy. Attempts to control the growth of domestic demand through monetary and fiscal measures only accelerated the inflow of funds. Both the average money market rate and consumer price inflation rates rose in 1989 and 1990.
The mechanism of the EMS was strengthened through an agreement (known as the Basle-Nyborg Agreement, September 1987) allowing for the support of intramarginal intervention through Very Short-Term Financing (VSTF), and lengthening the time limit of the VSTF use from one to three and a half months. It represented a recognition that intervention was more efficient if undertaken before a currency reached its EMS floor or ceiling and that greater uncertainty about the timing of intervention would serve as a deterrent to speculative flows. The Basle-Nyborg Agreement also provided for intensified surveillance on the basis of indicators and projections by the Monetary Committee and the EC Committee of Central Bank Governors, and recommended less frequent and smaller realignments. In this sense it formed a part of the movement of the late 1980s for greater integration, and a modest accompaniment to the more ambitious schemes for monetary union. But like other negotiations concerned with integration, it contained fundamental ambiguities. The German Bundesbank, for instance, interpreted the agreement as a reaffirmation of its right to call for currency realignments, rather than as a fixing or hardening of the system.
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