Five lessons for East Asia from euro crisis
Mechanisms need to be in place for crisis prevention and resolution before the next economic crash, and therefore the East Asian regional financial architecture needs to be reformed, warns Ulrich Volz, senior economist at the German Development Institute.
Giving a public lecture at Chulalongkorn University on lessons from the current European crisis for regional monetary and financial integration in East Asia, Volz yesterday said there were five lessons to be drawn. These are: don’t rush with monetary integration, rethink costs and benefits of international financial integration, bolster crisis prevention and resolution mechanisms before crises hit, strengthen surveillance and monitoring of regional financial markets, and recapitalise banks swiftly after any crisis.
He explained that he did not mean that financial integration was bad per se.
“There is still a strong case for monetary and exchange-rate cooperation in East Asia, but over-ambitious monetary and exchange-rate integration schemes will backfire,” he said, referring to the threat of the collapse of the euro.
He said East Asian countries were not ready for a regional exchange-rate system, let alone monetary union.
A high level of political agreement and commitment is needed among countries to pursue successful monetary integration, as well as close macroeconomic and fiscal coordination, he said.
The current crisis highlights the dangers that advanced monetary integration brings in the face of economic and political divergences, he noted.
Volz said the European crisis highlighted once again that international financial integration will not automatically lead to efficient allocation of capital and that it contributes to the development of…
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