GCC can learn from euro crisis

After 10 years of negotiation and the accession of 16 other European countries to the 27 members of the European Union (EU), the euro has become a first-class currency that is able to compete with the US dollar in financial markets and the International Monetary Fund.

The euro is considered a unique attempt, and its continuity will require a lot of effort and complex commitments. However, it is a useful attempt that serves the interests of EU members. This attempt proved its resilience to many members of the Economic and Monetary Union of the EU (EMU), and has saved many of its member states' economies from facing financial collapse.

Severe blow

Some have pointed out that the euro has suffered a severe blow due to the global financial crisis and its aftermath, such as Greece's financial crisis. However, Greece's financial crisis and the subsequent sharp decline of the euro exchange rate is seen by some as evidence of the European currency's power, considering that EU members and the European Central Bank were not aware of some important fundamentals and issues during the currency's launch in 2002.

It is true that common standards were adopted before the euro launch, such as the percentage of the Gross Domestic Product (GDP) deficit and the public debt-to-GDP-ratio of each country. However, measures to monitor and implement these standards have not been taken, leading to non-compliance from countries like Italy, Germany and France. These developments have brought to light the need for a common European economic policy, which will provide strong support for the stability of the financial and monetary conditions in the euro area.

The truth is, if Greece and other countries abided by the common standards set for the euro, they would have been able to avoid a financial crisis. These countries suffered a debt that exceeded their GDP by 100 per cent when the Maastricht criteria only allowed for 60 per cent.

This is one of the lessons that the EU countries seek to learn and benefit from in order to strengthen their currency, not to abandon it, as some have wrongly assumed. They also intend to fix their deficits, and at the forefront of such an approach is introducing common economic, financial and monetary policies which should encompass all 27 EU members, as suggested by Germany, and not just EMU members, as suggested by France.

If the EU undergoes a comprehensive assessment to fix its deficits and disadvantages to bolster its single currency and opens up new horizons, then this currency has become a reality and an essential component of the EU because it represents the common interests of its members. It has also provided powerful support to the economies of member states.

Surely such developments will temporarily reflect back on the euro exchange rates, but what doesn't kill you only makes you stronger, and that is exactly what will happen with the euro. The severity of the experience also carries with it some benefits and lessons to be learned. Not just for the euro countries, but also other blocs around the world, and especially the GCC bloc.

In this regard, it seems like the GCC bloc will not face the same challenges that faced the EU in creating a common currency. The GCC countries do not suffer from a rising deficit rate in their annual GDP. On the contrary, they have achieved a cash surplus for many years, and their debt never exceeds 60 per cent of their GDP.

Despite that, other significant issues that stand in the way of the GCC's single currency plan must be given some consideration, such as creating a common economic, financial, currency and investment policy, and in the future, a tax policy. However, disagreements on the policies may complicate a common currency plan.

Europe is a global leader in the field of economic legislation and regulations, and once again it provides a summary of its successful attempt from which other countries can learn from.

Dr Mohammad Al Asoomi is a UAE economic expert