National and Regional Solutions to Global Challenges Problems of Monetary Policies and Regional Monetary Cooperation in East Asia and the European Union

Abstract

This paper presents some thoughts on what we can learn from investigating European and East Asian monetary policies and monetary cooperation in historical comparative perspective. This fresh approach to the ongoing global and regional crises highlights the necessity to view problems of national and regional monetary policies in East Asia and Europe in the global context of the post Bretton Woods era and the problems of monetary policies amid economic and financial globalization. More concretely, the paper highlights the following aspects.1. The national strategies followed by developmental states in East Asia as well as intensified regional cooperation in monetary policies in the EU since the 1970s and the introduction of the euro in 1999 were initially both very successful solutions. The European integration process and the economic rise of the East Asian region are considered two of the most impressive success stories in recent history. Both successful solutions, however, have encountered problems since the 1997/98 Asian Financial Crisis and the ongoing euro crisis since 2010. 2. Since 1997, East Asian countries tried to supplement national monetary policies with regional cooperation in form of the Chiang Mai Initiative (CMI). The CMI, however, has proven to be not successful and is unlikely to lead to further regional cooperation and integration in the region. In effect, East Asian countries remain dependent on national self-help solutions.3. Since the beginning of the global financial crisis in 2008, serious deficiencies of the European Economic and Monetary Union (EMU) have become apparent. The notion that the introduction of the euro and fiscal discipline alone would lead to economic convergence proved to be an illusion as economic imbalances in the region widened and weakly regulated financial markets led to huge asset bubbles.4. Europe and the East Asian region are at critical junctures of their development as both their national and regional solutions face challenges. National solutions become increasingly expensive with a tendency to exacerbate global economic imbalances and create regional conflicts. The EU faces the choice between a crisis solution strategy that focuses on austerity and structural adjustment in deficit countries and one that wants to regionalize the costs of the crisis and create a de facto European federal state.