The Euro After 10 Years: Achievements, Challenges, and Implications for Asia

One year following his previous visit, Klaus Regling returned to ADBI in Tokyo on 15 June, this time as EU-Fellow at the Lee Kuan Yew School of Public Policy in Singapore, to deliver a lecture on "The Euro after 10 years: Achievements, Challenges and Implications for Asia."

According to Regling, the creation of the euro on 1 January 1999 was a defining moment in European history. While the euro area has a smaller economy than the United States (US), the GDP of the European Union (EU) exceeds that of the US, and both the euro area and the EU have much bigger trade than any other country, even when intra-EU trade is excluded.

Ten years ago, the euro became the currency of 300 million people in eleven countries. Five additional countries have since successfully adopted the euro, while Denmark and the UK have "opt-outs". Nine EU member states do not yet fulfill the criteria for joining the euro.

The euro system was created with a centralized monetary policy, and decentralized fiscal and structural policies coordinated at the EU level. The objective of the euro was to create stability, complete the Single Market, avoid intra-European exchange rate turmoil, stimulate economic integration, and ultimately to generate growth and employment.

Regling believes that the first decade of the euro was a big success, surprising the skeptics. Fiscal positions improved dramatically, and financial markets have become more integrated. Price stability and low interest rates were achieved, 16 million jobs were created, and annual GDP growth per capita over the period was 1.5%, the same rate as the US. The good performance was underpinned by the "great moderation". The euro also became a major global currency, including for invoicing, debt securities, and exchange reserves.

But expectations that the euro would solve all of Europe's problems were obviously unrealistic. Problems which have been building up for some time—like current account imbalances, divergences in competitiveness, and differences in budgetary situations—became more visible in light of the global economic crisis. This has led some to speculate that the euro might breakup. Regling believes that there will be no breakup. Countries with adjustment problems would be worse off outside the euro area than inside. Indeed, more countries now want to join the euro area.

What are the lessons for Asia of the euro experience? There are big differences between Asia and Europe in terms of economic situation, geography, culture, religion, and political systems. However, the objectives of regional integration are the same, namely peace, growth and jobs, crisis management, and shaping globalization. Regling encouraged Asia to continue with its step-by-step process of regional integration, because the benefits can be huge. But deeper regional integration requires political will and independent institutions.