European and Asian monetary cooperation and integration from the perspective of comparative regional political

economy (CRPE)

Thomas KalinowskiEwha Womans University

Contents

1. Global changes diverging regional solutions: Collapse of the Bretton Woods System

2. A comparative regional political economic interpretation

3. Similarities of non-liberal capitalisms in Europe and East Asia

4. Differences in economic structure between EU and East Asia

5. The PE of monetary policies and cooperation in Europe and East Asia

1. Global changes diverging solutions: Collapse of the Bretton Woods System

• Collapse of Bretton Woods System 1971– End of gold guarantee and fixed exchange rates– Acceleration of financial globalization

• Diverging regional solutions:– Market orientation in UK,US– Deepening of regional integration in Europe– Emergence of national developmental states in

East Asia

Trilemma of economic policies‘Bretton Woods Corner’

Goal: stable exchange rates

‘Developmental State Corner’

Goal: sovereign monetary & industrial policies

‘Neoliberal Corner’

Goal: open capital accounts

GB, USA

EC/EU

East AsiaBretton Woods System -1971

Financialized capitalism- Free floating- Capital account lib.- Expansive macroeconomic policies

Euro Capitalism- EMSEMU- Four freedoms- ECB- No bail out clause

- Gold-dollar standard- Embedded liberalism- Keynesian macroeconomic policies- IMF

East Asian Capitalism- Unilateral pegs- Slow market opening- Economic planning- CMI

‘Keynesian Corner’

Goal: sovereign monetary and fiscal policies

What can explain the divergence between Europe and East Asia?

• Why did Europe find regional solutions while East Asia had to resort to national self help?

• Dissatisfaction with “realists”• Dissatisfaction with constructivists• Dissatisfaction with economists (Optimal

Currency Area Theory)• Go beyond realism and functionalism

2. A comparative regional political economic interpretation

• CPE (diversity of capitalism/regulation school):– Institutional change, interest struggle, structure– No convergence amid globalization– Problem: Too much focused on national political economies

• Regional integration studies:– Multi-level institutional framework– Regional convergence (in global divergence)– Problem: Too much focused on institutional change

• CRPE:– Highlight interaction between national and regional level– Focus on interest group rivalry and structural drivers of institutional

change– Limits: National and local differences

3. Similarities of non-liberal capitalisms in Europe and East Asia

• Maintaining strong manufacturing base• Relatively low level of financialization• Export orientation• Increasing intraregional trade Interest in:– Stable exchange rates– Mitigate problems of financial instability– Prevent upward pressure on currencies– Stable environment for international creditors

• Why the divergence?

4. Differences in economic structure between EU and East Asia

EU: Towards Euro Capitalism East Asia: Competition of national capitalisms

High level of intraregional trade within single market

Medium level of intraregional trade in semi-protected markets

Low level of export dependency of EU High level of dependencies on markets outside the region

“Diversified quality production” (Streeck) Assembly of standardized consumer goods

Convergence of economic development Divergence of economic development

Regional value added chains through horizontal FDI

Hierarchical division of labor dominated by MNCs (vertical FDI and outsourcing)

High level of intraregional investment and labor migration

Medium level of intraregional investment and low level of labor migration

5. The PE of monetary policies and cooperation in Europe and East Asia

EU: Towards Euro Capitalism East Asia: Competition of national capitalisms

Stability oriented “Coordinated market economies” (Hall/Soskice)

Developmental states’ industrial policies facilitate rapid catch up development

Strong labor unions and corporatism undermine national monetary sovereignty

Weak labor unions and “corporatism without labor” (Pempel)

Welfare states provide economic and social automatic stabilizers

Corporate welfare system leads to division of labor force

Experience of EMS instability Experience of Asian financial crisis

Path dependency of multilevel institutions Path dependency of developmental states

Evolving transnational interest groups National organization of interests

Conclusions

• There is a regional convergence in the global divergence of monetary policies

• Regional solutions in EU versus national solutions in East Asia

• CMI is not (yet) regional integration, but a regional supplement of national strategies

• The divergence can be explained by distinct economic structure and political economy

• The combination of CPE and regional integration studies helps to understand driving forces of monetary policy policies and cooperation in Europe and East Asia.

Annex 1: Exports as Percentage of GDP

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

5

10

15

20

25

30

35

40

45

50

China, P.R.: MainlandEuro AreaGermanyJapanKorea, Republic ofUnited States

Annex 2: Current Accounts as a Percentage of GDP

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-10

-5

0

5

10

15

China, P.R.: Mainland Euro Area Germany Japan Korea, Republic of United States

Annex 3: Intraregional trade (% of total trade)

MERCOSUR ASEAN ASEAN+3 NAFTA EU270

10

20

30

40

50

60

70

World Trade

Maastricht Convergence Criteria

What is measured: Price stability Sound public

financesSustainable public finances

Durability of convergence

Exchange rate stability

How it is measured:

Consumer price inflation rate

Government deficit as % of GDP

Government debt as % of GDP

Long-term interest rate

Deviation from a central rate

Convergence criteria:

Not more than 1.5 percentage points above the rate of the three best performing Member States

Reference value: not more than 3%

Reference value: not more than 60%

Not more than 2 percentage points above the rate of the three best performing Member States in terms of price stability

Participation in ERM II for at least 2 years without severe tensions

Long term interest rates of euro zone countries (%)

2011Oct2010Jun2009Feb2007Oct2006Jun2005Feb2003Oct2002Jun2001Feb1999Oct1998Jun1997Feb1995Oct1994Jun1993Feb0

5

10

15

20

25

30

BelgiumGermanyFranceGreece (GR)IrelandItalyPortugal

Average yearly inflation in Eurozone countries, 1999-2007

Government spending as percent of GDP

Icelan

dFra

nce

Denmark

Swed

en

Belgium

Finlan

d

Greece Ita

ly

Hungary

Austria

United Kingd

om

Euro

area

Netherl

ands

Israe

l

Slove

nia

German

y

Portuga

l

Poland

Czech Rep

ublic

Irelan

d

New Ze

aland

Spain

Norway

Canad

a

United St

ates

Japan

Luxe

mbourg

Australi

a

Slova

k Rep

ublic

Switz

erlan

dKorea

Mexico

0

10

20

30

40

50

60

70

Social Expenditure as percent of GDP

France

Swed

en

Austria

Belgium

Denmark

German

yIta

ly

Finlan

d

Hungary

Portuga

lSp

ain

Greece

Norway

Luxe

mbourg

United Kingd

om

Slove

nia

Netherl

ands

Poland

OECD - T

otal

Czech Rep

ublicJap

an

Switz

erlan

d

New Ze

aland

Canad

a

Irelan

d

United St

ates

Australi

a

Slova

k Rep

ublicIsr

ael

Icelan

d

Estonia

Chile

Turke

yKorea

Mexico

0

5

10

15

20

25

30