Africa wants to be Europe without the Euro

The Wall Street Journal today features a useful article examining the process towards - and motivations behind - regionalism in Africa:

For decades, African technocrats have admired Europe's common market, where open borders and the right to work in any member country are seen as the kind of steps that would boost trade in Africa as well. Those steps are also seen as lowering barriers that now deter investors, allowing smaller African states to thrive alongside larger neighbors.

Archie Machaka, who runs a trucking company based in Zimbabwe, says that what should be a 10-day trip to drive a truckload of copper from a mine in the Democratic Republic of the Congo to a container depot outside Johannesburg in South Africa sometimes takes six weeks. His drivers must wait for exit documents in the Congo that can take a month to process. Then a new customs policy in Zambia, designed to check those papers more thoroughly, can leave his trucks idling for three or four days.

The new border regime "was supposed to improve efficiency, but it's not really coming through," Mr. Machaka said.

Faced with such problems, African countries are seeking more ways to work together.

Since 2000, the Southern African Development Community, encompassing 15 countries from the Congo to South Africa, has been lowering import and export tariffs between members. It plans eventually to eliminate them altogether.

South Africa is particularly keen to boost regional trade as an antidote to sluggish demand from Europe, the country's largest trading partner.

Last month, South Africa's finance minister, Pravin Gordhan, said his country wanted to join with its neighbors to fund large-scale infrastructure projects—such as highways running north into the heart of the continent—and a regional power grid that could attract investment from private South African energy companies. South Africa's National Planning Commission earlier this month recommended synchronizing agricultural policies among southern African countries to share crop surpluses. It also encouraged simple manufacturing in South Africa's lower-wage neighbors to create regional supply chains.

The continent's most advanced regional trade bloc, the East African Community, already guarantees the right to work across Kenya, Uganda, Rwanda, Burundi and Tanzania. Those governments also coordinate some fiscal policies, for instance by releasing their federal budgets on the same day. National parliaments are working on legislation that would further synchronize immigration and tariff laws.

Closer ties are paying off for east Africa's biggest economy: Kenya. In 2010, the bloc surpassed the EU as the top destination for Kenyan exports.

"We want to develop this corridor vigorously and collectively," said Mugo Kibati, director of a government program to overhaul Kenya's economy by 2030 and former chief executive of East African Cables, a telecommunications and power-transmission company.

But Africa is backing away from one prominent aspect of Europe's economic union: a common currency.

An African currency was once seen as an ultimate goal of continental integration. By 2018, leaders in southern Africa had aimed to have a common currency in circulation from South Africa's Cape Town to Kinshasa in the Congo. Not anymore.

"I don't think anyone thinks this is realizable or in fact appropriate," Gill Marcus, governor of South Africa's reserve bank, said last week.

She and other officials have noted repeatedly that the euro zone couldn't reconcile feeble economies like Greece with powerhouses such as Germany. That relationship is akin to South Africa and neighboring Zimbabwe, where three years ago inflation hit an annual rate above 200 million percent. Zimbabwe has abandoned its own currency in favor of the U.S. dollar, halting an economic tailspin.

Even in west Africa, where 14 countries have used a common currency tied to the French franc and the euro since the end of World War II, officials have soured on a broader, independent monetary union. It would need to balance the likes of Nigeria, a significant oil exporter, with tiny Togo, an agrarian country with anemic growth rates.

Such vast discrepancies also mean forming an integrated market would be more difficult in west Africa. In addition to Nigeria's economic muscle and vast population, it's an English-speaking country in a generally Francophone region. A violent five-month power struggle in Ivory Coast earlier this year highlighted the risks countries in the region face in tying their fiscal well-being to one another.

Gains are being made nonetheless. A widening network of transborder highways has slashed the time it takes to transport goods across a region once infamous for its number of road blocks per mile.

The future of the EU: Two-speed Europe, or two Europes?

Charlemagne's Notebook in today's Economist newspaper explores the rumours of a united - yet divided - Europe:

Nicolas Sarkozy is causing a big stir after calling on November 8th for a two-speed Europe: a “federal” core of the 17 members of the euro zone, with a looser “confederal” outer band of the ten non-euro members. He made the comments during a debate with students at the University of Strasbourg. The key passage is below (video here, starting near the 63-minute mark):

You cannot make a single currency without economic convergence and economic integration. It's impossible. But on the contrary, one cannot plead for federalism and at the same time for the enlargement of Europe. It's impossible. There's a contradiction. We are 27. We will obviously have to open up to the Balkans. We will be 32, 33 or 34. I imagine that nobody thinks that federalism—total integration—is possible at 33, 34, 35 countries.

So what one we do? To begin with, frankly, the single currency is a wonderful idea, but it was strange to create it without asking oneself the question of its governance, and without asking oneself about economic convergence. Honestly, it's nice to have a vision, but there are details that are missing: we made a currency, but we kept fiscal systems and economic systems that not only were not converging, but were diverging. And not only did we make a single currency without convergence, but we tried to undo the rules of the pact. It cannot work.

There will not be a single currency without greater economic integration and convergence. That is certain. And that is where we are going. Must one have the same rules for the 27? No. Absolutely not [...] In the end, clearly, there will be two European gears: one gear towards more integration in the euro zone and a gear that is more confederal in the European Union.

At first blush this is statement of the blindingly obvious. The euro zone must integrate to save itself; even the British say so. And among the ten non-euro states of the EU there are countries such as Britain and Denmark that have no intention of joining the single currency.

The European Union is, in a sense, made up not of two but of multiple speeds. Think only of the 25 members of the Schengen passport-free travel zone (excluding Britain but including some non-EU members), or of the 25 states seeking to create a common patent (including Britain, but excluding Italy and Spain).

But Mr Sarkozy’s comments are more worrying because, one suspects, he wants to create an exclusivist, protectionist euro zone that seeks to detach itself from the rest of the European Union. Elsewhere in the debate in Strasbourg, for instance, Mr Sarkozy seems to suggest that Europe’s troubles—debt and high unemployment—are all the fault of social, environmental and monetary “dumping” by developing countries that pursue “aggressive” trade policies.

For another insight into Mr Sarkozy’s thinking about Europe, one should listen to an interview he gave a few days earlier, at the end of the marathon-summitry in Brussels at the end of October (video here, starting at about 54:30):

I don't think there is enough economic integration in the euro zone, the 17, and too much integration in the European Union at 27.

In other words, France, or Mr Sarkozy at any rate, does not appear to have got over its resentment of the EU’s enlargement. At 27 nations-strong, the European Union is too big for France to lord it over the rest and is too liberal in economic terms for France’s protectionist leanings. Hence Mr Sarkozy’s yearning for a smaller, cosier, “federalist” euro zone.

This chimes with the idea of a Kerneuropa ("core Europe") promoted in 1994 by Karl Lamers and Wolfgang Schäuble, who happens to be Germany's current finance minister. Intriguingly, it is the first time that Mr Sarkozy, once something of a sceptic of European integration, has spoken publicly about “federalism”, although he had made a similar comment in private to European leaders in March (see my column). It echoes the views of Mr Sarkozy's Socialist predecessor, François Mitterrand.

Such ideas appeared to have been killed off by the large eastward enlargement of the EU in 2004, and by the French voters’ rejection of the EU's new constitution in 2005. But the euro zone’s debt crisis is reviving these old dreams.

But what sort of federalism? Mr Sarkozy probably wants to create a euro zone in France’s image, with power (and much discretion) concentrated in the hands of leaders, where the “Merkozy” duo (Angela Merkel and Nicolas Sarkozy) will dominate. Germany will no doubt want a replica of its own federal system, with strong rules and powerful independent institutions to constrain politicians. Le Monde carries a series of articles (in French) on what a two-speed Europe may mean.

If the euro zone survives the crisis—and the meltdown of Italy’s bonds in the markets suggests that is becoming ever more difficult—it will plainly require deep reform of the EU’s treaties. Done properly, by keeping the euro open to countries that want to join (like Poland) and deepening the single market for those that do not (like Britain), the creation of a more flexible EU of variable geometry could ease many of the existing tensions. Further enlargement need no longer be so neuralgic; further integration need no longer be imposed on those who do not want it.

But done wrongly, as one fears Mr Sarkozy would have it, this will be a recipe for breaking up Europe. Not two-speed Europe but two separate Europes.
The first steps toward integration, the idea of holding regular summits of leaders of the 17 euro-zone countries, has already caused early friction with Britain (see my earlier post here). This week there were further cracks when, during a meeting of the euro zone’s finance ministers in Brussels, their colleagues from the ten non-euro states held their own separate dinner in a hotel nearby.

All this is alarming the European Commission, the EU’s civil service and the guardian of its treaties. Speaking in Berlin on November 9th, its president, José Manuel Barroso, delivered what amounted to a direct rebuke to Mr Sarkozy.

The Commission welcomes, and urges—in fact we have been asking for a long time—a deeper integration of policies and governance within the euro area. Such integration and convergence is the only way to enhance discipline and stability and to secure the future sustainability of the euro. In other words, we have to finish the unfinished business of Maastricht—to complete the monetary union with a truly economic union.

But stability and discipline must also go together with growth. And the single market is our greatest asset to foster growth.

Let me be clear—a split union will not work. This is true for a union with different parts engaged in contradictory objectives; a union with an integrated core but a disengaged periphery; a union dominated by an unhealthy balance of power or indeed any kind of directorium. All these are unsustainable and will not work in the long term because they will put in question a fundamental, I would say a sacred, principle—the principle of justice, the principle of the respect of equality, the principle of the respect of the rule of law. And we are a union based on the respect of the rule of law and not on any power or forces.

It would be absurd if the very core of our project—and economic and monetary union as embodied in the euro area is the core of our project—so I say it would be absurd if this core were treated as a kind of "opt out" from the European Union as a whole.

Mr Sarkozy’s words seem to have caught the attention of Joschka Fischer, elder statesman of Germany's Green party and a former foreign minister, who said that the EU at 27 had become too unwieldy. “Let’s just forget about the EU with 27 members—unfortunately,” he told Die Zeit, a German weekly newspaper. “I just don’t see how these 27 states will ever come up with any meaningful reforms.” Indeed, some think the euro zone itself might be smaller than the 17 members (Greece may soon default and leave the euro).

The speech that everybody is waiting for now is Mrs Merkel’s. The chancellor wants to change the treaties, and on November 9th she called for “a breakthrough to a new Europe”. But what sort of Europe that should be was left mostly unsaid.

Economist: To each his own (problems with NAFTA)

The Economist has today published a useful run-down on the current state of play vis à vis NAFTA—the North American Free Trade Agreement.... or, North America's (potential) answer to the EU.

Despite optimistic beginnings in 1994, when NAFTA was founded, more recent concerns have served to take the fullest implementation of NAFTA off the agendas of both the USA and Canada—unfortunately for Mexico, they appear to be the weak link in the political / economic chain...

When Canada, Mexico and the United States implemented the North American Free-Trade Agreement (NAFTA) in 1994, it was hailed as a promising first step towards the deeper integration of the continent. Six years later Vicente Fox, then Mexico’s president, called for a customs union, a common external tariff and free labour flows. And in 2005 the leaders of the three countries began a series of annual summits to push an ambitious “security and prosperity” agenda.

Since then the drive for integration has ground to a halt. The “three amigos”, as their leaders were once dubbed, could not find time to meet last year, and the session scheduled for February 26th has been cancelled. When Barack Obama and Stephen Harper, Canada’s prime minister, announced on February 4th that they were exploring ways to harmonise regulations and co-ordinate security—plans that had previously been discussed trilaterally—they did not mention Mexico.

A North American version of the European Union was always a long shot. Having one giant dealing with two relative dwarves is unlikely to produce a deal acceptable to all parties. Moreover, North America lacked the historical impetus of the second world war, which gave European integration a sense of purpose. ...

The article goes on to provide a pleasing level of detail on the reasons for NAFTA's current drift—important as an update to content that might be provided by any textbook. A quick summary would outline the following:

• US (and some) Canadian concerns regarding border enforcement
• the ongoing Mexican Drug War
• the lengthy economic recession that has worked against further trade liberalisation
• a shift in Canadian focus on emerging markets from Mexico to Asia
• ongoing difficulties with economic reforms in Mexico

Only a short article - but well worth the read!

So, what has Europe ever done for us? Apart from...

Hunting around for some additional resources on the European Union led to a useful "Top 50"-style presentation from the Independent newspaper of the benefits of the European Union to its citizens. It's largely from a UK perspective and dates from the 50th anniversary of the Treaty of Rome (21 March 1957), but still very useful to aid understanding of some of the motivation for countries joining (and remaining within!) the EU:

http://www.independent.co.uk/news/world/europe/so-what-has-europe-ever-done-for-us-apart-from-441138.html

The general factors that have fostered European integration is a likely focus of questions in the Unit 3 paper, so this is an article well worth reading!

Economist Videographic: EU Enlargement

Back in January this year, The Economist published a useful videographic on the topic of European Union enlargement, an important focus within the syllabus for the topic of Regionalisation: