T

he risk of default has haunted Greece. The country is predicted to be unable to pay its debts after series of bailouts from the European Central Bank and the IMF. There has been rising discussion of whether Greece should leave the Euro zone and use its old currency, returning its monetary policy authority to the Greek Central Bank.

As the situation worsens, it is a good opportunity to decide whether a single currency should be adopted by ASEAN in the future, as the region most likely will advance toward the next stage of economic integration.

The European Union has been hailed as the most advanced example of regional integration by reaching the economic and monetary union, characterized by member states adopting the single currency.

However, there is a price to pay when using the Euro, as the currency is regulated by the European Central Bank. The domestic central banks no longer have power to regulate monetary policy.

An integrated monetary policy is not ideal when member countries have different inflation rates due to different economic conditions and must follow the supranational central bank monetary policy.

Problems occur if one or two member countries cannot cope with the demands to adjust interest rates because of the differences. Conflicts of interest most likely occur as member states must also tolerate the central bank adjusting interest rates in favor of troubled states or to sustain the stability in the region as a whole.

The European debt crisis has shown that an integrated economy is bad for the region if the countries have different capacities and lack prudential fiscal management, as exemplified by Greece. A single currency might no longer be a viable option. The risk would be too high if ASEAN was to force its way forward amid the current economic disparity.

ASEAN member states are usually categorized in two different economic power groups. The first are the advanced economies, the ASEAN-6 – Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Second is the group of the least-developed states: Cambodia, Laos, Myanmar and Vietnam, which known as the CLMV group. In its regional integration, ASEAN is currently in the free trade area stage, having removed tariff and non-tariff barriers among member states.

ASEAN must decide whether it will take the next step of economic integration and move to a single currency with a supranational central bank that coordinates member states’ monetary policy.

While the scene of adopting a single currency is still far away and only limited to academic possibilities, ASEAN cannot ignore the fact that economic and monetary unions should not be an option when inflation rate disparity among member states is still wide.

The European debt crisis has taught another bitter lesson of economic unpreparedness. The high level of debt in the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) fueled anxiety after the economic crisis in 2008 and led to a series of bailouts.

During the economic crisis, financial contagion followed, as investors pulled out, causing capital outflows and liquidity to run dry. Liquidity crises usually spread to other regions and trigger domino effects such as dramatic currency depreciation, stock market crashes and government bond defaults, after which the IMF enters the scene.

The classic IMF recipe usually causes further disasters, offering solutions that create other problems such as issuing more debt with high yield, privatizing state-owned enterprises, liberalizing markets and selling assets. Governments must end subsidiaries and health plans, triggering a spiral of deflation and low consumption.

The European debt crisis has taught the world well the heavy price of currency integration. A single currency may no longer be a viable option, for now or for the future.

The writer is a researcher from HD Asia Advisory. The article reflects his personal opinion.