Euro's woes give GCC countries pause for thought over single currency

Problems in the euro zone indicate the importance of pausing to reflect on the merits and drawbacks of a full monetary union.

The Saudi foreign minister Prince Saud al Faisal, left, with his Kuwaiti counterpart, Sheikh Mohammed Sabah al Salim al Sabah, in Jeddah
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JEDDAH // GCC foreign ministers have paused their drive to create a single currency to learn lessons from the Greek financial crisis, but they say they will continue their push for a monetary union.

Greece's effect on the euro is a reason to proceed with caution, foreign ministers agreed at a Gulf Co-operation Council meeting in Jeddah on Sunday. They expressed their concerns about single-currency plans. "There are a lot of lessons" to be drawn from the euro zone problems, Kuwait's deputy premier and foreign minister, said Sheikh Mohammed Sabah al Salim al Sabah, who chaired the meeting. Sheikh Mohammed also told reporters after the meeting, that all six countries agreed on a set of policies focused on the integration of Gulf economies in the hopes of making the GCC an influential international power.

The ministers formed a committee tasked with implementing an economic treaty among the GCC states, specifically regarding integration of stock markets, unifying financial policies and systems. They also agreed to accelerate work on establishing a common market, a major step required to make the six states an economic bloc. GCC countries also agreed to strengthen their ties with other regional blocs, such as the Association of Southeast Asian Nations (Asean), and economic powers such as India, Russia, and China - a smart move, according to analysts in Riyadh.

John Sfakiankis, the chief economist at Banque Saudi Fransi, said: "It's logical to head east because this is where growth is happening, although I'm not sure about how important Russia would be for the GCC countries,. The West is not doing well at the moment, so while western countries are reshaping, the GCC will need to rely on the East." The euro zone crisis created a need to pause for reflection in the GCC's push toward a monetary union as Europe's single currency was threatened by one of its smallest economies' inability to meet financial obligations.

Sheikh Mohammed said: "We should pause a little bit and try to learn from what happened with the European monetary union. It would be irresponsible to proceed 'business as usual' without minding or ... [learning] from the euro problem. "We want to do it at the right time and in the right format," Sheikh Mohammed said. "We have to first and foremost think seriously about not only monetary policy but also fiscal policy, and that requires the harmonisation of our budgetary policies."

GCC countries plan to hold discussions with the Asean on May 31 and June 1 in Singapore, according to Asean, to see how the two blocs can co-operate, and will hold similar discussions with China next month. GCC foreign ministers also plan to hold discussions with Russia later this year. In a statement this month, the French bank Credit Agricole said that there are significant lessons from the Greek crisis to be learnt for the Gulf's own monetary union efforts.

"Although the Gulf monetary union could lie a few years ahead, there are important liquidity and early warning fiscal and other macroeconomic mechanisms that have to be put in place," the bank said. "Moreover, timing is of the essence and governments and the institutions of the union have to demonstrate resilience and political will." Saudi Arabia, Kuwait, Bahrain, and Qatar agreed last year to move towards a monetary union while the two other GCC countries - Oman and the UAE - have not endorsed the union because of policy differences, including the proposal to have a GCC central bank based in Riyadh.

Mr Sfakiankis at Banque Saudi Fransi said: "The monetary union will happen but it will take more time now." The ministers discussed broader regional topics in Jeddah, a sign of their new interest in becoming an international body. They discussed Iraq, and called on Baghdad to fully comply with all UN resolutions related to the 1990 invasion of Kuwait, including the status of still-missing prisoners and the return of items from Kuwait's national archives.

They voiced solidarity with Sudan and rejected all measures by the International Criminal Court against the Sudanese president, Omar al Bashir, and called for immediate cessation of hostilities in Somalia. The ministers also said they supported the efforts of Brazil and Turkey to find a peaceful solution to Iran's nuclear impasse with the West and called for the removal of weapons of mass destruction and nuclear arms from the Middle East.

The ministers, however, asserted the right of countries in the region to using nuclear energy for peaceful purposes in line with international agreements and under IAEA supervision. The ministers also extended their support for Qatar's bid to hosting the 2022 World Cup. The Saudi Arabian daily Al Watan daily said in an editorial yesterday that regional and international development had forced the GCC to look beyond its internal issues.

The newspaper said it expected the GCC to be more concerned with international and regional topics in its future meetings.