The most crucial question policy makers attempting to carry out this economic experimentation of a single currency for the WAMU area should ask themselves is this: to what extent is the WAMU area an 'optimum currency area'? Is the WAMU area an 'optimum currency area'? By 'optimum currency area', it is generally referred to mean as a political economy or a geographical economic domain wherein the use of one single currency for different polities would enhance economic well-being and not lead to a loss of economic welfare. An 'optimum currency area' doesn't necessarily mean the use of single currencies. It can be different currencies immutably pegged to one another with flexible convertibility (Kawai, 1987). The idea of 'optimum currency areas' first found canonical statement in Nobellist Robert Mundell's celebrated 1961 American Economic Review article, 'A theory of optimum currency areas'. Since then, it has generated and courted both oppobrium and admiration. This is not relevant to the case i'll present here. For the purposes of delineating the case for or against introducing single currencies in the WAMU area, let us try to assess whether WAMU can lay claims to being an 'optimum currency area'. For an area to be declared an 'optimum currency area' - at least in theory - it has to constitute the following properties: i) Price and wage flexibility (Friedman, 1953); ii) Factor market integration (Mundell, 1961); iii) Financial and capital market integration (Ingram, 1962); iv) Goods market integration (McKinnon, 1963); v) Political integration (Kenen, 1969; Cordon, 1972). One of the reasons why the Euro Zone is currently undergoing an economic downturn again whilst the US is slowly emerging out of the shortest economic recession in written history is largely because whilst the latter can claim - in all honesty - that it is an 'optimum currency area', the former would be hard pressed to make similar claims. Indeed, educated economic opinion takes the view that the introduction of the single European currency, the Euro, is rather premature as EU economies have yet not developed/converged to the point where a single currency would not result to a general loss of welfare. That is to say that the EU has yet to become an 'optimum currency area'. The evidence for this is overwhelming. Consider the Eurozone's biggest economy, Germany - perhaps, the most important economy in the Eurozone. Germany is currently facing its worst economic downturn since the recession caused by re-unification of East and West German thanks to its inflexible labour markets and rigid labour laws and their concomitant causal effects like fiscal imprudence. Unemployment in Germany currently stands at 10%. How did Germany get itself in such economic quagmire? There is little doubt that it has more to do with fiscal imprudence (central & regional revenue fell by 5.5% but expenditure went up by approximately 1.5%) which is both a direct and indirect result of Germany's inflexible labour market and rigid labour laws - worsened by intransigent union barons who are loath to labour market reforms. A labour-employer standoff currently looms as trade unions demand pay hikes of 6.5% when inflation currently stands at under 2%. Employers are understood to have offered 2.2% pay hikes for the next two years - in line with current inflationary projections. But unions won't have none of it; and even giving Schroeder a rehearsal of things to come if they don't get what they want: strike actions. Even economically illiterate union barons know that price hikes above inflation compounded by Germany having the shortest working week in the EU is disastrous in the long-term. None of the unions seem to heed this simple economic point. To be sure, labour market inflexibility and rigid labour laws vary across the EU. France fares better than Germany, which might explain why France is currently faring better in its economic prospects. The same can be said of Spain juxtaposed with, say, Greece or Italy. But there is little doubt that labour market inflexibilities across the EU will ever make it harder for the Euro to have a huge economic impact in the long run. The irony here is that it was the stunning success of the pre- 1914 Gold Standard exchange rate regime that informed and inspired the European Monetary Union, and consequently the introduction of the Euro. Yet, the main reason why the pre- 1914 Gold Standard exchange rate regime was such a stunning success was the extent of the flexibility of the labour market and international labour mobility (Ferguson, 2000). In sharp contrast, the EU as currently constituted is anything but. The historian, Niall Ferguson, makes this historical precedence lucidly clear in his seminal work on the history of wars and economic development and their relation to political authorities, especially those that are imperial in inclination and design - be they cooperative empires (as evinced in the case of the EU and the Habsburg empire), militarily expanded and enforced ones (the British and Russian empires)and tenuously in-betweens and exceptionals like the US. The problem with contemporary debates is the extent to which they are devoid of historical perspectives and intellectual rigour. Those seeking to relive the EU experience in the WAMU area should simply forget the delusions of introducing a single currency as a panacea to the complex economic problems of that sub-region. First, WAMU is even by the loosest of definitions not an 'optimum currency area'. Second, the idea that the introduction of a single currency in the WAMU area would conjure away the economic woes and malaise of the sub-region is nonsense on stilts. Given the properties of what constitute an 'optimum currency area', can anyone seriously suggest that WAMU comes close to even a conservative application of said prerequisite? Consider intra- WAMU trade. This is virtually non-existent. WAMU member states trade more with with, say, the EU than amongst themselves. Compare and contrast this with the EU. Currently EU members' trade are more intra than at asnytime in living memory. It used to be the case that in the days of the empire that Britain's trade was more internationally focussed as opposed to trading with European countries. Today more than 60% of the UK's trade is with the EU. Nothing of this random example typifies individual political economies of the WAMU area nation-states. The single most important task that policy makers and gov'ts of the WAMU area ought to be wrestling with is turning their respective political economies into political economies where the Rule of Law and liberal economics is not only deep-rooted but, most importantly, observed by ALL constituents of said polities ( not just the small business enterprises and the poor) and the process is not distorted or hijacked by state mercantilism or intervenionism. When the EU was being formed and developing into a cooperative empire, it was and still remains a priviliged club: entry was by virtue of political economies deeply rooted in the Rule of Law, democracy, respect for individual liberties, and liberal economics. One pauses to note that current frontline EU member states like Spain, Greece and Portugal were not allowed into this most exclusive of economic clubs because they were in the early days of the EU brutal dictatorships (General Franco in Spain and military juntas in Greece and Portugal) that failed the simple tests of EU membership. Today, these countries are at the forefront of what is narrowly referred to as 'liberal' Europe. None doubts, however, the extent to which the EU was responsible for the liberal nature of these formerly closed and tradionally macho societies. Can the same be said of WAMU, ECOWAS, SADC, OAU or the African Union? In sharp contrast, WAMU et al is stuffed with the Good, the Bad and the Ugly. The Good tolerates, even cuddles, the Bad and the Ugly. In the WAMU area, as in the rest of the Africa, membership of regional economic blocs are on the basis of geographical affinity or proximity. Whether a country is run by bone-headed kleptocrats - like Yaya in the Gambia - doesn't matter at all. Rather than make WAMU et al privileged clubs, any idiot can steal power in a relatively democratic country, which has a relatively good tradition of the Rule of Law, and be accepted with open arms in these pseudo- regional economic blocs that WAMU and else pretends to be in Africa. Debates as per whether WAMU needs a single currency is not only premature and wrong-headed but most importantly a red-herring. What we should debate is the extent to which respective WAMU member countries' political economies can be deeply rooted in the Rule of Law and liberal economics. This is the most important stumbling block to genuine development in Africa. It is what should be fought for and debated at lenght. Not misplaced entusiasms like a single currency for a non-existing trading bloc like WAMU et al. _________________________________________________________________ Chat with friends online, try MSN Messenger: http://messenger.msn.com ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ To unsubscribe/subscribe or view archives of postings, go to the Gambia-L Web interface at: http://maelstrom.stjohns.edu/archives/gambia-l.html To contact the List Management, please send an e-mail to: [log in to unmask] ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~