The Greek Crisis: Lessons for GCC Monetary Union

The Greek economic crisis is a testing time for Europe in various ways. Scepticism that Greece will give into powerful unions than take tough economic steps, the possibility of creating IMF like institution (EMF) and the speculation that this particular crisis will lead to a breakup of Euro-zone are being highly debated. How the crisis will be handled in the coming days is critical especially when the GCC countries are also heading for the same path: the GCC Monetary Union expected to be formalised by this year.

A monetary union integrates the economies and opens up a realm of possibilities and opportunities for growth. But it also creates cultural, social and economic dynamics that can no longer insulate any one member country from the events and policies of other member countries. These dynamics are felt through multiple channels that affect the countries’ in various ways. In such a dynamic environment, policy making becomes a delicate game as it can lead to multiple desirable and undesirable results.

The Euro crisis is important for it provides an insight into such dynamics of a monetary union. It cannot be denied that Euro was created because of the strong political will of the EU states. For any monetary union to be successful, strong political will is required along with the acceptance of the results of the entire package. The GCC Monetary Union has already achieved most of the convergence issues, but the important question is: are the member countries ready to accept the consequences of the entire package, especially, in terms of economic outlook?

The question is important in the wake of political and economic outlook differences that exist in the Arab region.  Each member country has different economic priorities in terms of their development and growth. Therefore, any policy enforced in one country will have effects rippling across other member countries’ which could be undesirable for some. A case in point is the surrounding speculation of the Dubai World and Dubai’s debt. Such events will have their effects on other Arab economies through channels such as stock markets and financial institutions.  Thus, any unwillingness on the part of member countries to accommodate such differences can actually become the very reason for the monetary union to fail. The union will require an immense political will to accommodate differences in social and economic perspectives.  Perhaps, United Arab Emirates, the second largest economy in the Middle East, foresees that such differences will exist and a Greek-Euro scenario could well occur in this region as well. Therefore, it has backed out of the monetary union.

As the world watches the Greek- Euro crisis unfold, it provides an insight into the whole political and economical dimension. The crisis could prove useful for the GCC countries to keep such scenarios and possibilities of differences in outlook in perspective while preparing for the GCC Monetary Union.  Such an analysis is necessary if the Middle East as a region wants to reap most benefits out of such a union in terms of growth and development.