European and Asian monetary cooperation and integration from the perspective of comparative regional political economy (CRPE) Thomas Kalinowski Ewha Womans University

Contents 1.Global changes diverging regional solutions: Collapse of the Bretton Woods System 2.A comparative regional political economic interpretation 3.Similarities of non-liberal capitalisms in Europe and East Asia 4.Differences in economic structure between EU and East Asia 5.The PE of monetary policies and cooperation in Europe and East Asia

1. Global changes diverging solutions: Collapse of the Bretton Woods System Collapse of Bretton Woods System 1971 – End of gold guarantee and fixed exchange rates – Acceleration of financial globalization Diverging regional solutions: – Market orientation in UK,US – Deepening of regional integration in Europe – Emergence of national developmental states in East Asia

Trilemma of economic policies ‘Bretton Woods Corner’ Goal: stable exchange rates ‘Developmental State Corner’ Goal: sovereign monetary & industrial policies ‘Neoliberal Corner’ Goal: open capital accounts GB, USA EC/EU East Asia Bretton Woods System Financialized capitalism - Free floating - Capital account lib. - Expansive macroeconomic policies Euro Capitalism - EMS  EMU - Four freedoms - ECB - No bail out clause - Gold-dollar standard - Embedded liberalism - Keynesian macroeconomic policies - IMF East Asian Capitalism - Unilateral pegs - Slow market opening - Economic planning - CMI ‘Keynesian Corner’ Goal: sovereign monetary and fiscal policies

What can explain the divergence between Europe and East Asia? Why did Europe find regional solutions while East Asia had to resort to national self help? Dissatisfaction with “realists” Dissatisfaction with constructivists Dissatisfaction with economists (Optimal Currency Area Theory) Go beyond realism and functionalism

2. A comparative regional political economic interpretation CPE (diversity of capitalism/regulation school): – Institutional change, interest struggle, structure – No convergence amid globalization – Problem: Too much focused on national political economies Regional integration studies: – Multi-level institutional framework – Regional convergence (in global divergence) – Problem: Too much focused on institutional change CRPE: – Highlight interaction between national and regional level – Focus on interest group rivalry and structural drivers of institutional change – Limits: National and local differences

3. Similarities of non-liberal capitalisms in Europe and East Asia Maintaining strong manufacturing base Relatively low level of financialization Export orientation Increasing intraregional trade  Interest in: – Stable exchange rates – Mitigate problems of financial instability – Prevent upward pressure on currencies – Stable environment for international creditors Why the divergence?

4. Differences in economic structure between EU and East Asia EU: Towards Euro CapitalismEast Asia: Competition of national capitalisms High level of intraregional trade within single market Medium level of intraregional trade in semi-protected markets Low level of export dependency of EUHigh level of dependencies on markets outside the region “Diversified quality production” (Streeck)Assembly of standardized consumer goods Convergence of economic developmentDivergence of economic development Regional value added chains through horizontal FDI Hierarchical division of labor dominated by MNCs (vertical FDI and outsourcing) High level of intraregional investment and labor migration Medium level of intraregional investment and low level of labor migration

5. The PE of monetary policies and cooperation in Europe and East Asia EU: Towards Euro CapitalismEast Asia: Competition of national capitalisms Stability oriented “Coordinated market economies” (Hall/Soskice) Developmental states’ industrial policies facilitate rapid catch up development Strong labor unions and corporatism undermine national monetary sovereignty Weak labor unions and “corporatism without labor” (Pempel) Welfare states provide economic and social automatic stabilizers Corporate welfare system leads to division of labor force Experience of EMS instabilityExperience of Asian financial crisis Path dependency of multilevel institutionsPath dependency of developmental states Evolving transnational interest groupsNational organization of interests

Conclusions There is a regional convergence in the global divergence of monetary policies Regional solutions in EU versus national solutions in East Asia CMI is not (yet) regional integration, but a regional supplement of national strategies The divergence can be explained by distinct economic structure and political economy The combination of CPE and regional integration studies helps to understand driving forces of monetary policy policies and cooperation in Europe and East Asia.

Annex 1: Exports as Percentage of GDP

Annex 2: Current Accounts as a Percentage of GDP

Annex 3: Intraregional trade (% of total trade)

World Trade

Maastricht Convergence Criteria What is measured: Price stability Sound public finances Sustainable public finances Durability of convergence Exchange rate stability How it is measured: Consumer price inflation rate Government deficit as % of GDP Government debt as % of GDP Long-term interest rate Deviation from a central rate Convergence criteria: Not more than 1.5 percentage points above the rate of the three best performing Member States Reference value: not more than 3% Reference value: not more than 60% Not more than 2 percentage points above the rate of the three best performing Member States in terms of price stability Participation in ERM II for at least 2 years without severe tensions

Long term interest rates of euro zone countries (%)

Average yearly inflation in Eurozone countries,

Government spending as percent of GDP

Social Expenditure as percent of GDP