Saturday, July 02, 2016

Lessons From Europe on Regional Integration
June 30, 2016
Opinion & Analysis
Christopher Farai Charamba Correspondent
Zimbabwe Herald

Last week on Thursday in an unprecedented referendum, 52 percent of British citizens voted for Britain to leave the European Union.

As the results came in on Friday morning, the British Pound sank to a 31-year low. By close of day markets around the world had lost $3,1 trillion in stock value and on Monday rating agency S&P cut the UK’s sovereign credit rating from AAA to AA and Fitch downgraded it to AA-.

On the political front, British Prime Minister David Cameroon tendered his resignation, but will remain in office until October. Labour leader Jeremy Corbyn lost 12 members of his shadow cabinet and more than 80 percent of labour MPs gave him a vote of no confidence yet he refuses to step down.

Those who campaigned for Britain to leave the EU, led by Nigel Farage and Boris Johnson, have been backtracking on their message and seem to not know what exactly should happen next.

The EU has stated that they will not entertain any preliminary Brexit talks until Britain invokes Article 50, while in Scotland, First Minister Nicola Sturgeon has threatened to block the exit from the EU as well as there being the possibility that Scotland and Northern Ireland could hold their own referendums to leave the UK, opting to stay in the EU.

The results from the referendum have already had serious economic and political consequences and with continued uncertainty as what exactly shall happen next and when, these are likely to continue.

For Africa, Brexit has its own set of concerns. According to Institute of Development Studies Professor Ian Scoones “the UK is an important trading partner with Africa and deals with the EU govern much of this.”

The EU recently signed Economic Partnership Agreements with some countries in SADC allowing free trade to Europe. Following Brexit, Prof Scoones said, “these arrangements have to be renegotiated bilaterally through the World Trade Organisation and its 161 members. It will be a slow and costly readjustment, creating much uncertainty.”

Aside from trade, the UK was a major contributor to €2 billion EU Development fund for Africa, donating 14,8 percent of those funds. The UK pulling out of the EU would essentially affect the disbursement of this aid to Africa.

At this stage it is difficult to determine how great an effect Brexit will have on the continent as until Britain actually invokes Article 50 of the Lisbon Treaty, much of the commentary is based on speculation.

Speculation and uncertainty do however, have a bearing on what happens today as evidenced by the way world markets have and continue to respond.

An interesting question to draw from this Brexit referendum and the possibility of Britain withdrawing from the EU is what does it mean for regional integration elsewhere and more specifically in Africa?

The perceived success of the European Union has been one of the arguments presented advocating for regional integration in Africa. Regional blocs in Africa like SADC have modelled their approach to integration on that of the EU.

Key to full regional integration and the establishment of an economic union are instruments such as a free trade area, a customs union, a common market and a monetary union. There also needs to be a governing authority to guide and protect these instruments.

The EU managed to develop an internal single market with policies that guarantee free movement of people, goods, services and capital within the market. With a region of over 508 million people, the EU was established through a standardised system of laws applicable to all member states.

An integral part of what makes the EU work are the seven institution of the European Union — the European Council, the Council of the European Union, the European Parliament, the European Commission, the Court of Justice of the European Union, the European Central Bank, and the European Court of Auditors.

When one looks at the African continent and Southern Africa in particular, SADC has attempted to establish similar systems to enable the facilitation of regional integration. While a lack of political will holds SADC back from attaining its overall goal there are other lessons to be learnt and consider from what has transpired in the EU.

The topic of national sovereignty is a huge issue to consider as African nations move towards regional integration. Brexit has shown that the issue of nationalism remains a major concern for people globally. Across the Atlantic, the traction that Donald Trump has received with his “Make America Great Again” is another indication of this.

Navigating national sovereignties and nationalist ideologies will be a key battle for regional integration in SADC.

Xenophobic attacks in South Africa in recent years give an indication of how the free movement of people and labour might be perceived in the region’s most prosperous nation. With the best economy in SADC, full regional integration would certainly see increased migration to South Africa by people from other countries in the bloc.

The idea of nationalism is integral to African nations, particularly those like Zimbabwe which were forced to go to war for their independence. As such those tasked with carrying out the Regional Indicative Strategic Development Plan, the vehicle to implement regional integration, should pay close attention to keeping the balance between the needs of the region while respecting the different nationalist identities.

What is clear though is that for regional integration to succeed there must be a foregoing of national sovereignty as there is need for a fiscal policy to accompany any monetary policies that may arise as evidenced by the Eurozone crisis.

Since 2009, some European countries including Greece, Portugal, Ireland, Spain and Cyprus have found themselves in a sovereign debt crisis. The Eurozone crisis actually saw Greece become the first developed country to fail to make and IMF loan repayment. Part of the problem that led to the Eurozone crisis that required multiple bailouts for Greece was that the EU’s monetary union came without a fiscal union and a fiscal policy.

The Guardian’s Economics Editor Larry Elliot said last year, “the lesson from the last five years is that those countries that use the euro are paying a heavy price for the lack of a common system for transferring resources from one part of the single-currency area to another. There is one currency and one interest rate, but there is no fiscal union to stand alongside monetary union.”

Countries like Greece with weaker economies benefited from the one currency and one interest rate. Their new credit rating under the EU allowed them to borrow large amounts of money at very low interest rates.

As the fiscal policy was left to individual countries, there was no mechanism the EU had in place to regulate how the money borrowed by Greece was spent.

In turn, the Greek government spent its borrowed earnings recklessly with politicians using the funds for populist programmes like high pensions, low taxes and higher salaries. As government debt increased, Greece was forced to increase borrowing to payback what it owed.

Had the EU had a fiscal policy in place to accompany the monetary policy, it is likely Greece would have been thrifty with its spending. This is an important lesson for African regional blocs to consider.

The economies of SADC are extremely different from each other and governments allocate resources differently. A regional economic union will find itself dead in the water if SADC does not have strict policies which guide how governments borrow and spend.

As one considers the importance of regional integration in Africa particularly for countries with smaller economies, for this to succeed, there must be a fundamental shift in systems of fiscal governance for the regions to avoid debt crises and exits.

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