Monetary and financial integration of states: Eurasian regional perspective

Financial Law Review No. 2 (14)/2019 quarterly 81,9(56,7<2)*'$Ę6.‡0$6$5<.81,9(56,7<‡3$9(/-2=()ä$)É5,.81,9(56,7<‡81,9(56,7<2)92521(=+ KWWSZZZHMRXUQDOVHX‡KWWSF]DVRSLVPDEJXJHGXSO MONETARY AND FINANCIAL INTEGRATION OF STATES: EURASIAN REGIONAL PERSPECTIVE DMITRIY V. GALUSHKO*1 Abstract One of the main trends of international relations between states is the process of regional integration, which is typical for every region of the world. As a part of the process there is a tendency of integration in financial sphere, particularly creation of monetary unions. The author analyses the main types of international monetary unions in the light of their usefulness for the developing Eurasian integration process. The paper also gives characteristics of the process of creation of international monetary union within the Eurasian Economic Union. Key words Regional integration, monetary union, single currency, European Union, Eurasian Economic Union. JEL Classification: K33; K34. * Phd, Associate Professor, Voronezh State University, Voronezh, Russia. E-mail: Dmitriy V. Galushko 2 1. Introduction In recent decades, the world has witnessed a tendency of intensification of regional economic integration. Economic integration, and the consequent deepening of multilevel international economic interdependence, is the most powerful force propelling the transformation of the contemporary international system (Hainsworth, 1995: 586). This is largely due to the increasing processes of globalization, in the context of which different countries are striving to combine economic and financial potential in the framework of regional integration. Integration processes cover the whole complex of economic relations; however, its monetary and financial level in recent years has become an object of special interest. The intensification of globalization processes, leading, among other things, potentially to global currency and financial crises, makes it necessary for individual groups of countries to cooperate in the monetary and financial field to increase the sustainability of national financial systems and ensure the stability of exchange rates. In order to be sustainable, deep economic integration requires democratic political support. This, however, can be achieved only if the decision over economic policies is transferred to the supranational level, e.g. within the European Union (Lupo Pasini, 2017: 67). The most successful example of the consistent movement towards economic and monetary integration is the European Union (EU), where a single currency has now been introduced, and a fully integrated financial market is being formed. The analysis of the European experience of economic and monetary integration becomes particularly relevant for the countries of the Eurasian region, primarily for the Eurasian Economic Union (hereinafter – the EAEU). Despite ambitious plans, the real achievements of monetary and financial integration within the framework of the EAEU are currently quite modest. Obviously, the appropriate prerequisites for monetary and financial integration must ripen, and one of the key roles here is played by the achievement of a high degree of development of the economy and financial markets of national states. It should be borne in mind that monetary cooperation has its own internal and definite sequence. It is not achieved overnight, spontaneously, but is a long-term and phased process, which is characterized by multi-level integration relations. 2 Models of regional cooperation in the monetary and financial sphere Referring to the history of the existence of examples of regional interaction of countries in the monetary sphere, it is necessary to distinguish three main models: West European, Latin American and African. Monetary and financial integration of states: Eurasian regional perspective 3 In Western Europe, the transition to a single currency lasted for several decades (Herrmann, Dornacher, 2017). The main goal of European monetary integration was to provide a system of multilateral settlements, because economic ties in Europe have always been multilateral, and national economies are closely interrelated. It should be noted that already in the late 1950s all countries of the European Economic Community (EEC) supplied to and received from partner countries from 30 to 50 % of export-import goods. At that time, the countries of Europe were united within the framework of the European Payment Union. In the 1970s during the transition of the world to floating exchange rates, multilateral calculations of European countries experienced difficulties. The EEC countries found a way out of the situation in establishing a corridor of mutual currency fluctuations. Later they created the European Monetary System with its own collective unit of account – ECU. These mechanisms constrained (although not always) national courses within a single corridor. In the 1990s, the general liberalization of capital movements sharply reduced the effectiveness of collective pegging of courses. The brutal crisis of the European monetary system in 1992–1993 proved that to keep more than ten different currencies in a single whole would be very difficult and then it would not work. What remained was either to release them «at will», or abandon them, creating a single currency. The Maastricht Treaty on the European Union (1992: 253), signed in 1992 by the heads of states and governments of the Community, declared the introduction of the single European currency «euro» in cash circulation since 2002. The euro replaced twelve national currencies (at that time the EU eurozone did not include the United Kingdom, Sweden and Denmark). Thus, the process of creating the Economic and Monetary Union (EMU), which lasted for more than 30 years, was completed. Monetary union is the highest level of international economic integration (Pédussel Wu, 2004: 6), therefore membership in this integration association requires countries to meet the level of countries with well-regulated economies in order to ensure a further high degree of convergence. According to the Maastricht Treaty, there are basic mandatory criteria that should be met by countries. First, the inflation rate should not exceed the average inflation rate of the three states with the lowest level by more than 1.5 %. Secondly, the national currency should not devalue over the past two years and should remain within the range of exchange rate fluctuations at the level of 2.25 % stipulated by the European Monetary System. Third, the state budget deficit should be less than 3 % of the gross domestic product (GDP). Fourth, the size of public debt should not exceed 60 % of GDP. 4 Dmitriy V. Galushko The beginning of the activities of the European Economic and Monetary Union was successful, and by the time of its creation, the union had the following indicators: the total population of member countries constituted 5 % of world, 15 (...truncated)