West Africa Single Currency: The Lesson to Learn From European Single Currency

Western Africa states which are represented by Economic Community of West African States (ECOWAS), a commission comprised of countries of 15 States with an equivalent of 300 million people. These numbers account for 4.5% of the world’s population and just 0.5% of the world Gross Domestic Product (GDP). With an anticipated annual economic growth averaging approximately 5%, ECOWAS is now exploring the opportunity to create a single currency for ECOWAS member’s states mirroring the Euro for European countries.

 Before talking about a single currency or economic association between the states members, we need to examine the current political structure that allows a single faction to confiscate power for twenty years or more. The political instability of these member states have depleted human rights and instituted a totalitarian regime. This regime is largely based and support by the now prominent election policies. I say now prominent but it has been a long standing practice for one party to the election to exercise unpropitious acts like intimidation, threats and even death to win a given election. Can these countries ever abide by legitimate election worthy to be adulated by the international community?

 Do these countries receive sanctioned economic aid from the world community that is visible in the states operating budget? The question is asked because we ponder the division of the country’s leaders agenda is it personal or geared to support the general populous? The thoughts and questions we ask are deafening to a community. To think these occurrences are widespread and normal serve to steal ones spirit. People of these countries are defeated and are subjugated to indentured servitude. Vote confiscation creates political instability and its success is currently responsible for a two to three percent misappropriation of the country’s resources. This 2 to 3% is further evident pertained to wealth and poverty; the disparity between the haves and the have-nots. These countries often live with 97% poverty with no access to health care or hospitals, vibrant schools systems or school at all, clean water and other basic necessities afforded to inhabitants of developed countries.

One ECOWAS member country received financial assistance from a developed country to improve the country’s health care system. The improvement was intended to benefit the country’s own people. Much to the chagrin of the developed country a few days after receiving the funds, the member country invested 1/3 of the financial assistance with another western with inferior stability to the originating country; which happens to be a Western African country.

The second point focuses on Nigeria and the management of the country’s resources. Nigeria, one of the richest countries in Africa with an abundance of natural resources once exported food to neighboring African countries, Asia and the Occident. The export of natural resources which is very important in Nigeria with agriculture accounting for 90% allowed the country’s nationals to eat at least three meals daily. In 1974, Nigerian currency; the Naira was a stronger currency than the United States’ dollar.

Oil was discovered in 1956, by 1974 oil revenues constituted over 80 percent of total government revenues and over 90 percent of export earnings, the country’s leaders were ecstatic. As the country entered the realm of an international juggernaut commodity it began to move budgets and other resources away from Agriculture and infrastructural stability’s to the unknown of oil exports. Eventually, Nigeria began to import food and other necessities by leveraging oil and future oil revenues which served the purpose of budget balancing versus budget surplus.

The oil revenues were not well distributed which has led to real socio economic problems. Oil and chemical processing locations positioned next to the villages, cities, schools, hospitals and farmer lands badly affect social conditions causing deterioration everywhere. Further, this situation has created upheaval within the country, particularly among women, seniors, children and others who die almost every day with no recourse due to these socio economic problems and the terrorist organization Boko Haram.  

It seems that the North of Nigeria is going to become a cessation country. The faction causing destruction arguably has the support of outside interests who may provide military arms and funds to continue its stronghold. If we follow the change of custody of even the arms procurement we may trace impropriety to the customers and even the manufacturers; then we have a solid footing to bellow this societal destruction to the world and various global oversight groups.

These few things mentioned above demonstrate how West Africa needs to commit to improve and consolidate political powers among the member states. Once this occurs, further commit to developing an eco-industrial plan to make the region grow from 0.5% of the world GDP to 10% which based on our research is possible.

WEST AFRICA SINGLE CURRENCY LEARNING LESSON FROM THE EURO!

It is very difficult to explore or to anticipate West African single currency without examining, reviewing or comparing the potential currency with the European single currency.

One of the primary political goals for insisted European integration was, and may still be, to increase Europe’s role in world affairs. This may have occurred because of the United States forcing France and the United Kingdom to withdraw their forces from the Suez Canal in 1956. The former German Chancellor Konrad Adenauer told a French politician that individual European states would never be leading global powers, but “there remains to them only one way of playing a decisive role in the world; that is to unite to make Europe. . . . Europe will be your revenge.” One year later, the Treaty of Rome launched the Common Market. European integration started to coordinate, to defend and protect their political affairs and interests as a group better than just one single country dealing in the world affairs. European integration was conceived to counterbalance, the USA super hegemony power and domination in the world affairs. However, European cohorts believed this power was only due to Europe’s position after its traumatizing experience in World War II left it fragile and weak.

Although the Common Market was set up in 1967 to form the European Communities, thereafter, in 1992, the Maastricht Treaty gave birth to the European Union (EU). The EU covers large areas of free trade, labor mobility and scheduled for adoption of the single currency and an integrated European market for goods and services. The European Commission says this mechanism’s main purpose is a step toward greater political unity. It also makes a plausible argument that a free trade area can be successful only if its member countries have a concerted interest; a single currency. Certainly there is nothing in economic logic or experience, which shows that free trade, requests the single currency.

The sentence ‘single European currency’ simply means a European, shared economy in which most of its member states share the same currency in order to expedite integration within Europe. I beg the question that the term ‘single currency’ is coined by some European entity that may have trademark rights; funny but cautiously true. Although this is an idea quite simple to understand, its actual effects are more complicated and difficult to analyze.

The idea of single European currency was introduced in 1999, but Winston Churchill had previously broached and discussed the idea of a ‘sharing economy’ in the early 20th Century. His idea was promulgated on the grounds of a possible unification of Britain and France. Churchill’s view was that Franco-British Union should “provide for joint organs of defense, foreign, financial and economic policies” (Shlaim 1974, p. 27).  The reason this theory of fallacy as many coined did not adhere is because he (Churchill) based his infatuation some believe largely on its inability to safe fail England’s possible invasion from Hitler’s Germany.

The single European currency has economic and social-political impact on the European Union. From an economical perspective the currency demonstrates impact on economies of scale (production prices), trade and integration. The member states are basically a consortium which from a socio-political aspect boasts its political influence on the EU. It was argued it could also be a problem threatening the European Economy when individual economic problems arise in different countries.

The political difficulties that came as a consequence of this incident are mostly concerned with the changes in policies and appropriate reforms implemented to help the European Union gain enough power to come out from the crisis. According to a report produced on March 15, 2011 by the Council of the European Union a reform in the ‘Stability and Growth Pact’ has been implemented with aims at ‘strengthening economic governance in the EU’ (p. 1). More specifically, a change in the ‘Stability and Growth Pact’ denotes changes in the national government spending and taxation to influence the economy (ibid.). However, this procedure may prove to be time and cost consuming, affecting the position of the EU and causing it to operate at a slower rate and sometimes unstably and unproductively.

As of today the single currency experience could be interpreted as failed policy for the European Economy due to a mixed evaluation regarding the impact of imposing a single currency on a heterogeneous group of countries, other spillover consequences, the sovereign debt crisis’s, the large trade deficit and the overall the fragile state of European banking conditions across the Euro zone. European leaders had too much confidence and false hope guided by personal motives when setting up the European Central Bank. Giving the Central Bank power to intervene on the diverse group of countries fixing and solving problems that were unique to the individual country and not the member countries as a whole. It was a mistake to overlook and underestimate these consequences. The responsibility for controlling and implementing a single monetary policy to guide each individual country was decided by certain European political leaders. The decision to make the shift to a single Central bank in Germany was also coupled with a shift of political power to these decision makers who again were (are) guided by mercenary motives.

Germany and France played very crucial role in the function of this new Central Bank by dictating painful austerity measures to Greece and Italy. Germany and France clashed on how the financial assistance would be shared. Germany has created a stability agreement by establishing financial penalties for any of its members that has a budget deficit more than 3% of GDP or a debt that is over 60% of its GDP, but when France and Germany violated this agreement there was no sanction and the agreement was meaningless; thus the shift of control previously mentioned.

A single country with its own monetary policy can respond to economic conditions like a decline in consumer and spending demand by lowering interest rates to stimulate the economy (United States) but the European Central Bank must institute a monetary policy based on the prevailing conditions of the entire heterogeneous group of countries. Almost all the time, economic conditions of different countries are counter to each other. Which country’s conditions are more important than the others? Is there a cost benefit analysis to deciphering which country’s conditions outweigh the conditions of the others? This brings to question how to manage interest rates that are very high in countries with high unemployment versus countries where interest rates are too low because of growing wages and constantly adjust in large countries like Germany. Who takes precedence? Preceding the European Union, most of the times large fiscal deficits meant higher interest rates or declining exchange rates. These economic drivers acted as immediate signals to reduce borrowing. However, the single currency monetary union eliminated this market signal.

From 2009 to now we have seen several French, Germans and other governments intervene by creating regulations, conditions and diverse agencies to stimulate the economy. The prevailing problems persist and are difficult to overcome because new, unforeseeable conditions were not expected and therefore not correctly managed. For instance, France called for the European Central Bank to buy bonds; bonds from Italy, Spain, Greece, Ireland and other countries with high debt to keep the interest rates low. One country guided by mercenary motives working to control the interest of other countries no matter how detrimental the outcome. This effect has plagued the EU since its inception.

Where does the money used to buy these short-term bonds in the secondary market come from? What is going to be the cost or long-term expense for the European Central Bank and host countries? How long will the European Central Bank hold these bonds? What is the exit strategy? These questions were never contemplated or even if contemplated the proposed outcome was not enough to stop Greek and Italian rates to reach unsustainable levels.

The Chancellor in Germany Mme Merkel wants to use the current crisis to develop a top down set of regulations to guide the political union; effectively a “fiscal union” oversight with budget surpluses that would have the power to transfer funds each year to the country running budget deficits. In counterpart of these transfers, the European Commission would have the authority to examine national budgets and force countries to follow policies that would lower their fiscal deficits and increase competitiveness and growth.

Germany had a trade surplus, this past year close to $200 Billion USD. Conversely, other members of the European community had trade deficits of 200 Billion USD. How did Germany succeed where most other member states failed? Does Germany have the burden of carrying the other member states? This will invariably lead to the demise whether slow or sudden of the German economic system. How is the rest of the world to view Germany’s demise? It wasn’t their fault; they (Germany) had to manage its little brothers and sisters? United States, Canada and Mexico are all member of NAFTA (North American Free Trade Association), they don’t have a single currency but their economic association to NAFTA is proven to work better than the European Single Currency.

The ECB Tough anti-inflation policy has raised interest rates to drop in countries such as Italy and Spain, where expectations of high inflation have kept interest rates high. Households and Governments of these countries have responded to low interest rates, increasing their borrowing to households, raised debt to finance a surge in housing construction and housing prices and Governments use it to finance major social programs.

The result was a rapidly growing proportion of public and private debt to GDP in a number of countries, including Greece, Ireland, Italy and Spain. Despite the increasing risk to lenders that it implies, global capital markets have not responded by raising the interest rates on those with increasing levels of debt. Buyers of bonds issued by a Government in the European Monetary Union was equally good as bonds issued by any other Government in the Union, forgetting “ no bail out” provision of the Maastricht Treaty. As a result, interest rates on Greek and Italian bonds were slightly different from German bonds only a small fraction of a percent.

All this creates a different dynamic market that caused the relationship between European governments and the European commercial banks. Because banks are heavily invested in government bonds, reducing the value of these severely affected banks. After this, the banks have turned themselves into their own government without subjecting them to creditors and depositors. This game of dominoes started with mortgage defaults in Ireland and Spain, creating serious problems for banks and governments to guarantee bank depositors and creditors; added government debt had weak banks and the government.

With the chart below it shows that countries that are using Euro as currency and others not using Euro but part of European community have seen their debts increased from 2007 to 2012 to 24.3% to their GDP compared to the 27 countries which is 26.3% to their GDP. It seemed that the 2007-2008 financial crisis has just confirmed the European financial instability problem which started earlier by printing money from the thin air to finance Governments and projects across the Europe. It has only worsened during the crisis as the European Central Bank had to increase printing money capacity with justification being it would help stabilize the economy but in reality has only created more deficits and debts for these countries.

In 2001 Countries like, Belgium, Italy and Greece, respectively are heavily in debts 106.5%; 106.3% and 103.7% thereafter by 2008 Belgium, Italy and Greece, had 89.2%; 106.1% and 112.9% compared to their GDP. In 2012, they had Belgium 99.8%, Italy 127%; and Greece 156.9%. The Irish, Portugal, Spain and Cyprus who become a euro country member in 2008 had respectively in 2001: 34.5%; Portugal 53.2% Spain 55.6% and Cyprus which become European Currency member in 2008, 61.2% debts compared to their respectively GDP, in 2012 Ireland 117.4%; Portugal 124.1%; Spain 86% and Cyprus 86.6%.

data

The countries using a single currency are still very vulnerable with uncertain future and with the incapacity of the European Central Bank swimming on this diverse group of countries where the political and the economic decision were transferred to ECB.

WEST AFRICA SINGLE CURRENCY!

For the past few years there are discussions regarding African regions that can establish their own single currency which will consolidate the country political and economic maturity, self efficient this thought is good but it is not easy yet it is needed for improvement on legal, economic and social level. Certain leaders confuse People power as hereditary gift given by God to their family and want to die in the power. The countries organize election every 5 years and the people votes are confiscated. Which country in Africa can organize a peaceful election without outsiders to validate the election that the loser can congratulate the winner without a fight; and nobody hurts or mentioned massive fraud? Maybe in all the continent there are maybe 3 to 4 countries which are very poor numbers compare to European and Asian continents.

After more than 50 years of independence most of these Governments just continue to sell the raw material products and never try to start industry or plan to process these raw materials, which would create more jobs and have access to new processing technology, that will diversify the country’s economy; in the process to become semi high tech country. There is an economy boom in Africa at this moment but this economy boom is just based on the high demand to buy off the natural resources but not for the country or the government to set up a viable economy development plan to get out of this abject poverty by exploiting the resource, and setting up industry to improve the life style of their own citizenry. A good economy development plan is replaced by economy guessing with no real plan.

West Africa have been recording economy growth between 5.5% to 15% yearly based on the need of the natural resources; with this growth some of the government could not plan accordingly to use these growths to position their country/region and to be proud of their emerging market but instead still waiting to receive aid and become a parasite and depend on other people’s pockets. These aids are not free and come with several conditions, which put the country behind sometimes.

Regarding the single currency, West Africa States need to learn more from the European Single Currency experiences by reviewing and analyzing, what happened to the European Single currency? Why countries using euro are more in debt than the non euro zone countries? The European Central Bank that supposed regulated and backed up the management of the single currency has not been very efficient to deal with the crisis and the outcome stay uncertain.

In the past few years there was very strong goals, planning and commitment to unify the continent and to adopt a single currency, with a real Africa owned Central Bank, this commitment to set up a central bank will be backed by Gold where the Central Bank is owned at 100% by Africa and for Africans, and the bank decision will not be subject to any other international institution as World Bank, IMF or major continental bank. The African single currency will be backed by gold not printing money from a tiny air with direct and indirect cost to the members and also using control of the funds. Certain Central banks of today because they have the authority to print money not based on their assets in deposits but just the power given to them to print money and this power cost the citizen of the member states before receiving the loan requested. It becomes very lucrative business if you have the authority to print money from nothing, you loan the funds, you do not pay, and the lender becomes the title holder of you for the country.

This Single currency will be under the Authority of a Central Bank? Which Central Bank? What is the underlined security that the central Bank is going to use to create or finance its members? What is the total amount involved? Who owns what and controls what? Or is it going to be set up like the European Central Bank? Africa will just be a figure head and the new Central Bank that will just be the continuation of ECB philosophy which is going to be worse due to most of Central Banks are controlled by private bankers!

The goal that was discussed a few years ago concerning the creation of an African Single Currency and the procedures that were in placed are completely different than one that has been developing now, which is going to be a collective suicide with catastrophic consequences politically, economically and socially. Many of these countries are behind their own payrolls some of the employees have to wait for 6 months to a year before to receive their paychecks at the same time how are these people going to live, pay their bills and taxes?

CONCLUSION:

The idea of a united West Africa comes into existence through activities that will promote its political, economic, social and even technological integration. The process of this integration however, is not always something easily achieved. The single West Africa currency as a measure to further political integration has proved to be beneficial when good cooperation between member states exists In circumstances where member states do not meet these criteria, the single West Africa currency can prove to be damaging not only for the ‘failed’ state but also for the other member states due to their heavy dependence on each other.

 FOR MORE INFORMATION ABOUT DR. AMOUZOU PLEASE SEE HIS PREVIOUS ARTICLES:

*         The Global Banking Financial Crisis’s and Its Impact on Developing

 Nations:   Case Study Africa

The Economic Decline of the USA Empire: The Airplane without the Pilot

“The Perspective on Global Economic and Financial Status for 2013 and its impact on the future of the global economy?”

“Could the World and the European Financial Systems Survive This

World War III Financial crisis or it is the end of the Western Civilizations?”

”Corruption and Development in the Developing Countries”

 “The World Financial Honey Moon is over: Debt Crisis Continues to Wage War on Economy Policy”

 “European Central Bank’s Outright Monetary Transactions (OMT): The Bazooka Approach”

 CONTRIBUTIONS:

Dr. Mehenou Amouzou received his Master in Business, from the European Advanced Institute of Management, also a Certificate in Finance and Investment in Paris, France. He completed his Post Graduation work in Political Strategy, International Relation and Defense Strategies and earned his Ph.D. in International Finance.

CONTRIBUTIONS TO THIS ARTICLE:

Contribution to this article and the aforementioned series was made by Byron K. Belser.  Mr. Belser assists Dr. Amouzou; he holds a Masters of Arts degree in Development Economics & a Law degree.

Raymond Bernhard West from West International Petroleum LLC & Fundacion Paraiso Sin Fronteras  

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