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Euro zone crisis lessons for EAC states

Updated Tuesday, November 8th 2011 at 00:00 GMT +3
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By John Oyuke

The euro zone crisis has presented a vital case study for East African Community ( EAC) partner states as the regional bloc steadily moves to unveil a single currency.

There have been concern among economists that the bloc is forming an East African Monetary Union at a time when euro zone states are struggling to solve a mounting debt crisis, that originated from sharing of the world’s second largest currency — the Euro.

However, speaking during the fifth round of negotiations for the monetary union, a senior EAC official said the bloc would pick vital lessons from the Eurozone crisis.

"The euro zone is a case study about the importance of harmonisation and coordination of fiscal policy in the monetary union and the choice of macroeconomic framework," EAC Deputy Secretary General (Planning and Infrastructure), Enos Bukuku said last week.

The euro zone crisis resulted from failure of Greece to honour its debt obligations.

The crisis has stoked new fears about global growth only three years after a financial meltdown in the US plunged the world into recession.

Bukuku asked the High Level Task Force (HLTF) negotiating the Monetary Union Protocol to pick key lessons from the euro zone to design a policy framework to act as the foundation for a solid EAC Monetary Union.

"These matters are interlinked and as you negotiate, remain cognisant of the related provisions on mutual surveillance, enforcement mechanism and the statistical requirements," he added.

In settling for a single currency, the EAC member states — Burundi, Kenya, Rwanda, Tanzania and Uganda — are looking at a situation where a resident can cross from one country to another and buy goods without changing currency.

According to Dr Thomas Kigabo, a chief economist at the National Bank of Rwanda, a single currency environment will facilitate trade in terms of reduced transaction costs and price transparency and predictability of investment and consumption decisions.

Talks on the proposed East African Monetary Union and envisaged single currency are expected to be concluded in January next year.

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