Những vấn đề của đồng tiền chung châu âu hiện nay và một số hàm ý cho đông nam á english

VIETNAM ACADEMY OF SOCIAL SCIENCES
GRADUATE ACADEMY OF SOCIAL SCIENCES

PROBLEMS OF THE CURRENT EUROPEAN
COMMON CURRENCY AND IMPLICATIONS,
POLICIES FOR THE SOUTHEAST ASIA
VUONG THU HUONG

Major: International Economy
Code

: 62 31 01 06

SUMMARY OF DOCTORAL DISSERTATION

Hanoi – 2017


The Dissertation is completed at:
The Graduate Academy of Social Sciences
Vietnam Academy of Social Sciences
Academic Supervisor:
1. Assoc. Prof., PhD. DINH Cong Tuan
2. PhD. LE Thanh Binh

Commentator 1: Prof. PhD. DO Duc Binh
Commentator 2: Assoc. Prof., PhD. LE Xuan Ba
Commentator 3: Assoc. Prof., PhD. NGUYEN Minh Quang

The Dissertation is defended in the presence of the Board of
Examiners at the Graduate Academy of Social Sciences

on ....... of…., 2017

The Disertation is available at the National Library of Vietnam and
the Library of the Graduate Academy of Social Sciences


PREFACE
1.

Necessity of the thesis

European common currency was officially introduced on January 1 st
1999. There are currently 19/28 countries using this currency, which
is called “Eurozone”. Eurozone was the first and only economicmonetary union, which is considered to be a successful and potential
model for diversification and development all over the world.
However, in recent years, Euro has been experiencing devaluation
and decreased belief due to pressure of public debts within the EU
members, inefficiency in the administration and operation of Euro
and negative impact from the U.S. financial crisis in 2008. These
have had a significant effect on Eurozone, even put Euro into threat
of existence.
Nowadays, ASEAN members have actively made effort to form
ASEAN Community with 3 main pillars. That ASEAN members
have been in closer and closer cooperation leads to an idea of
establishing a common currency. From the fact of Euro, nations in
South East Asia need to well prepare before deciding to form the
second economic and monetary union. Moreover, considering the
currency fluctuations in Eurozone, nations in ASEAN should take
caution of the potential similar issues and challenges when
establishing the economic-monetary union in the area.

1


There has not been any domestic or international research on the
above mentioned case so far. Therefore, the topic “Current issues of
European common currency and some implications for the nations in
South East Asia” will certainly play a critical role in both theory and
practice. It has been chosen to be the research topic of PhD student
for her economic thesis.
2.

Research purpose and mission of the thesis

2.1.

Research purpose

Based on the analysis of the devaluation and decreased belief in Euro
in the public debts crisis of Eurozone, and the forecast about the
potentials and impacts of Euro on Eurozone and the world, the thesis
implies relevant policies for enhancing a sustainable economic union,
leading to a common currency in AEC area, as well as necessary
adopting policies for Vietnam.
2.2.

Research mission



Systematize, analyze and clarify the theoretical basis and

process of the formation, results of real activity of the common
European currency


Clarify events and causes leading to the devaluation of Euro

and decreased belief in Euro; analyze relevant solutions and their
potential impacts on Eurozone and EU


Summarize experiences drawn from the economic-monetary

union model in Eurozone and suggest some solutions to enhancing
connection and forming a common currency in AEC area; imply
relevant policies for integrating and purifying the fiscal – monetary
market in Vietnam.
2


3.

Objects and scope of the thesis

3.1. Research objects
The thesis focuses on clarifying the theoretical foundations and
actual conditions of the common currency, the main causes and
effects of fluctuations and devaluations of the common currency, at
the same time, in-depth study of common policies of the community,

as well as of the nation to stabilize the common currency and
national financial systems.
3.2. Scope of the thesis
Scope of content:


Factors causing the instability and devaluation of Euro and

decreased belief in Euro


Some fiscal solutions and policies to control public debts and

improve the administration of the economic – monetary union of
members in Eurozone and EU in the case of the global financial
crisis and great depression in 2008


Necessary policies to enhance the stability and efficiency of

the economic – monetary union within ASEAN and Vietnam from
experience from Eurozone
Time range: from the introduction of Euro to present, focus on the
period 2008 – 2016 and 2025-2030
4.

Research methodology of the thesis
3



Synthesize and analyze secondary data are mainly used in

collecting and processing data in books, newspapers, scientific
research and related state statistics


Expert consultant and inheritance science are used in

individual consultation and reference, indirect quotes of statements
and opinions of some international fiscal – monetary organizations,
economic experts, managers and leaders of well-known countries


Statistic method is mainly used to collect timely and

systematic data for comparing, assessing and identifying factual
fluctuation of Euro and economic – financial status in Vietnam


Case study method: research based on facts of some typical

countries in the united area (France – German and Greek – Spain)


Comparison method is used to support for assessing public

debts and managing public debts of Eurozone and other areas in the
world as ASEAN


5.

New contribution to scientific research of the thesis



Contribute to systematize and deeply analyze theory about

introduction, two-side effects and political factors that affect stable
existence and belief of common currency


Assess consequences of public debts, control mechanism of

state budget deficit and public debt; assess practical solutions to
public debt, improve control ability of the stability of common
currency and forecast the potentials of Euro and Eurozone


Propose some implications in the economic – monetary

union as AEC and particularly Vietnam in integrating in the area and
in the world
4


6.

Theoretical and practical significance of the thesis



The thesis partly contributes to systematize and analyze the

theoretical base for the introduction and operation mechanism of a
common currency in the economic – monetary union in the area


The thesis partly warns and proposes some vital policies in

pushing uniting economy – currency of members in AEC and control
of public debt, deficits of state budget, and bad debts of Vietnam
.
7.

Structure of the thesis

The thesis “Current issues of European common currency and some
implications for nations in South East Asia” includes 4 chapters
(excluding Preface, Conclusion, List of abbreviations, List of table
and List of reference):
Chapter 1: Overall of the research
Chapter 2: Theoretical and practical base of common currency
Chapter 3: Issues and solutions to Euro and Eurozone since 2008 till
present
Chapter 4: Some implications for managing the economic –
monetary union in AEC and purifying Vietnamese financial status

5

CHAPTER 1: LITERATURE REVIEW
1.

Domestic literature review

1.1.1.

Researches on international integration



Nguyen Quang Thuan and Bui Nhat Quang, in Social model

of European developed countries: A lesson for Vietnam (2011),
systematized theories of the formation and operation of the typical
social model in some European countries, which heavily prioritize
environment protection and social securities.


Luu Ngoc Trinh, chief editor of World economy and politics

in 2020 (2012), predicted how the world economy and politics would
change in the next 10 years and its impacts on Vietnam’s
development orientation and foreign policies.
1.1.2.

Researches on EU and the Euro



Nguyen QuangThuan (2009). The consequences and

solutions to European Financial crisis. The European Magazines, 7,
pp.24 evaluated the impacts of the economic crisis and public debt in
EU, provided solutions and development opportunities for the near
future.


Bui Duong Nghieu (2004),The international status of Euro

and influences on monetary system. In this book, Bui stated that the
issuance of Euro had an effect on not only the European economics
and society but also the world monetary system, including Vietnam.
1.1.3. Researches on ASEAN and financial management in
Vietnam

6




Nguyen

Hong

Son

(2009),

The

ASEAN

Economic

Community. Hanoi: Labor Publishing House. The book was a review
about the foundation of ASEAN Economic Community (AEC) as the
realization of the region’s end goal of economic integration.


Dinh Cong Tuan (2014), Public debt in Vietnam from

European experience, Hanoi: National Political Publishing House, is
of primary importance and practical significance. The book consists
of the work from leading economist and researcher, provides a clear
view on public debt of some European countries.
1.2. International literature review
1.2.1. Researches on monetary theories


De Grauwe, P. (2000). Economic of monetary union. Oxford

university press, review the costing theory and the advantages of a
common currency, introduced the European Monetary System,
European Central Bank and its monetary policies.
1.2.2. Researches on unstably of Euro


In the study entitled "Optimum Currency Areas and the

European Experience", the author points out that the optimal
monetary area is a union of countries with a high levels of economic
integration including goods and services, financial assets and labor
markets. It is an area where monetary efficiency is achieved through
accession to a fixed exchange rate system. The author argues that
Europe has no significant labor mobility due to cultural differences,

7


trade unions and regulations. Finally, the author concludes that
Europe is not an optimal monetary region.
1.3. Evaluation
In general, both domestic and international studies have diverse
subject matters and contents that allow the shaping of a fundamental
theory: foundation for the creation of a common currency, indicating
the conditions of formation and the restrictions when developing the
common currency for the region.
Many works have focused on clarifying the idea of the formation of
EU, the Eurozone and Euro, the steps of the process of establishment
and the operational mechanism for managing the currency. In
addition, the studies also analyze and mention to a certain extent the
positive impact of the euro on Europe in particular and the world in
general; recognizing some of the initial successes in practice of the
Euro. A number of studies have focused on the fluctuation of the
euro, particularly in the period from 2008 to date, and highlighted the
multifaceted effects of the euro on Europe and on some of the
world's great finances center, as well as the competition and

counterweight to balance the dollar in financial transactions around
the world..
The research results will be analyzed, absorbed, inherited in the
thesis.
However, many issues regarding the necessity and roadmap to the
foundation of the common currency for AEC, have not been
8


mentioned or have not been in-depth analyzed. The overall impact of
these issues has had a multifaceted impact on each country, territory
and the world, especially on the AEC and the Vietnamese financial
management in the context strong international integration today.
The thesis is going to address those listed problem.

CHAPTER 2. THEORIES AND REALITY OF THE COMMON
CURRENCY
2.1. Theories on the formation and operation of the common
currency
2.1.1. Optimal monetary area
According to this theory, "optimal monetary area" is the territory of
countries which share the same conditions, which are appropriate to
use a unified currency. The most important criteria is that member
are willing to sacrifice part of their independence in solving
monetary-credit problems; No country claims the right to have its
own currency and independent monetary policy.
The condition of the "optimal monetary area" is that within that
territory there is the maneuverability between the "factors of
production" (including internal and external mobility); the inflation
rate among member countries must be uniform and price stabilized;

low unemployment and balance in payments. When monetary
financial regulations are agreed and there is a coherence of monetary
9


policy, monetary policy fluctuations will be abolished. At that time
an Economic Coalition will be established, the currencies of the
countries will be canceled and replaced by the united currency for
the whole group. The "optimal monetary area" theory has created a
direct rationale for the emergence and development of European
common currency since the Second World War.
2.1.2. Monetarism theory
The theory of "Monetarism" has gone through periods: before
Keynes, Keynes and post Keynes.
2.1.3. Real economic cycle theory
Real business cycle theory explains the cyclical rise of a nation's
economy or a reaction as a response to optimizing the economy
against shocks due to increased money supply.
This theory emphasizes much of the scientific and technological
revolution, but has a definite impact on the birth and development of
the Euro.
2.2. Practical basis for stable operation of the common currency
2.2.1. Some forms of major international economic integration
2.2.1.1. Preferential Trade Area – PTA
The parties to the agreement agree to partially offset the barriers to
trade in goods and maintain that barrier with third parties.
10


2.2.1.2. Free Trade Area/Zone

The parties agree to eliminate most of the tariff and non-tariff
barriers to one another and to maintain that barrier with a nonparticipating third party, for example AFTA, NAFTA, …
2.2.1.3. Customs Union
Participants lose their autonomy in trade relations with countries
outside the bloc; a general tariff schedule for the whole block is
established when trading with non-member countries. The agreement
establishes a unified foreign trade policy when dealing with foreign
countries.
2.2.1.4. Common Market
Members commit to remove barriers to trade: tariffs, quotas, licenses;
Eliminate barriers to the free movement of capital and labor;
Establish a unified foreign trade policy in relations with non-member
countries.
2.2.1.5. Monetary Economic Union
MEU is a form of economic connection towards the establishment of
the Economic Union. The Monetary Union is characterized by the
formulation of general trade policy, the formation of a single
common currency in place of the individual currencies of member
countries, the unification of monetary policy, Generally speaking,
instead of the central banks of the member countries, the
11


development of financial, monetary and credit policies for countries
outside the Union and international monetary organizations.
2.2.2. Formation and operation of Euro and Eurozone
2.2.2.1. Legal framework and structure of the Eurozone
The European Union has three main legal pillars:
1)

Maastricht pact – the 1st pillar

2)

Amsterdam pact – the 2nd pillar

3)

Nice pact –the 3rd pillar

2.2.2.2. Common currency and conditions to join the common
currency area
According to the Maastricht Treaty, in order to join the EU, members
must meet the following criteria:
1)

Inflation: The inflation rate does not exceed 1.5% of the

average inflation of the three countries with the lowest inflation.
2)

Long-term interest rates: Long-term interest rates do not

exceed 2% of the long-term average interest rates of the three
countries with the lowest long-term interest rates.
3)

Budget deficit: Budget deficit should not exceed 3% of GDP

(taking into account cases where the deficit is on the upward trend to

reach the prescribed rate, the deficit exceeds 3% GDP is temporary
and not a structural deficit.
4)

About the exchange rate: The national currency must be a

member of the European Exchange Rate Mechanism (ERM) two
12


years before joining the monetary union and not devalued against
other currencies.
5)

Price Stabilization: Countries wanting to join the Eurozone

must ensure price stability at 3.1% for the domestic currency for a
12-month period and for the euro at 3.1% for the time being. 24
months.
6)

About public debt: Each country must have public debt not

exceeding 60% of GDP. In addition, the economic environment must
be favorable; The legal system must be compatible with Eurozone
entry requirements that the European Central Bank (ECB) Treaty and
ECB Regulation stipulate.
2.2.3. Some of the double-side effects of joining the Euro and
Eurozone
2.2.3.1. Positive impacts

1)

Significantly lowering the cost of doing business internally

by reducing costs and risks associated with foreign exchange.
2)

Significantly increasing in price competition in many sectors

in the Eurozone.
3)

Increasing the impetus for new development for the whole

region and the world.
2.2.3.2. Some restrictions when joining Eurozone
First, countries lose control of monetary policy, which requires the
EU's common monetary policy to be better managed.

13


Second, joining the European Monetary Union could lead to a
general interest rate regime and impose a general, less flexible
exchange rate.
Third, joining monetary union when wage policy is not flexible,
labor mobility is low and national separate fiscal systems do not have
significant fiscal mobility across borders. Increase the overall level
of cyclical unemployment among EMU members
Summary of Chapter 2:

In the process of economic integration, the deeper and broader the
world, the forms of cooperation and economic linkage are also
developing more and more diversified and cooperation content is
also more and more comprehensive. The emergence of a common
currency in regional cooperation is an inevitable consequence on the
basis of convergence of stringent conditions that require consensus
and the operating mechanism is rigorous and rigorous and is also the
highest manifestation of Cooperative economic alliance in this area.
The European currency was born, survived and developed as an
important historical milestone in the movement of a special
commodity (currency) associated with regional economic integration,
reflecting the objective of the globalization trend, first and foremost,
is to integrate the highly developed European economy.
The Euro is associated with the Eurozone within the EU, with all its
bilateral implications for the whole of the bloc, as well as with each
member state, which can be considered a model for all countries and
regions. They have the idea of promoting and progressing towards
the unification of economic and political cohesion.
14


Underestimating the underlying principles and conditions for the
introduction and operation of the single currency may increase the
negative impact and reduce the positive impact of the default on the
establishment of the economy alliance. This would also have a
negative impact on the country's social and economic status, image,
strength and international status.

CHAPTER 3. ISSUES AND SOLUTIONS FOR THE EURO
AND EUROZONE FROM 2008 TILL PRESENT

3.1. Some issues in the operation of the Euro and Eurozone
period 2008-2016
3.1.1. Devaluation of the common currency
The devaluation of the euro contains both positive and negative
aspects of the Eurozone economy. On the one hand, the weak Euro
will bring more competitive advantages for exporters, especially in
economies that depend significantly on exports of goods and services
such as Germany and Italy. However, when the euro depreciates
against the dollar, it causes the negative opposite in importers due to
increased costs of raw materials, oil, gas and energy. Is when the
devaluation Euro reflects the weakness of the Eurozone’s economy.
3.1.2. The common currency is losing its position and faith
The diminishing trust and the deterioration of the euro area have also
been dulled by the trend of lower euro-denominated payments and

15


reserves; slower pace of membership and increased centrifugal
thinking, with the typical Brexit event - England leaving the EU.
3.2. The main causes
3.2.1. The public debt burden of the members
However, after 2008, public debt in EU member countries tended to
increase significantly, most of the public debt of EU countries
exceeded the threshold of the block (60%), due to loose fiscal
policies and ineffective public finance management. When the crisis
began, in order to save the economy, nations must increase public
expenditure, turning private debt into public debt.
From 2010 to 2015, the euro zone's public debt performance
deteriorated as public debt rose from 65% in 2007 to 85% in 2010,

and the budget deficit continued to exceed the 3% limit of EU
regulations.
3.2.2. Vulnerability mechanism of internal financial security
control
The

ECB

implements

centralized

monetary

policy

while

decentralized fiscal policy decisions belong to the member countries,
where national spending is loose and uncontrolled. Nearly every
country is trying to pursue its own public debt policy goals, because
the EU does not have much power in shaping the economic policies
of its members.

16


3.2.3. The consequences of the financial crisis and global
economic recession 2008 and the "Brexit"
The 2008 US financial-monetary crisis has been the most severe in

more than 50 years and its negative global impact has had a negative
impact on members of the euro area.
The resonance of such effects will undermine the economy of the
Eurozone, which means increasing public debt pressures, imbalance
payments and the state budget, reducing foreign exchange reserves. ,
the negative impact of the public debt burden and the Euro area
financial management loophole as analyzed above, i.e. increased
volatility that undermines value position and trust in the Euro.
In addition, the problem of the euro is exacerbated by the negative
impact of the "Brexit" event - the UK leaving the EU.
3.3. Solution and prospects of Euro and Eurozone
3.3.1. Some major solutions
3.3.1.1. Enhancing the ECB's active role and flexibility of monetary
policy in the direction of loosening the ECB.
This is the mainstream solution used in the past few years. The ECB
has taken a series of measures to restore the economic growth of the
Eurozone, such as cutting interest rates, increasing bond purchases to
80 billion euros a month, and providing cheap loans to Bank.
3.3.1.2. Tightening discipline and increase fiscal responsibility of
each member country

17


In order to ensure the stability of the Euro, in addition to the policies
used by the ECB, Member States also have their own policies.
Although the policies set out to stabilize the common currency of EU
Member States are different, most countries are involved in
accelerating the structural reform of the entire bloc, shortening the
gap among member countries, creating unity in the whole mass.

Germany and France are the two countries playing a major role in the
development and implementation of the common currency project,
which has a large impact on the euro and has a high proportion of
currency in the euro. They have taken aggressive responses to
stabilizing the euro and putting it into use through the issuance of
large-scale euro-denominated bonds.
3.3.2. Prospect forecast for Euro, Eurozone and EU
3.3.2.1. Challenges for EU
Regarding the prospects, many opinions of both leaders and citizens,
European and world businesses are concerned about the pressure of
further weakening the strength and position of the currency,
weakening economic growth and Eurozone inflationary pressures, as
well as the post-bourgeois political risks, will be more and more
burdensome.
Given that background, the future of the EU has many opportunities,
but also contains many challenges as follows:

18


Firstly, the EU will have to witness the rise of localization,
regionalization and even separatism based on what the Scottish
nationalist movement and the Catalan / Spain ... This shows that the
EU and Eurozone countries tend to self-determination instead of
waiting for the Alliance.
Secondly, the future of the EU as well as the Eurozone will
increasingly depend on Germany and Germany increasingly play a
dominant role in the bloc. Meanwhile, the influence and economic
strength of France and Italy are increasingly declining and England
has "definitely" left the EU.

Third, the EU will see major changes in the future due to the
challenge of aging population and low birth rates.
3.3.2.2. Possible scenarios
In particular, on March 6, 1977, European Commission President
Jean-Claude Juncker published a "white paper", outlining five future
European scenarios for the next 10 years:
In the first scenario, the European Union retained its 27 member
states (without the UK) and introduced comprehensive economic,
political and security reforms.
In the second scenario, the European Union is merely an economic
alliance. This means that the 27 member states are in a general
economic market, with no political or social ties.
The third scenario, proposed by German Chancellor Angela Merkel
and French President Francois Hollande, aims to build "a multi-level
Europe." The EU will be divided into two groups: developed

19


countries such as Germany, Italy, France, Spain and a group of slow
developing countries such as Eastern Europe and the Baltic
The fourth scenario, with European policy, only co-operates on
security. It means building a common police force, exchanging
intelligence with each other daily, working together in the fight
against terrorism and crime.
The fifth scenario proceeds to build Europe as a federal state, which
includes many independent states. This is an ambitious scenario.
In the above five scenarios, it is likely that Europe should only build
a second scenario - only the general economic market. The
remaining scenarios are not highly feasible.

Summary of Chapter 3:
As with any economic bloc that always has its problems, the Euro
and the Eurozone, even the EU, have their weaknesses. The
European Commission has been very active in overcoming the
shortcomings of the last 20 years and has achieved some successes.
However, the agency will have to work harder to be able to restore
all restrictions.
The strength of the currency depends on the strength of the economy,
the euro is no exception. Maintaining a strong and stable euro is a
challenge for the participating countries, when a mix of developed
economies at different levels, each with its own difficulties.
Compromising the interests of countries is a tough struggle that
requires the great compromise of every member country, especially
striving to ensure that imposed norms and strict policies of the
20


spending on social welfare in the budget, tax policy-which can cause
strong reactions among people, especially in the poor, in the
education sector, which has taken place in many Western European
countries over the past few years, and will make it difficult for
governing governments at every election.
The emergence of EMU and the maintenance of a stable and stable
common currency have not only positive implications, but also make
it difficult for EMU participants. In the context of monetary policy
co-ordination, the European Central Bank's mandate to regulate
monetary policy of the entire bloc will force EMU participants to
lose the tools to regulate the economy and will It is very difficult for
countries when economic crisis.
An uncertain future is in place and depends on the degree of success

in resolving the issues faced by the common currency sector,
particularly the public debt burden, internal institutional gaps in
money management and financial discipline, restoration of
confidence in the solutions that the EU has been implementing.

CHAPTER 4. SOME IMPLICATIONS OF POLICIES FOR
MANAGING ECONOMIC – MONETARY UNION IN AEC
AND PURIFYING THE NATIONAL FISCAL MARKET IN
VIETNAM

21


4.1. Some content orientations and implications of policies in the
economic – monetary union in AEC in comparison with
Eurozone
4.1.1. Activities about economic cooperation in AEC
In ASEAN – 9 Summit in Bali (Indonesia) in October 2003, leaders
of ASEAN nations decided to establish AC in 2010 with 3 main
pillars: security – defense, economy and culture – society. The
overall target of AC is to make the Association become “a united
group of nations in South East Asia to form a collective community”.
Three pillars of AC include: ASEAN Security Community (ASC),
AEC and ASEAN Socio - Cultural Community (ASCC).
4.1.2. Establishment of common payment in South East Asia (ACU)
The idea of a common currency of ASEAN in a monetary alliance,
whether resembles Euro or has AEC distinctive identity, has been
concerned with for quite a long time amongst experts and researchers.
A common currency unit is even considered a deciding factor which
will shift the equilibrium of the global monetary system. It will also

help ASEAN members in the fight against money speculation,
reduce foreign exchange risk, encourage investing activities from
both inside and outside the region. ASEAN members with the help of
ACU will be much more competitive in this globalization market.
There are two promising scenarios:

22


i)

Establishing a common currency for payment (around 2035)

for some of the countries with the highest levels of economic
development and market institutions in the block, such as Singapore,
Thailand, Malaysia, Philippines and Indonesia. the remaining
countries will join after maturing in economic and institutional
conditions
ii)

Establishing a common currency for all members (around

2050), when all subjective conditions are met, and the economic gap
between the members are shortened.
In both scenarios, it is probably best to remain individual currencies
for each member. However, it should be further studied whether the
currency has the function of intra-aggregate payment or a common
currency with functions such as the Eurozone today.
In order to form a common currency of ASEAN, the following
remarks must be taken into account:



Economic integration should begin with attempts to achieve

equal growth rate between the members. Inequality, what is
happening in Eurozone, should be avoid by all means.


ASEAN needs a common financial support structure in case

of an economic/financial/monetary crisis, either regional or global. In
other word, ASEAN needs an insurance to be able to deal with
potential crisis in the future.


ASEAN members should enhance the unity while keeping

cultural diversification.

23