FOREX tidbits: economic integration and stability

Economic integration organizations are coalitions of states whose primary purpose, unlike that of international alliances, is economic rather than political. The most successful of these is the European Union, which has made significant strides toward the creation of a more unified, federal type of political entity since its founding in 1957. Some of the most significant steps have occurred recently: the Single European Act went into effect in 1987, and the Maastricht Treaty was implemented in 1993.

The Single European Act officially removed many of the remaining economic barriers to integration, and the Maastricht Treaty called for all members of the EU to use a common currency and to move toward coordination of defense and foreign policies, as well as legal processes within their countries. The struggle to establish the common currency, the EMU, has involved stringent austerity measures and budget reductions at a time when unemployment is a serious problem in virtually all the member states. Movement toward a common defense and foreign policies has been slow, and complicated by the desire to add new members in the Central and Eastern Europe. Still, there is apparently serious talk about removing border controls among the member states, and it is widely believed that including East-Central Europe in the EU constitutes a more effective strategy for integration, and one that will be less objectionable to Russian, than including it in NATO.

Economic integration efforts involving developing countries have persisted ever since the 1960s. Those efforts have foundered repeatedly, primarily because poorer nations involved in those organizations perceive that they receive a smaller share of the benefits of integration than the richer states. NAFTA aims to integrate two relatively wealthy nations, the United States and Canda, with the developing state of Mexico. However, the advent of BAFTA in 1994 coincided with economic crisis in Mexico, which some see as evidence of economic mismanagement by the Mexican government and others as evidence of NAFTA's undesirable economic impact.

Mexico's economic performance in the aggregate has improved in recent years, and trade among NAFTA's members has increased. Additional Latin America state, such as Chile, have expressed an interest in joining NAFTA. But Chile has recently become a member of Mercosur, an economic integration organization led by Brazil, now the apparent leader of economic integration efforts in that region.

Additional economic integration organizations are active in Latin America, as well as Africa, the middle East and Asia. In short, economic integration as part of an economic development strategy continues to appeal to many developing countries, despite all the problems such organizations have faced in recent history.


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