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The Collapse of Globalization Continues

The FT had a small headline that we might have easily missed had we been scanning the newspaper quickly: “Gulf rift exposed as UAE quits monetary union.” The monetary policy of the United Arab Emirates is not something that would normally catch our attention.  But viewed within the larger context of globalization and economic integration, the UAE’s decision is quite a bit more significant.  Because Dubai has the largest and most open banking and financial system in the region, the UAE’s decision to leave more or less dooms the venture to fail.  The lack of monetary union will no doubt slow down the speed of economic integration in the region, perhaps for years or even decades.  It’s unfortunate, because the Euro and the cross-border integration that it fostered has been a real boon for the European economies, and the Arab world could have benefited in much the same way.  Of course, Europe’s integration is under strain as well.   Several countries are running unsustainable deficits. and some–most notably Spain–are in need are far greater monetary stimulus than others.  Rumors have swirled that Italy may quit the Euro altogether, either by choice or by force from the other members.   Even if this extreme event does not happen, it is clear from the bickering and infighting among European leaders that further European integration is off the table for now.  In fact, Europe will be lucky to hold on to what it has.  As the global financial crisis has deepened, it’s become a game of “every man for himself” between states.

One of our colleagues in Vanuatu forwarded us another article that goes to show just how badly globalization is floundering.  Stratfor reports that in Italy, “Berlusconi Rejects Idea of Multi-Ethnic Country.”   The prime minister’s comments were intended primarily for would-be immigrants from North Africa and gypsies from Eastern Europe, though with Europe’s open borders policies, it is difficult to see how he would achieve this goal.   Immigration is not exactly the same issue as free trade, of course.  But there is a lot of overlap.  A free and globally-integrated economic system generally benefits from labor movements as well.  During good times, native workers rarely mind an influx of foreign workers.  But when times get tough, they “circle the wagons.”  

At any rate, both immigration and globalization are under heavy attack in this most difficult of economic times.   We will hopefully never return to the closed-economy and low-trade regime we had during the 1930s Great Depression, but it is likely that we will regretfully miss out of gains we would have had from freer trade and closer economic integration.