Tale of two unions

Tale of two unions

The United Arab Emirates dropped a bomb shell saying it would no longer participate in the Gulf Cooperation Council’s single currency. It was miffed because it was overlooked as the site for the union’s central bank.

It may have good concerns, GCC institutions are supposed to be spread across the six nations that make up the block. Saudi Arabia, the biggest economy in the region, seems to be the destination of most.

The other nations – Qatar, Bahrain, Saudi Arabia and Kuwait – plan to go ahead with the plan. Oman has already dropped out and Kuwait broke ranks to drop its peg to the dollar.

The UAE, the second-largest economy in the region with the world’s fifth-largest oil reserves, is flexing its muscle. Like Qatar these countries no longer see themselves in awe of their bigger neighbour.

A compromise may be sought and the UAE brought back into the fold. It may mean Saudi Arabia gives up the bank to Bahrain – considered by most to have the best financial and transparent regulations in the region.

The economies of the Gulf countries are better aligned than the European nations ever were when they formed the European Central Bank and the single currency. But politically they may be no better off.

While the ECB is based in Frankfurt, Germany, the then French President Jacques Chirac wanted Bank of France Governor Jean-Claude Trichet to be the president of the institution. But European leaders elected Wim Duisenberg to the post. Five years into his term Duisenberg stepped down, making way for Trichet in what Chirac called a “gentlemen’s agreement”.

According to Reuters, citing an Omani government official, the Saudis offered the UAE presidency of the venture to keep them on board.

Trading between European Union countries makes the establishment of a single currency common sense. Trade between the countries in this region is minimal but with a combined gross domestic product of more than $1 trillion dollars it gives it economic clout on the world stage.

In the eye of some observers the Organization of the Petroleum Exporting Countries is seen as an unacceptable cartel but nations working for their best interest like the European Union are seen as acceptable clubs.

- Abid Ali, Business Editor