Prospects for Monetary Coordination in the Mediterranean Region: More or Larger Monetary Unions?

Abstract

The purpose of the paper is to analyze some convergence criteria in the geographic region extending from the EMU all the way to the GCC including most MENA countries with the objective to determine the possibility of coordination between the EMU and the promised gulf monetary union and between other countries in the MENA region that are operating independently of other countries and the GCC. The aim is to conclude whether the EMU and the GCC can coordinate policy and whether the region can have another viable monetary union such as the gulf one or a larger one by having some other MENA countries join the GCC monetary union. The analysis shows that the GCC countries have successfully met most if not practically all of the convergence criteria necessary for monetary integration. The paper reflects that coordination between the EMU and the GCC can take place at many levels except the exchange rate regime as the EMU follows an independent freely floating exchange rate with the GCC pegging to a different currency. The paper mostly addressed the possibility that other MENA countries coordinate individually with the GCC to join the union once established. The results of the model as well as casual empiricism show that a more efficient possibility exists for oil-producing MENA countries over non-oil producing ones based on performance concerning the convergence criteria and the initial position of each group and the GCC’s target variables.