Special Interview with World-Renowned Economist Dr. Ibrahim Oweiss*
* Dr. Ibrahim Oweiss (b. September 25, 1931) is an Egyptian-born American economist, international economic advisor, and prominent professor of economics. Dr. Oweiss joined the faculty of Georgetown University in 1967. He was an advisor to President Jimmy Carter and to Armand Hammer. He was appointed to the cabinet of the Egyptian government as First Under-Secretary for Economic Affairs in year 1977, and with rank of Ambassador, held the position of the Chief of the Egyptian Economic Mission to the United States in New York
Oweiss is President of the Council on Egyptian-American Relations. He was one of the founding members of Center for Contemporary Arab Studies (CCAS) at Georgetown University. Over the years, Oweiss authored numerous publications, especially in field of Middle East economies. Oweiss is currently Associate Professor Emeritus in the Department of Economics at Georgetown University.
1. In the old times, stock trading (buying and selling) was done through traditional (slow) methods. But now, with the advent of the 'Internet' and the speed/ease of trading as a result, will this have positive effects on the economy compared to the past?
ANSWER: Undoubtedly, the internet and other innovative technologies in trading have contributed to the increase of globalization in financial transactions with positive and negative consequences. On the positive side, a. it widens the market, b. provides access to business opportunities intra and inter Arab economies, c. links to other business opportunities throughout the world, d. helps marketing new products and industries through wider trading in their stocks or debt instruments, e. accessibility, f. reliability, g. time-saving.
On the negative side, in case of disputes, legal fees could be prohibitively high, furthermore, with global investments, extraordinary profits could occur at times but also unaffordable losses may happen.
2. In light of the incidents now happening in many parts of Arab world, do you think the state of the economy will be affected in the Middle East?
ANSWER: No doubt. The popular uprising demanding reforms such as in Bahrain and Jordan or against tyrannical regimes in Tunisia, Egypt, Libya, Algeria show political instability which has far reaching effects in the Middle East ranging from direct and indirect economic and business losses to drops in their markets and other related issues concerning inflow of investments.
3. How do you see the future state of the economy in the Arab world in terms of the following:
a) Will the recently discovered oil and gas sources in the Middle East (Lebanon, Turkey, etc.) help improve the economy in that region?
b) How do you see the future of Arab economy in the period after the revolution/incidents now happening?
ANSWER: a. Not necessarily, the only country that can benefit from the discovery of oil in the list of countries you mentioned is Turkey. Uncertainties about political stability in both Lebanon and Sudan could outweigh the gains of discovery of oil.
b. I think the future of Arab countries is bright after reformation takes place, the matter that may take months even years.
4. Where do you the see the competition between the Euro and the US Dollar currency heading? Do you think one might crush the other?
ANSWER: The unfolding events in European monetary system may have far reaching consequences even beyond its Eurozone, Euroland, Euro Area or the 17 countries of the European Union in addition to small states including Montenegro, Monaco, San Marino and the Vatican City all of which have adopted the euro currency as their sole legal tender. As a quick reminder, let me cite the 17 countries in alphabetical order: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
Let me point out that the ten countries Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania, Sweden, and the United Kingdom are members of the European Union but do not use the euro. Monetary policy of the zone is the responsibility of the European Central Bank, though there is no common representation, governance or fiscal policy for the currency union. Some co-operation does however take place through the euro group, which makes political decisions regarding the Eurozone and the euro.
The Eurozone has a combined population of 331 million exceeding that of the United States while the total of their Gross Domestic Product is almost 90% that of the US. We are therefore talking about a significant economic region. Whoever turned out to have its upper hand, will be a formidable world economic bloc. In May 2010, Germany was forced to bail out Greece’s economy. Last November it rescued Ireland. Other European countries such as Spain, Italy and Portugal are facing economic difficulties and financial crises. The economies of those countries and the future of European unification project are on life support while Germany’s fingers are on the power switch. Last December, Stefano Micossi, a professor at the College of Europe, wrote, “either all of the sovereign debts [of Europe] become German public debt or the euro will collapse”. Unless Germany comes to the rescue, the European financial system may seriously be affected. Amrose Evans Prichard warned that it seems inevitable that the debts of Europe will have to be fused immediately with German debt. Germany has the only healthy economy in Europe, but has to react quickly whenever one of the organs of the Eurozone suffers economically. In the meanwhile, Germany’s strength is bound to have further impact “We beat the German’s twice, and now they are back” said the British Prime Minister Margaret Thatcher on December 8, 1989 one month after the Berlin Wall fell. Three months later, Mrs. Thatcher invited intellectuals, economists, historians and politicians to a discussion at her country residence to address the question “how dangerous are the Germans?’ After the seminar, Thatcher’s advisor Charles Powell said that the attendees agreed unanimously that “we should be nice to the Germans”. Adopting such an attitude towards Germany with no challenge, it continued its path of both political and economic powers. If the euro is further shaken resulting from economic weakness of any of the 17 member countries, Germany will rush to bail it out, thus gaining more economic strength, hence there will be another comeback of Germany’s power along with a strong euro.
In view of its short history, I may dwell on the question, what are the possible scenarios for the euro’s future?
1. An increase in the European Financial Stability Fund (EFSF) by issuing more euro bonds in an attempt to stem the sovereign debt crises within the Eurozone. At a meeting between German Chancellor Angela Merkel and European Commissioner Chief Jose Manuel Barrosso two weeks ago (January 26, 2011), Merkel turned down Barrosso’s proposal to increase the stability fund (EFSF).
2. To adhere with some flexibility to the terms agreed upon in what is known as the Maastricht Treaty signed in Holland on February 7, 1992 so that any country deviating from the terms would have to pursue fiscal and monetary policies to resort to the conditions under which it was admitted to use the euro as its legal tender currency. It may be useful to refer to those relevant conditions of the Maastricht Treaty:
a. not to allow inflation to exceed 1.5% of the three lowest inflation rates, b. not to have the government deficit as a percentage of the country’s Gross Domestic Product to exceed 3%, c. the government debt as a percentage of the country’s GDP not to exceed 60% and d. he nominal long-term interest rate must not be more than 2% higher than in the three lowest inflation member states.
3. With further weakening of the economies of some countries within the Eurozone, will the euro’s future be seriously threatened? I may speculate that regardless of negative developments of the economies of the Eurozone, the euro will remain to be one of the world key currencies along with the US dollar, the Sterling, the Yen and the new comer ChineseYuan.
4. With possible weakening of the economies of some countries within the Eurozone, can some countries opt out of the euro to return to their old currencies? Most likely no, but it could happen.
5. As a logical outcome of the possibility that one or more countries from the Eurozone return to their old currencies can the euro collapse as an international currency?
The answer is definitely no so long as Germany holds on the euro and does not return to the Deutsche Mark. Germany benefited from the euro by having its regional trade facilitated without having to resort to currency convertibility within the Eurozone.
In conclusion, I may suggest that the euro will continue to be a major world currency regardless of oscillations in the foreign exchange markets. In spite of weak economies of some countries belonging to the Eurozone, the strength of the German economy will outweigh negative effects in the euro, be it in the short or long term.