emmanuel tumusiime - mutebile : the planned introduction of the east african monetary union remarks by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the opening of the east african legislative assembly consultative workshop on the east african monetary union, kampala, 9 september 2013. * * * honourable ministers and honourable members of the east african legislative assembly ladies and gentlemen the issue that we have gathered here to discuss today – the planned introduction of the east african monetary union ( eamu ) – is one which will have profound effects on this region for decades to come. later this year i expect that the heads of state of each of the partner states of the east african community ( eac ) will sign the protocol for the introduction of the eamu. the protocol will pave the way for the transition to eamu over the course of the next 10 years and the complementary legal, institutional and economic reforms. the east african monetary union is a project with potentially large long term benefits for all of the economies in the eac but which also entails considerable risks. the long term success of eamu will be dependent upon major changes to public policy and in the way in which public policy is made in all partner states of the eac. a successful monetary union is only possible if each partner state is prepared to accept the pooling of its economic sovereignty. many economic decisions which are now made at the national level will have to be made at the regional level. this pooling of economic sovereignty extends beyond the loss of independent national monetary policy and exchange rates, which is of course inherent in a monetary union ; it also requires that each partner state accepts constraints on its fiscal policy and implements fully the provisions of the common market, including not just free trade in goods and services within the eac but also the free movement of capital and labour within the eac. if we do not build the requisite foundations for monetary union, the introduction of eamu may actually harm our economies. the problems which are currently being experienced by some of the peripheral members of the euro zone – greece, portugal and spain for example – which have lost competitiveness on international markets and can no longer use exchange rate depreciation to restore their competitiveness, should provide a salutary lesson to everyone involved in planning for the introduction of the eamu. without wishing to pre - empt any of the contributions from my colleagues in the eac secretariat, the ministry of finance, planning and economic

. this is the dilemma which has faced the european central bank since the global financial crisis broke out : a sovereign default in, for example, italy would not just affect italians ; the damage would be spread throughout the eurozone because of the contagion to financial institutions in other euro zone members. to avoid any danger of monetary policy being undermined by having to bail out the government of a partner state, it is necessary that the public debt of each partner state of the eamu must be sustainable and also perceived to be sustainable, so that each government can always fully meet its borrowing requirement from the market without having to resort to finance from the common central bank to avoid a sovereign default. to ensure public debt sustainability institutional mechanisms must be put in place, and enforced, to impose ceilings on fiscal deficits and public debt. the euro zone had the mechanisms to ensure public debt sustainability in the stability and growth pact, but they were not properly enforced. in the eac we are formulating fiscal rules to curb fiscal deficits and public borrowing. these targets will be set out in the eamu protocol to be signed later this year. it goes without saying that it is imperative that these fiscal rules are complied with at all times. failure to abide by these fiscal rules could fatally undermine the prospects for a successful monetary union. bis central bankers ’ speeches conclusion the introduction of a monetary union is undoubtedly the most challenging project ever undertaken at the regional level in east africa. the difficulties and risks involved should not be underestimated. the potential long term benefits of monetary union are large. if the monetary union is designed well and implemented properly, it should contribute to faster growth in trade, productivity, jobs and output over several decades. but the benefits will not be realized unless partner states are prepared to undertake the radical reforms necessary to put in place the essential foundations for monetary union, which include the implementation in full of the common market within the eac and the establishment of rules based sound fiscal policies. bis central bankers ’ speeches