Eurozone crisis

[Yusuf Mansur]

Jordan stands to benefit greatly from the eurozone crisis. And yes, the crisis may spill over into emerging and developed markets, but there is nothing to worry about; Jordan is neither emerging nor developed and has a huge trade deficit with the EU. In fact, the eurozone crisis may prove to be a boon for Jordan right now.

When Jordan signed the EU-Jordan Association Agreement, which comprised commitments on trade, social, political and economic aspects, the trade deficit (exports minus imports) was slightly over JD500 million in favour of the EU. In other words, in 1997, Jordan was exporting around JD100 million worth of goods to the EU markets, and importing over JD600 million from the EU.

Furthermore, our exports were mainly raw materials and the EU exports were primarily machines and intermediate goods. The agreement was finally ratified in 2002. While Jordan so quickly approved, the parliaments of each member country in the EU had to separately approve it and then the parliament of the EU itself had to give its blessings.

Signing the agreement was a learning ground for most of us in the Jordanian team who helped negotiate it and we signed without the whole team being convinced of its merits. Yet we signed we were told that free trade was good for the country and that development could not occur without Jordan opening its borders to the developed economies in the EU and elsewhere.

Meanwhile, our negotiation strategy focused primarily on receiving aid from the EU to compensate the Treasury for the resultant loss in customs duties.

Alas, the trade deficit with the EU did not shrink over time, it expanded. By the time the EU ratified the agreement, the trade deficit had risen to JD1 billion. By 2011, the trade deficit was over JD2.5 billion, or five times what it was when we had signed the agreement. Jordanian imports from the EU made up 20 per cent of its total imports last year.

Back to the present: the crisis means that the US economy is viewed to do better than that of the EU. Hence, the dollar will appreciate against the euro.

With Greece narrowly voting for a government that promised to meet its membership commitments and Spain’s own economic quagmire looming, the eurozone is facing difficult times, which translates into smaller economic growth this year, not only for the EU but also for developing economies, particularly those that live on exporting to the EU.

The World Bank expects growth in developing countries to be weak (5.3 per cent) in 2012, relative to 2011 (6.1 per cent) and in 2010 (7.4 per cent).

Given that Jordanians use euros to pay for imports from the EU, the crisis, which already adversely affected the euro, will make Jordanian imports from the EU will become cheaper since the dinar is pegged to the dollar.

Even if Jordanian exports to the EU suffer a downfall, it will be dismal in comparison to the imports; hence, Jordan will be positively affected and the crisis, which already affected oil prices, will further benefit the Jordanian economy.

This also means that we will hopefully enjoy a growth rate that is similar to that predicted by the World Bank, except in our case, such a rate will be a relative upturn, not a trough.

As such, managers of the Jordanian economy should not panic as in 2008; they should spread the good cheer. JordanTimes 26/6/2012