Regional integration as “second-best” alternative in post-financial crisis world: lessons from the European Monetary Union to the Mercosur and Unasur

DOI: 10.5752/P.1809-6182.2018v15.n2.p61 Recebido em: 07 de agosto de 2018 Aceito em: 11 de dezembro de 2018 Abstract The International Monetary System does not reflect transformations in the global economy. Being impossible to reform it, economic integration processes may be a “second-best” alternative. By analyzing the European Monetary Union we conclude that MERCOSUR and UNASUR should conceive regimes in less restrictive forms and develop fiscal and political integration.

Through cooperative performance of the Group of Twenty (G20), developing countries were able to play a more active role during the 2008 Crisis, which also prompted discussions of reforms in IMF Governance. However, conservative discourse has returned to the spotlight since the crisis began to ease, in a way that developed states gave up the possibility of reforming the IMS.
In this context of stagnation, economic integration presents itself as an alternative to states.
Those participating in integration structured can shape them according to their own interests and intentions. In the past years, there has been significant increase in regional agreements, which proves the importance and the relevance of this form of integration.
In this paper, we aim to analyze the outcomes produced by the European Monetary Union to obtain lessons for two South American integration blocks: Union of South American Nations (UNA-SUR) and Southern Common Market (MERCOS-UR). Our main argument is that regional integration is a second best alternative from unilateral openness in an unreformed International Monetary System. However, We conclude that it is necessary to conceive regimes of monetary cooperation in less restrictive forms than a monetary union, maintaining the autonomy of the economic policies, and developing forms of fiscal and political integration, through common social policies.
In order to reach this conclusion, this paper is divided in three sections. In the first one, we discuss the importance of processes of economic integration as an alternative to an unstable and unreformed international monetary system in the post-financial crisis world. Secondly, we briefly analyze the European Monetary Union experience.
And, thirdly, having this as a reference, we discuss the monetary cooperation and the integration processes of UNASUR and MERCOSUR.

Economic Integration as the Second-Best Alternative
The Theory of Second-Best arises from the orthodox perspective of economics, according to which integration processes could convey an advantage, because they can lead to greater trade openness among partners, even if they are still far from an optimal situation of absolute free trade. Therefore, economic integration can be considered a "Second-Best" option if compared to the first option of widespread commercial freedom (BAUMANN; CANUTO;GONÇALVES, 2004, p. 110).
Nevertheless, besides its original orthodox meaning, integration is also a "Second-Best" option given the uncertainties of the International Monetary System. The end of the Bretton Woods System gave place to a period defined by the multiplicity of exchange rate regimes, both in transaction currencies and in adjustment criteria, in which major international currencies floated freely. Two main characteristics of this period were the absence of a prior fixation of values (the exchange-rate system was not fixed) and the elimination of several instruments of control and regulation of the financial system. There-fore, there was more properly, a "non-system". The 1990s witnessed a series of financial and foreign exchange crises due to the volatility of external resource flows and due to the contagion effect. All of this brought to the forefront debates about a new international financial architecture and of a need to reform existing mechanisms and institutions (BAUMANN; CANUTO;GONÇALVES, 2004, p. 404-409).
Such debates arose during the subprime crisis of 2008. The G20 proved to be the most effective mechanism of international economic governance to respond to it. During both times -the financial crisis of the 1990s and of 2008 -institutions that gathered only developed countries, such as the Group of Eight (G8), proved to be insufficient and unable to provide solutions on their own. The inability of systems that prevailed during Cold War was clear, since their decisions were top-down and did not consider the Global South. Developing countries could no longer be left out of decision-making processes and needed to be included in decision-making processes. According to Carvalho (2012), the G20 arose in the context of insufficient leadership from developed countries to coordinate a response to the 2008 crisis, and of distrust about the efficiency of the IMF and of the United Nations (UN) to discuss and determine effective solutions, due to their large numbers of members.
The financial crisis of 2008 was in reality a crisis of the financial globalization process, in the sense that was a consequence of the tendency of creating a "single global financial market" by the desregulamentation in national markets and the liberalization in capital fluxes. If the macroeconomic response to the crisis prevented a new 1930's depression, it did not created a solid and stable environment. And, as the post-financial crisis world still suffers with fragile economic growth, emerging economies are the most exposed to financial instabilities. Due to the hierarchical and asymmetrical structure of the international monetary and financial system, emerging countries are more vulnerable to volatile flows of capital and contagion effects (AKB, 2011).
There has not been a breach with traditional institutions from Bretton Woods, such as the IMF and the World Bank. There was no attempt to quit or to replace those institutions, but rather an attempt to include them, since their presidents took part in G20 meetings and discussions. This does not mean a mere acceptance of these institutions by emerging countries, which sought structural reforms to increase their participation. All members must accept the decisions taken in these fora; therefore, increasing the number and diversity of participants would also increase their legitimacy. When guidelines are negotiated and agreed upon also by developing countries, they are more likely to be accepted and observed.
While efforts by the G20 have proven to be crucial for resolving the Crisis, the debate about the need to reform the IMS is only voiced at the most critical moments, being abandoned when the situation appears to have a solution. Thus, at least two other issues, which will not be further developed in this paper, stand out: the limits for cooperation

The European Monetary Union
The European Monetary Union has proven to be an interesting step to European countries since the majority of the trade in the region has always been among its members. According to Baumann (2013) The Stability and Growth Pact institutionalized a deflationary economic policy stance, calling for tax increases and cuts in spending even in times of recession, to gain credibility vis-à-vis the international financial system, without, however, obtaining any results from its objective. Furthermore, "the broad question is not whether to be 'for' or 'against' the euro per se, but to get the 'right' institutional framework and policy for the achievement of high employment levels throughout the Union" (ARESTIS et. al., 2003, p.1).

Lessons to MERCOSUR and UNASUR: Monetary Cooperation and Regional Arrangements
In 1991 (iv) To consolidate the free trade area in the UNASUR, which means to eliminate tariffs, import quotas and preferences on goods and services traded among the UNASUR countries; (v) To manage an exchange rate regime based on a fixed, but adjustable exchange rate system; (vi) To promote a system of local currency payments to boost the trade and financial relations among countries (FERRARI-FILHO, 2014, p. 428-429  Cooperation in finance and in trade has always had mutual reinforcing trends. Regional payments and clearing agreements help to develop intraregional trade as much as trade integration demands mechanisms for addressing exchange-rate misalignments. There are at least three primary means of monetary cooperation: (1) regional cooperation for payment facilities and short-term financing, which includes swap agreements and pooling of reserves among central banks, and the use of domestic currencies in intraregional trade; (2) regional cooperation for development financing, with the creation of regional development banks and regional bond markets; (3) regional exchange-rate coordination mechanisms (UNCTAD, 2007).
Possible benefits from integration, such as negotiation flexibility, depend on the concrete model  Faced with the resistance from both developed and developing countries, which prevents deeper restructuring of the IMS, the processes of economic integration are presented as a viable possibility for the states to obtain benefits and for economic growth. The benefits come from the fact that these models of economic integration are shaped through negotiations between states that are interested in being part of the arrangement, guaranteeing greater flexibility. This is in contrast to the IMS, whose structures were established by a restricted group of countries, on which the majority had no voice.
In conclusion, it is also essential to have an adequate analysis of the so-called non-traditional gains from regional integration arrangements, such as security and increased bargaining power, in multilateral negotiations. In this sense, the fact that six South American countries -Argentina, Brazil, Chile, Colombia, Peru and Paraguay -have suspended their membership from UNASUR ten years after the outbreak of the financial crises can be symbolic and paradoxical. Regional blocks have increased developing countries bargaining power in 2008, but in 2018 this model seems to be put aside in order to return to an old model in which the rules are dictated by the Global North. However only in a few years we will be able to assess the consequences and implications of this movement.