As the euro, the common currency for most members of the European Union, is being traded at record low levels against the dollar, leaders of the Gulf Cooperation Council, which includes Kuwait, Qatar, Bahrain, Oman, Saudi Arabia and the United Arab Emirates, are having seconds thoughts about the proposal for a common currency.
Kuwait Foreign Minister Sheikh Mohammad Al-Sabah was quoted in local media as saying that it would be irresponsible of the Gulf Cooperation Council to push ahead without studying the implications of the problems in Europe.
"Certainly, the euro crisis has alarmed GCC decision-makers," Yadullah Ijtehadi, managing editor at ABQ Zawya, a business information company, told The Media Line. "They will be keenly monitoring how the crisis unfolds in Europe and if there is any lasting damage to the Euro," he explained.
"Until the full fallout of this crisis is fully examined," said Ijtehadi, "I doubt (the) Gulf Cooperation Council decision-makers will be keen to push their own monetary union agenda in a hurry."
The treaty for the common Gulf currency was originally signed in 2001 and given a 10-year deadline for its implementation, a date that has been postponed several times. Since then, both Oman and the UAE have dropped out.
While the effect caused by Oman's decision to leave was minimal, the loss of the UAE dealt a major blow to the common currency plans.
An official statement explaining why the UAE left still has not been issued, making its leaders' motives unclear. However, the announcement came only weeks after Riyadh, the capital of Saudi Arabia, was chosen as the headquarters for what would become the new central bank in June 2009.
"This crisis (with the euro) would further dissuade the UAE and Oman; both have decided to sit out the current proposed monetary union for now. And if there were any hopes that Saudi Arabia will be able to bring them back to the table, they have evaporated, at least for the time being," Ijtehadi said.
"A monetary union seems further and further away for now, especially when a monetary policy framework is not in place either, and Gulf states are distracted by slow growth," he added.
The euro was introduced as the common currency in 16 of the 27 member states of the European Union in 2002, replacing national currencies, and a European central bank was established to take charge of monetary policy for the euro zone.
The first seven years of the Euro passed smoothly, as it corresponded with a period of global economic growth; however, as the effects of the international sub-prime crisis started to materialize in less wealthy European countries, such as Greece, the value of the euro started to drop.
As the crisis escalated, the economy of Greece along with the political stability of the entire euro zone began to plummet and the EU and the International Monetary Fund offered a $137 billion rescue package to Greece following intense discussions between leading euro nations France and Germany.
Jane Kinninmont, an expert on the Gulf with the Economist Intelligence Unit, told The Media Line that the two projects for a common regional currency have some similarities and differences.
"Like the euro, it's a political project," Kinninmont told the Media Line.
"They are pegged to the dollar, but unlike the euro, they will not have dramatic economic benefits from merging their currencies," she said, pointing out that now the value of the various Gulf currencies are not determined by the economic performance of each country, but by their value compared to the dollar.
Kinninmont predicted that within five to 10 years the Gulf currency - sometimes referred to as the Khaleeji - would be implemented.
