Graduate School of International Studies Ajou University
European sovereign debt crisis at 2010 has opened our eyes about the importance of fiscal austerity in forming the currency union. Fiscal austerity is manifested quantitatively in the form of level of budget deficit and level of sovereign debt. The problem faces by Greece during the European crisis 2010 shows the sovereign debt crisis may threaten the country membership in Euro zone.
This paper examines the importance of the similarity of sovereign debt level in forming the currency union by adding the similarity of sovereign debt level as one of the optimum currency area (OCA) properties and the application of it on the ASEAN+3 countries single-currency. In the other word, this paper considers the similarity of sovereign debt level in calculating the OCA index for the case of ASEAN+3 countries in the period of 1980 - 2009.
The result showed that similarity of sovereign debt level is statistically significant for the case of ASEAN+3 countries in forming single-currency. And by considering similarity of sovereign debt level, the currency union should started from Thailand, Malaysia, Philippine, China and South Korea to form single-currency together for the first group and later followed by Indonesia, Singapore and Japan for the second group.
Keywords: ASEAN+3, economic integration, optimum currency area, single currency, sovereign debt.
JEL Classification Codes: E32, F02, F15, F31.