It has looked increasingly doubtful that theGulf stateshave the will to meet the deadline as the realities of harmonising monetary policy begin to emerge.

The single currency has fallen victim to inflation, with governments preferring to follow independent policies to drive down prices.

Rising prices are one of the most pressing challenges for the Gulf economies. And there is no doubt that the fixed economic link with a flagging US economy via the dollar peg is contributing to the problem.

But it is certainly not the only factor. Other contributors are rising rents, food prices and wages. According to Al-Suweidi, rents are the major driver of UAE inflation, which is running at 10-15 per cent. Imported inflation is just 2.5 per cent.

The GCC must now turn its attention to developing a single market for goods and services across the region.

While monetary policy flexibility will allow governments to take steps to tackle inflation, the more far-reaching solution of a common market will stimulate competition across the GCC.

Although intra-regional trade is minimal, stimulating greater movement of capital and workers will allow market forces to respond to the imbalances in supply and demand that are contri-buting to rising costs (see Cover Story, page 4).

It is a concept the GCC has already agreed to in principle, with a new single-market framework to be announced by the end of 2007. But in reality, the removal of barriers is unlikely for many years.

While the GCC as a region has gained some credence, the GCC as a driver of growth has yet to take root. That can only come through delivering meaningful initiatives.

Creating a single currency was too ambitious at this stage in the GCC’s history. But it can deliver a single market.