the real g2: americans, europeans, and their role in the g20

The way theUnited Statesand the EU areimplementingthe G20 financialmarket reformagenda isleading to evenwider regulatorydiscrepanciesthan beforethe crisis.has also raised the degree of interconnectedness– i.e. the level of market integration – betweenthe two economic areas. As a result, there isan increasingly strong rationale for enhancingcooperation on financial regulation and oversight,as was acknowledged by the U.S. administrationand the EU Commission when they issued theirJoint Statement in 2008.If anything, this rationale has been reinforced bythe financial crisis, which highlighted the growingrisks of financial contagion given the level ofcross-border capital flows already achieved. 14The implementation of the G20 agenda, however,gives rise to the concern that the regulatorydiscrepancies between the U.S. and the EU may,in fact, widen further. This is likely to aggravate,rather than facilitate, the oversight of increasinglyinternationalized financial markets between theUnited States and the EU as well as beyond. Notto mention the fact that substantial cost savingsfor corporate and retail clients from a moreintegrated financial market will be lost. In case ofan integration of U.S.-EU securities markets alone,such savings would be non-trivial and may amountto US$50 billion per year or more (see graph onpage 7). 15Looking Ahead – The Role of theUnited States and Europe in the G20In financial markets, the United States and the EUare the real G2. They carry a responsibility that goesfar beyond that of their partners in the G20: Theyremain the largest and most advanced financialmarkets worldwide. They look back at the mostextensive experience in financial market regulationand supervision – not least owing to their role asthe epicenters of the most severe financial crises14TABD (2010).15For a quantification of the potential benefits of transatlanticsecurities market integration, see Steil (2002) and Kern(2010a).in history. And they continue to be the centre ofinternational financing and financial innovation. Atthe same time, the benefits of achieving bilaterallyand globally coordinated reforms are evident.As a result, it seems advisable that the UnitedStates and the EU should be credible promotersand forceful drivers of financial market policycoordination in the G20. Reaching joint policypositions will, in practice, require concretecooperation on the scheduling, design, and detailsof regulation. This would optimally include exante bilateral consultations on all new policymeasures in the area of financial market regulationof national, bilateral, or international dimensions,as well as a close coordination of policy positionsdiscussed in international forums, especially inthe G20 and the bodies entrusted with supportingglobal financial reform.Finally, the credibility of Americans and Europeansas promoters of free capital flows and as keyinnovators in the global economy will dependin the long run on their ability to be good rolemodels and achieve a more integrated financialmarket at the transatlantic level. This would requiresystematic work on resolving existing bilateralregulatory barriers on the basis of their existingJoint Statement, i.e. towards a harmonised andmutually recognized regulatory system. In otherwords, they will at some point need to embark onthe journey towards a single transatlantic financialmarket.These are very ambitious objectives, and theymay run counter to the zeitgeist that prevails inthe political environment after the economic andfinancial crisis. But the benefits of internationallyconsistent financial reform are substantial andreal, and no other two economies know thisbetter than those of the United States and the EU,whose prosperity is founded on the openness ofmarkets, the free flow of goods and investments,8Transatlantic Academy