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

IntroductionGlobal economic governance is in the processof making a quantum leap. Hopes regardingthe G20 process as the new global nucleus ofpolitical and economic governance are strong. Infinancial market matters, this high-level processis supported by international organizations, suchas the International Monetary Fund (IMF), theFinancial Stability Board (FSB), or the InternationalOrganization of Securities Commissions(IOSCO), whose work holds out the prospect ofan internationally coordinated approach to the keyregulatory challenges in the world’s increasinglyintertwined financial markets.Expectations are high, and the urgency of closerinternational cooperation after the financial crisis ishigher still. But the reality of international financialmarket diplomacy is a harsh one. Two years afterthe first G20 meeting at the principal level inWashington in November 2008, optimism aboutthe scope for global solutions has given way tosober realism. Reaching consensus among the G20participants on financial market governance – beit on grand design or specific detail – has proved achallenging task, even at a time when the memoryof the financial crisis and the perceived “[need for]reforms in the world’s financial systems” 1 is stillfresh.The United States and the European Union arethe problem – and its solution. While the globaleconomy is undergoing tectonic changes, andits future is widely expected to be shaped by theUnited States and China – often referred to as theG2 – this article argues that it is the United Statesand the EU who need to provide the impetus theG20 process needs. Only they can drive globalfinancial market reform. Otherwise, the visionof establishing the G20 as an effective forum forinternational economic policy coordination mayfail.The G20 as a Forum of InternationalFinancial Market Policy CoordinationIf successful, the G20 may enter history books asone of the most important institutional innovationsin post-cold war global politics. While the initialcrisis reaction held out the prospect of a new eraof international high-level cooperation, however, anumber of political challenges have surfaced sinceits inception, rooted in the design of the processbut also in the diverging interests among the majorparticipants.The rationale of the G20 process was spelledout clearly at the first high-level meeting inNovember 2008, and has been greeted by manypolitical, academic, and business commentatorsas an important, if not overdue, step. Twoimportant objectives can be identified. One is theintensification of policy cooperation. In the areaof financial market policy, the G20 participantsdecided to “[...] enhance [...] cooperation andwork together to [...] achieve needed reforms inthe world’s financial systems.” In particular, theG20 recognized that “[...] financial markets areglobal in scope [and] intensified internationalcooperation among regulators and strengtheningof international standards [...] and their consistentimplementation is necessary to protect againstadverse cross-border, regional, and globaldevelopments affecting international financialstability.” 2Second, it was agreed to open up the high-leveldialogue and enhance the circle of decision-makersto include key emerging economies. Extending theTwo years afterthe first G20meeting optimismhas given way tosober realism. TheU.S. and the EUare the problem— and its solution.1G20 Meeting, November 15, 2008, final communiqué:“Washington Declaration – Summit on financial markets andthe world economy.”2G20 Meeting, November 15, 2008, final communiqué:“Washington Declaration – Summit on financial markets andthe world economy.”The Real G2: Americans, Europeans,and their Role in the G203