Cooperation on regional and global issues

39 - Relations with the US on global economic and financial reform

Grade: C
Unity 2/5
Resources 2/5
Outcome 4/10
Total 8/20

Europeans had little influence on US national and global economic policy and its regulatory reform, and found themselves outmanoeuvered by Washington at the IMF and the World Bank.

In the aftermath of the 2008-2009 crisis, Europeans have had several objectives vis-à-vis Americans regarding the stewardship of international financial institutions and the global economy, but exerted little influence on the US in 2010.

On macro-economic policies, Europeans insisted on reducing deficits and debt, while Americans defended the need for a continued stimulus of the economy. The two sides came to a half-way compromise at the G20 Toronto summit in June. However,  its non-binding nature was highlighted in November, when the Federal Reserve launched its first round of quantitative easing, an initiative strongly criticised by Europeans, and again in December, when the Obama administration agreed to extend the Bush-era tax cuts – in effect, a new stimulus.

On financial regulatory reform, transatlantic coordination is key to setting global norms. However, member states were divided on a range of issues: while some such as the UK focused on improving liquidity and capital standards, others such as France and Germany said they wanted an expansion of regulation of hedge funds and the private-equity sector. Differences such as these contributed to a lack of focus and the limited overall impact on the US. However, through close contact with the various global regulatory forums, Europeans did have some influence on the Treasury Department’s original draft of the Dodd-Frank Act, which was passed in July.

Lastly, Europeans failed to present a united front to Americans and emerging economies on reform of the IMF and the World Bank, and were in effect forced by the US to cede two seats at the IMF board without a significant concession in return (for example, on its veto right or its World Bank directorship) and without progress on the global package of governance reform they were seeking (see component 69).