EU-US financial talks must not sink if Merkel’s ship runs aground

What exactly will be left of what began as German Chancellor Angela Merkel’s transatlantic free trade initiative by the time of the EU-US summit (30 April) is anybody’s guess.

"The Chancellor’s advisers still seem to be in thinking mode," says an executive at a major German firm who is watching developments closely.

There are fears among business lobbyists on both sides of the Atlantic that the political declaration on transatlantic economic relations at the summit will be ambitious, but vapid.

What the US Chamber of Commerce and BusinessEurope, the EU’s main business lobby, would like to see emerge from the summit is what BusinessEurope calls "a comprehensive and legally binding agreement" on regulatory co-operation. Among other things, this would require legislators and officials to take into account the impact on transatlantic economic relations of laws and regulations affecting companies’ business activities. The aim would be to make more predictable (but not harmonise) the process by which a company can get regulatory approval in both the US and the EU for, say, an energy-efficient light bulb.

Nobody will say so publicly, but if the US and the EU do not co-operate they will have blown a huge opportunity to use their economic power to gain competitive advantage to establish global rules. This failure would create an opportunity for emerging markets like China to play a bigger role in setting standards, something it is actively trying to do.

In New York on 7 March, Charlie McCreevy, the European commissioner for the internal market and services, set out what he described as his "six principles" for building a trans-Atlantic market. Number one was: "Do no harm." With this in mind, the first thing that the German presidency should do is make it clear that, whatever happens with transatlantic regulatory co-operation in general, financial services co-operation, where the EU has made immense progress, will be ring-fenced.

A paper produced by BusinessEurope on 1 March is as good a place as any to start in trying to understand where the transatlantic dialogue stands today. This points out first, that, since the New Transatlantic Agenda in 1995, there have been a series of such economic relations initiatives but "little in terms of substantive progress has been made".

The employers lobby goes on to say that Merkel’s original idea for a deep trans-Atlantic free trade agreement is "not politically feasible" at present.

It (and the US Chamber) fully support, however, the German presidency’s proposals for a new transatlantic partnership, which BusinessEurope says "would cover regulatory co-operation, in goods but also in services; investment; tariffs - through the WTO (World Trade Organization); public procurement; intellectual property; energy/ environment; financial markets and security; and innovation".

But back to "do no harm". Four years ago, the then director-general of internal market, Alex Schaub, went to Washington to discuss deepening the EU-US financial market regulatory dialogue but he was, says one (German) expert in the field, "treated like a junior partner". In the wake of 9 September 2001, President George W. Bush’s neo-con ideologues had lurched in the direction of even greater US unilateralism, even in the arcane field of financial regulation. How things have changed since then.

Last week (21 March) the US announced that it would make it easier for foreign companies with US stock exchange listings, to escape compliance with the notorious post-Enron Sarbanes-Oxley law. This is legislation which, four years ago, the US had initially sought to impose extra-territorially. Earlier this month, Christopher Cox, the head of the US Securities and Exchange Commission, a leading financial market regulatory agency, had suggested that the US should accept EU-backed International Financial Reporting Standards (IFRS) as equivalent to US Generally Agreed Accounting Principles (US GAAP) by 2009.

This might be technical stuff, but it is deeply symbolic. Officials in Washington (but not politicians in the US Congress), pushed by Wall Street, have understood that the days are over when, because the US and its markets were so dominant globally, American regulators could impose their domestic regulations not just willy nilly on foreign companies in the US, but also export them globally.

Today the four-year-old transatlantic financial market regulatory dialogue is being conducted between equals. There are many reasons for this EU success. It is not just that euro-denominated financial markets are becoming as attractive as US dollar markets. America’s legal and regulatory norms simply do not travel well across borders. The EU’s are designed to be multinational. Moreover, financial markets are already deeply integrated. Banks, brokers and regulators on both sides of the Atlantic recognise that they face similar problems - and threats. So incentives to co-operate are high. Brussels is playing its cards well in the transatlantic financial markets regulatory field. Embedding this facet of the transatlantic dialogue too deeply into a new political/ bureaucratic structure could do more harm than good.

• Stewart Fleming is a freelance journalist based in Brussels.

What exactly will be left of what began as German Chancellor Angela Merkel’s transatlantic free trade initiative by the time of the EU-US summit (30 April) is anybody’s guess.

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