Merkel bets on transatlantic long-shot

Germany’s presidency of the EU began ambitiously last week. German Chancellor Angela Merkel revived talks of a transatlantic single market, aimed at boosting EU-US economic co-operation.

But Merkel’s bid to place deeply unsexy issues such as accountancy convergence at the top of the transatlantic agenda appear to have been blown out of proportion. Playing down the importance of the initiative, a German diplomat claimed that Merkel’s decision to tackle the issue should not have come as a surprise. "All she’s done with the transatlantic initiative is to take a few elements which are dealt with at expert level and see how far we can get by the end of the presidency," he said.

The high-level discussions have, if anything, served to highlight the snail-like progress made by the two economies on convergence and mutual regulatory recognition over the past few years. This state of affairs is unlikely to change as a result of Merkel’s efforts, given the technical and legislative complexity of negotiations.

According to Jean-Pierre Casey, a research fellow at the Centre for European Policy Studies, a think-tank, the bulk of co-operation in the field of financial market regulation has taken place over the past four years. "Dialogue is already in place," he says.

"It will continue on its own despite political initiatives."

In the area of financial reporting, progress made on convergence caused some consternation in the EU last year. The Norwalk agreement on convergence of transatlantic accounting standards, signed in February by the London-based International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) had EU accountants in a flap. Having only just adopted IASB standards in 2005, accountants feared the possible transition to a converged model heavily influenced by US standards. But in turn US industry fears it may have given too much ground and is stalling. A deadline of 2009 has been set for convergence but looks optimistic.

Change has been faster when driven by the market. The €8 billion merger between the New York Stock Exchange (NYSE) and Paris-based Euronext, set to be finalised later this year, forced regulators on both sides of the Atlantic to look for solutions to corporate governance issues. Regulators on both sides of the Atlantic agreed that the infamous Sarbanes-Oxley Act, launched in the US to tighten corporate oversight in the wake of the 2001 Enron scandal, should not be applied to EU-listed firms. Due recognition was given by the US to principles set out in the 4th, 7th and 8th company law directives, which cover governance and audit issues.

Attempts at closer integration are beset by industry-specific lobbying. The ‘open skies’ agreement, aimed at liberalising air services between the US and the EU, is one such example. One of the EU’s main demands was an end to US legislation limiting foreign investor’s control of a US airline to 25% of voting rights. A proposal to make such a change was withdrawn by the US administration last month, apparently a victim of changed Congressional politics.

"I don’t have rabbits in the hat to pull out," said John Byerly, US deputy assistant secretary of state for transportation, in Brussels this week, ostensibly to move discussions forward. Despite talk of "joint endeavour and shared purpose", Byerly made it clear that it was up to the EU to advance the deal without the concession on ownership rights. "This is the real world. You have to deal with politics," he said.

Despite efforts to promote a negotiated solution to the subsidies dispute between Boeing and Airbus, the US, which claims that Airbus has benefited from billions of euros in illegal state aid, forged ahead with its complaint at the World Trade Organization (WTO) in November. The EU is expected to respond early next month with counter-claims of illegal aid received by Boeing. Trade Commissioner Peter Mandelson has said in the past that the dispute could take years to resolve.

One area where Merkel might be able to make a difference is the application and enforcement of intellectual property rights. Germany’s presidency of the G8 this year puts her in a good position to improve co-operation. Having laid special emphasis on the issue during her trip to Washington, she could help to foster progress by accelerating the launch of joint EU-US investigations and through the enforcement of WTO rules outlined in the TRIPS agreement (Trade-related Aspects of Intellectual Property). "Co-operation needs to be more practical and realistic," said Elias Konteas, policy adviser at UNICE, the European employers’ federation.

Talks on transatlantic co-operation will be intensified in the run-up to the next meeting of EU and US leaders in the second half of the German presidency.

Overall, Merkel’s efforts will have brought together a number of transatlantic issues for attention. But a transatlantic single market still looks a long way off.

Germany’s presidency of the EU began ambitiously last week. German Chancellor Angela Merkel revived talks of a transatlantic single market, aimed at boosting EU-US economic co-operation.