The Real G2: Americans, Europeans, and their Role in the G20

Global economic governance was in the process of making a quantum leap. Hopes regarding the G20 process as the new global nucleus of political and economic governance were strong. But the reality of international financial market diplomacy was a harsh one. Reaching consensus among the G20 participants on financial market governance had proved a challenging task. This article argues that the United States and the European Union are the problem – and its solution.

Recent disagreements over capital and liquidity requirements, the organization of over-the-counter derivatives markets, the treatment of alternative investments, and the handling of systemically important financial institutions were only a few examples of the low point transatlantic financial market diplomacy had reached. At the same time, only the United States and the EU could provide the impetus the G20 process needed. This required that they first and foremost arrived at joint policy positions between themselves. In practice, this necessitated concrete cooperation on the scheduling, design, and details of regulation. This would optimally include ex ante bilateral consultations on all new policy measures as well as a close coordination of policy positions discussed in the G20. In the final analysis, however, the credibility of Americans and Europeans would depend in the long run on their ability to achieve a more integrated financial market at the transatlantic level.

These were very ambitious objectives, but their benefits would be substantial and real. The United States and the EU should intensify their policy cooperation and encourage their G20 partners to strive for more effective global coordination of financial market policies.