ANALYSIS/OPINION:
The European Union has endured decades of criticism for its overregulating and “under-risk-taking.” Finally, responding to its frustrated business community and backed by every single member state, the EU is looking to regulatory reform to foster desperately needed economic growth. A central reform is the proposed EU-U.S. Free Trade Agreement. But amazingly, the Obama White House refuses, for no articulated reason, to embrace the deal.
Perhaps the White House really does prefer the old Europe of statist and stifling regulation and does not want to let a reform-based revival in Europe threaten its own regulatory hegemony. If so, that would constitute a startling act of economic malice — to Europe, to the United States and to the West generally.
A great secret in Washington is that 10 years ago, the “sick man of Europe” was Germany, suffering slower economic growth than its southern neighbors. Then, at the end of Chancellor Gerhard Schroeder’s term, Germany went through a bout of Reagan-Thatcher regulatory reform (primarily of its labor-market rules) to stabilize unit labor costs.
The results were unambiguous: Within two or three years, Germany was on its way to becoming the colossus of Europe. Today, of course, Germany’s economic resurgence leads those with shorter memories to assume that Germany always has been on top; they ignore at their own peril the roots of Germany’s economic triumph.
It is unsurprising that Germany now looks south and asks why the rest of Europe cannot carry out similar reforms that are in no way uniquely suited just for Germany. Nor is it surprising that the European business community, led by German enterprises, would look to its business counterparts in the U.S. for help. That help has been forthcoming in truckloads from the U.S. Chamber of Commerce, which understands how enormously interlocked the two continents are economically and financially and how quickly one or two percentage points of gross domestic product (GDP) growth could blossom from a tran-Atlantic market free of regulatory disconnects.
But the silence from the White House is deafening. One theory to explain the lack of interest is that the Europeans arguably have been unreliable partners in the past, letting the power of their agricultural sector torpedo one effort after another, such as the 2008 French sneak attack on the Transatlantic Economic Council, then under the direction of German Chancellor Angela Merkel, under the guise of banning U.S. chicken exports to Europe. But European officials say that is all behind them, as the agricultural sectors on both continents are thriving almost as never before, with less need for continued subsidies.
Another theory is that the White House does not truly embrace the regulatory reforms it promotes publicly. For example, it recently released a new executive order designed to ensure international regulatory harmonization where possible. On the surface, the order is just what the doctor prescribed for what ails Europe as well for the U.S. economy.
But in the fine print, the order exempts rules arising from the Dodd-Frank bank overhaul bill from all regulation related to financial services, as well as all from independent agencies, which are the bulk of the entities that engage in financial regulation in any event (i.e., the Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau, etc.). But financial harmonization is a precondition for general regulatory reform, and to exempt financial regulation from overall regulatory harmonization simply undermines the entire effort.
It is true that the European Commission is trying to block Britain’s efforts to tighten capital requirements for the U.K. financial industry. The worry is that British subsidiaries won’t lend to the Continent, notwithstanding the greater risk to the U.K. taxpayers. As the recent JP Morgan mistake makes clear, the U.S. should help resolve this in Britains favor.
It is difficult to see what a joint effort could possibly to do jeopardize the president’s re-election prospects. Indeed, the potential of raising GDP growth from around 2 percent to 4 percent would seem to cut quite the other way. Republican candidate Mitt Romney should capitalize on the White House’s misguided strategy, pointing out that the U.S. already is losing European investments to Mexico because Mexico has a free-trade agreement with the EU.
• C. Boyden Gray served as White House counsel in the administration of President George H.W. Bush and as U.S. ambassador to the European Union under President George W. Bush.
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