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An ocean apart: Comparing transatlantic responses to the financial crisis

Has the EU-US relationship become a sideshow or is it still central to the global economy? Conflicting signals have been sent out since the outbreak of the global crisis. The creation of the G20 and its designation as ‘the premier forum for international cooperation’ suggest that attention and priorities have moved away from the traditional […]

By: , and Date: March 12, 2011 Topic: Finance & Financial Regulation

Has the EU-US relationship become a sideshow or is it still central to the global economy? Conflicting signals have been sent out since the outbreak of the global crisis. The creation of the G20 and its designation as ‘the premier forum for international cooperation’ suggest that attention and priorities have moved away from the traditional G7 focus on the transatlantic economy. But most of the key policy debates of the last two years have retained a characteristically transatlantic flavour. This applies to the controversy about the pace of consolidation which resulted in an open US-German rift at the Toronto summit in June 2010; to the discussion on the new bank capital ratios which again was essentially a euro- American affair; and to the broader conversation on the priorities of financial regulatory reform, for which the big action agendas have been the US Dodd-Frank Act and the European endorsement of a blueprint for coordinated supervision and a single European macroprudential body.

True, other issues – the global rebalancing, or the creation of global financial safety nets – have had a distinctive G20 scope. But at least a fair share of the international debate has been transatlantic.

There are reasons for this state of affairs. To start with, what is known as the global crisis has been first and foremost a transatlantic crisis. As discussed in several contributions in this volume, the wake of the crisis financial integration through portfolio diversification essentially remained an EU-US phenomenon.

Accordingly the subsequent financial turmoil primarily affected the European and American financial systems, and other economies indirectly only, through trade or capital outflows. It is therefore natural to see the same two regions take the lead in setting the agenda for financial reform. Second, the problems they are facing in the aftermath of the shock – the travails of deleveraging, unemployment, the need for unconventional policy responses, the lowering of the growth potential, the rise of public debt, political pressures for protection – are largely common. Third, while they are not the main contributors to world growth, the EU and the US still constitute the bulk of the global economy, and what happens to them matters considerably for all.

The US and the EU however are not responding to the same shock in the same way and this is what makes the comparison interesting. It is telling that the sovereign debt crises developed in Europe in the first half of 2010 and triggered a move towards consolidation while the US fiscal situation is by most standards worse than the aggregate European situation. It is telling also that the priorities of financial reform have not been the same. Clearly neither the policy space nor the policy traditions are identical and this portends significant divergence across the Atlantic. How far this divergence will go and whether policymakers on the two continents will disagree or agree to disagree is one of the key questions for the future of the global economy in the years to come.

All this justifies a revival of the transatlantic economic conversation. The joint Banca d’Italia-Bruegel-Peterson Institute conference, held in Rome on 10-11 September 2009 with the support of the European Commission, aimed to contribute to the conversation through research and policy discussions. We hope that the papers collected in this volume will help foster a fact-based, analytically sound discussion.

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Blog Post

Hong Kong’s economy is still important to the Mainland, at least financially

Hong Kong’s current situation is important for the world in as far as its role as major offshore financial centre is key for China’s inbound and outbound investment and financing. Capital outflows from Hong Kong are especially risky given Hong Kong's so far useful but rigid monetary regime, namely a peg to the USD under a currency board

By: Alicia García-Herrero and Gary Ng Topic: Global Economics & Governance Date: August 19, 2019
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Sep
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Bruegel Annual Meetings 2019

Bruegel's 2019 Annual Meetings will be held on 4-5 September and feature the launch of Bruegel's Memos to the New European Commission.

Speakers: Lorenzo Bini Smaghi, Laurence Boone, Claire Bury, Vítor Constâncio, Zsolt Darvas, Jérôme Delpech, Kris Dekeyser, Maria Demertzis, Baroness Kishwer Falkner of Margravine, Alicia García-Herrero, Mikaela Gavas, Sven Giegold, José Manuel González-Páramo, Sylvie Goulard, Pierre Heilbronn, Mathew Heim, Jamie Heywood, Yi Huang, Danuta Hübner, Korbinian Ibel, Shada Islam, Kate Kalutkiewicz, Brigitte Knopf, Bernd Lange, Christian Leffler, Päivi Leino-Sandberg, Mark Leonard, Cecilia Malmström, Stefano Manservisi, J. Scott Marcus, Ann Mettler, Ashoka Mody, Erik F. Nielsen, Jean Pisani-Ferry, Lapo Pistelli, Lucrezia Reichlin, Joakim Reiter, André Sapir, Olaf Scholz, Harriet Sena Siaw-Boateng, Philipp Steinberg, Alexander Stubb, Ezequiel Szafir, Jean-Claude Trichet, Laura Tyson, Nicolas Véron, Reinhilde Veugelers, Sabine Weyand, Thomas Wieser, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Palais des Academies, Rue Ducale 1, 1000 Brussels
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China-EU investment relations: Exploring competition and industrial policies

This is a closed-door workshop jointly organised by MERICS and Bruegel looking at China-EU investment relations.

Speakers: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Opinion

The Democrats need to have a climate-only TV debate. For Americans and for the rest of us

A series of global summits mean the months between now and November 2020 will be crucial to the future of climate change.

By: Simone Tagliapietra Topic: Global Economics & Governance Date: August 6, 2019
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The new leaders of the European Union, who have relentlessly championed open markets, will, ironically, likely trigger a conflict between climate preservation and free trade. But this clash is unavoidable, and how Europe and the world manage it will help to determine the fate of globalisation, if not that of the climate.

By: Jean Pisani-Ferry Topic: Energy & Climate, Global Economics & Governance Date: August 1, 2019
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Bank resolution: its impact in the EU

Closed-door workshop on various aspects of bank resolution.

Speakers: Jon Cunliffe, Martin J. Gruenberg and Elke König Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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A reflection on the Mercosur agreement

The EU accepts the deal because it is worried about the catastrophic scenario of a world without the WTO.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 26, 2019
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External Publication

An Effective Regime for Non-viable Banks: US Experience and Considerations for EU Reform

The US regime for non-viable banks has maintained a high degree of stability and public confidence by protecting deposits, while working to minimise the public cost of that protection. EU reformers can draw valuable insights from the US experience. A review of the US regime supports arguments in favour of harmonisation and centralisation of bank insolvency proceedings and deposit insurance in Europe’s banking union.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: July 22, 2019
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Blog Post

China’s investment in Africa: What the data really says, and the implications for Europe

China has clearly signalled to Europe that it does not shy away from involvement in Africa, historically Europe’s area of influence. But the nature of China’s direct investment flows to the continent will have to change if they are to prove sustainable.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: July 22, 2019
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Libra: possible risks in Facebook's pursuit of a 'stablecoin'

Facebook’s new cryptocurrency has the potential to be both widely accessible and attractive to those countries that do not have strong sovereign currencies. So far regulators have treated such currencies as a minor risk to national economics, but the Libra could change everything.

By: Maria Demertzis and Jan Mazza Topic: Finance & Financial Regulation Date: July 17, 2019
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Past Event

Past Event

The 4th industrial revolution: opportunities and challenges for Europe and China

What is the current status of EU-China relations concerning innovation, and what might their future look like?

Speakers: Elżbieta Bieńkowska, Chen Dongxiao, Patrick Child, Eric Cornuel, Maria Demertzis, Ding Yuan, Luigi Gambardella, Jiang Jianqing, Frank Kirchner, Pascal Lamy, Li Mingjun, Gwenn Sonck, Gerard Van Schaik, Reinhilde Veugelers, Wang Hongjian, Guntram B. Wolff, Xu Bin, Zhang Hongjun and Zhou Snow Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 12, 2019
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What bond markets tell about China’s economy

Macro data doesn’t provide a comprehensive picture to investors, but bond issuance data can fill in some gaps.

By: Alicia García-Herrero and Gary Ng Topic: Global Economics & Governance Date: July 10, 2019
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