"It is unwise to speak about a new [spending] plan," said European
Commission President Jose Manuel Barroso at the German Marshall Fund's
Brussels Forum in late March, "before we have implemented the old plan."
True, but Barroso's comment implies EU spending is adequate. Yet new
European stimulus expenditures this year will equal only about half of
such U.S. spending as a percentage of GDP.
European officials contend such calculations fail to account for
expenditures on their social safety net: generous unemployment benefits
and subsidies to keep people employed. This is disingenuous. Such state
spending cuts the gap in transatlantic stimulus spending by about half,
but it certainly doesn't result in equal burden sharing, according to
estimates by Bruegel, a Brussels-based think tank.
The good news is most observers here believe European government
stimulus spending is likely to increase before the year is out. The
ruling coalition in Germany, for one, is expected to boost outlays by
June in the run-up to that country's September elections.
Thus the more important challenge might be developing a
transatlantic consensus on a coordinated stimulus exit strategy.
Failure to agree on joint criteria for phasing out spending once it is
no longer needed could lead to some nations turning off the spigot
prematurely, risking a prolonged downturn.
To avoid that, Congress might press the administration to reopen the
transatlantic dialogue over stimulus spending in 2009's Third quarter,
once the depth and length of the recession is clearer. The goal could
be to share evidence of what works and to develop criteria for deciding
when enough is enough.
Developing rules of the road for financial institutions is the second challenge in the wake of the G-20 meeting.
"We will not move to global convergence of regulatory standards and
principles unless we have a strong EU and U.S. regulatory and
supervisory system," said a senior EU official, "because we constitute
70 percent of global capital markets."
But such ambition faces temporal and policy differences. In
February, the European Union laid out its vision for supervision of
European financial institutions and markets. It called for new rules
for credit rating agencies, regulation of hedge funds and new standards
for issuing securities in the European market.
U.S. officials privately worry the European Union is moving too fast
and will force U.S. financial players to live by European rules. "We
are going in different directions already," said economist Karel Lannoo
of the Centre for European Policy Studies, a Brussels think tank.
"This is not compatible with globally convergent approaches," said one former Bush administration official.
But European officials complain they are being blamed for trying to
close the barn door after the Americans left it open. Moreover, they
contend that the SEC is already signaling a lack of interest in