The Atlantic Dialogue

BRUSSELS, Belgium -- President Obama meets today in London with the leaders of the world's largest economies. They can be expected to call for solidarity in the face of the worsening global economy and to issue a lengthy list of commitments to revive economic growth and better regulate international financial transactions.

Out of diplomatic deference, what their meeting communiqué will not say is that most of what has to be done will fall on the shoulders of the world's two largest economies: the European Union and the United States. If the lofty goals of this G-20 summit are to have any chance of success, Europeans and Americans will need to work closely. Unfortunately, on the eve of the summit, recent experience was not promising.

"We need to cooperate to find solutions that are coherent and global," Joaquin Almunia, the European Union's Commissioner for Economic and Financial Affairs, said in an interview with CongressDaily. "The agenda is now clear, even if on the details we will differ in approaches."

But it is precisely these differences that pose the problem. Recent Obama administration complaints that the Europeans are not doing enough stimulus spending have been met with sharp European rebuttals.

"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 international cooperation.

Differences in the pace of reregulation, if not the substance, might sort themselves out. EU officials acknowledge concrete proposals for financial rules will not come before the end of the year and could not be enacted much before the end of 2010. Moreover, the European Union does not speak for its member states, so Brussels' ambitions might have to be tempered.

This certainly gives Washington time to get its act together. But Brussels' Byzantine rulemaking requires U.S. officials to coordinate with European counterparts now, before things set in stone. Since Congress will play such a pivotal role in U.S. financial reregulation, the Senate Banking and House Financial Services committees might consider appointing one or two members as liaisons with counterpart committees in the European Parliament, to avoid differences that emerged over 1990s accounting reforms.

No one ever said coping with the worst global recession in 80 years would be easy. And, above all, it will require a willingness to work across the Atlantic despite differences. "We need the political generosity to say others may have the right idea," suggested Nicolas Veron, a Bruegel resident scholar. That degree of national humility might be the toughest challenge emerging from the G-20 summit