U.S. vs E.U.: Game Players in Crisis

From the U.S. subprime crisis that sparked global turmoil to an international financial summit scheduled to discuss the countermeasures, it is not hard to see that during this period the United States and the European Union (mainly those countries in the Euro zones and the United Kingdom), the world’s two largest economies, do not share the same view as to how to cope with the financial crisis— a sign that shows the two sides are competing for the leading role in the international financial market.

From the beginning of this financial crisis, the United States has stressed that it was the result of negligence from the management of the individual financial institutions, in other words, a private problem; the EU, however, has stressed that the crisis was due to the U.S. economic system and its overindulgent market. The United States emphasizes that the crisis is global and that the European Union and other countries should work with the United States to rescue the markets; the European Union, however, holds the view that the United States is to blame and should pay its own price, while the EU should only protect and save its own market, not those of other countries.

The EU further insisted on the need for big banks and other financial institutions to carry out “cross-border supervision,” while the U.S. has argued that it can discuss these principles of international supervision, but its actual implementation should be carried out by the individual countries themselves. In order to prevent a similar crisis from recurring, the EU has proposed a comprehensive reform of the current financial system and even in a new one being established; the United States, however, has stressed that any reform must ensure the existence of the free market economic system as well as the freedom of trade and investment flows.

The EU wants to restore or re-establish agreements such as the Bretton Woods Agreement and similar treaties, or in other words, it wants to put some constraints on the U.S. dollar as an international reserve currency, with the United States controlling the printing of dollars that earn the labor of other countries at the expense of American people. However, the U.S. states that conditions for implementing such an international agreement do not exist.

Even regarding the details in convening an international financial summit, the two sides have another contest brewing. The international financial summit was hatched by France and Britain, so the United States tried to brush it off. White House spokesman said that hosting such a summit was not the country’s focus. Only after the presidents of France and of the European Commission visited the United States and talked with Bush for 3 hours did the U.S. promise a series of global summits. They will be held after the presidential election, not in New York (even though the United Nations has agreed to provide the venue), but rather in Washington; it will also be presided over by the president of the United States, which shows the meeting is to be led by the host country.

During the financial turmoil of the U.S., the EU would like to take the opportunity to regain its lost European dominance in the financial world, or at least to share it with the United States. Spanish Prime Minister José Luis Rodriguez put it very bluntly as he said that while the United States is struggling, the EU must assume leadership. However, the United States, despite the loss of vested interests, has been trying hard to maintain its hard-won financial hegemony.

In fact, the battle between the United States and Europe did not begin today but the day when the euro was first adopted, which the U.S. viewed as a challenge to the position of its dollar. From the outset, the United States has exercised pressure on the euro, including using the exchange rate lever to force it to fluctuate, leaving the euro unstable and unable to give full play to stimulate the economy and stabilize financial markets. This year, the United States relied on the special status of the U.S. dollar to try and lower the exchange rate of its currency, which induced the rising price of food and oil, one of the reasons for the formation of chaos in the global economy. Observant persons can clearly state that the United States, in order to stop the financial crisis on Wall Street, is still using the U.S.-led international financial system’s special status in order to shift the crisis to other countries like those in Europe, an old trick that is once again being used.

In the current situation, the European Union’s intention to radically reform the existing financial system would meet resistance and difficulty. Firstly, even though it’s been affected by the financial crisis, the United States remains the world’s most powerful nation. Moreover, a thorough reform of the existing financial system to enhance the international standing of the euro would be very difficult. Even the idea itself has not reached consensus among EU counties, and are hencforth much less likely to win support on a global scale. Japanese Prime Minister Taro Aso publicly expressed recently his opposition against recently publicly against the idea of overthrowing the U.S.-led international financial system.

This shows that the G-20 summit to be held in Washington will not be a major breakthrough, but at most some “minor repairs” will be done. The formation of the existing financial system has gone through a very long process, and the “comprehensive reform” as well as the establishment of “new” system can not be achieved overnight. This all depends on the international balance of power.