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The mutual commercial interests of America and Europe, manifest in a billion dollars of daily trade and well over half a trillion dollars of corporate investment in both directions, have proven to be an anchor of stability throughout their sharpest disagreement over security matters in half a century.
Indeed, having examined both the security and economic sides of the relationship, the Transatlantic Strategy Group, created in early 2002 by the Bertelsmann Foundation, whose economic component we co-chair, has concluded that Europe and the United States should launch a bold new economic initiative to help overcome lingering security problems and restore the traditional close relationship between the two allies. Such an initiative would also ensure that the alliance was not further jeopardized by problems on the economic side, which have been exacerbated by the breakdown of the recent World Trade Organization meeting in Cancun. Those problems include the real threat of a trade war posed by the several extant cases of threatened retaliation and counter-retaliation over Europe's restrictions on agricultural trade and America's steel tariffs and tax subsidies for exports.
We therefore propose that the European Union and the United States constitute an informal but far-reaching "G2 caucus", which would function as an informal steering committee to manage their own economic relationship and to provide leadership for the world economy.
The EU and the US are the world's only economic superpowers, as Japan has faded and China is still some time away from global pre-eminence. They inevitably bear responsibility for the effective functioning of the world economy. They cannot provide such leadership if they are battling against each other. They need to construct much more intensive mechanisms for consulting and co-operating on a wide range of global economic topics that will enable them to address both their bilateral problems and common international challenges.
No new institutions are needed. There is no need even for a formal announcement of the G2. It would work primarily through existing international institutions, both bilateral, such as the EU-US summits, and multilateral, such as the G7 and the WTO. A crucial objective would be to strengthen those institutions and the multilateral system.
An informal G2 has existed for many years in the international trade arena, where cooperation between the EU and US has been the essential ingredient for the success of all three post-war rounds of global liberalization. Other countries, especially from the developing world, must of course also participate fully in any multilateral trade advances but the Doha round will succeed or fail largely on whether the two superpowers can agree on agriculture and a few other central topics.
The trade example teaches two crucial lessons for further transatlantic co-operation. First, the US will realize that it must share leadership in certain areas when it is faced with a partner of comparable power. Second, Europe can be that partner but only when it organizes itself to speak effectively with a single voice. Recent steps by the European Commission and the EU's council of economic and finance ministers towards the adoption of common positions on international financial issues-and several of the proposals put forward by the European Convention on a new EU constitution-are constructive moves in the right direction.
There are several areas where the G2 could begin operating promptly. One is competition policy, where extensive consultation already exists but big disagreements still occur. Another lies in the domain of monetary policy, where the European Central Bank manages the world's second key currency with even more autonomy than the Federal Reserve. A third is regulatory convergence in the financial markets, where disagreements over international accounting standards and the external application of each area's laws and regulations might be resolved much more readily within a strategic and high-level framework.
Numerous other economic issues, though not yet ripe for G2 management, could quickly move in that direction. Examples include: macroeconomic and currency policy, where a sharp and disorderly adjustment of the growing international imbalances would trigger new tensions, and where co-operation with the Asian currency area is vital; energy and environmental policy, where Europe views the US as a profligate polluter and where a new approach is badly needed; the emerging challenges of migration; and development policy towards the poorer countries. All these issues share the attributes of enormous economic impact, high political sensitivity and both transatlantic and global dimensions.
The transatlantic relationship desperately needs a fresh conceptual foundation to replace the common enemy of the cold war era. A G2 would also help counter the chief foreign policy shortcomings of each partner: the US tendency to unilateralism and the European tendency towards introversion and fragmentation. Europe and the US must obviously make every effort to resolve their disagreements over Iraq and other security issues. But launching such a new economic strategy could go a long way to restore both the alliance mentality and the mechanisms that are so badly needed to close the continuing rifts across the Atlantic.
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