Date: 14 June 2005
 
Speaker: The Hon. John W. Snow, Secretary of the Treasury of the United States
Chairman: H. Onno Ruding, Chairman of the CEPS Board of Directors
Introductory remarks: H.E. Rockwell A. Schnabel, Ambassador of the US to the EU
 
 
The Hon. John Snow, U.S. Treasury Secretary, came to CEPS on 14 June to discuss the ongoing EU-US financial markets regulatory dialogue, ongoing challenges for the US in achieving higher rates of economic growth, and global macroeconomic imbalances.
 
Trade between advanced economies today is less constrained by tariffs than it is by non-tariff barriers to trade. Differences in regulatory regimes constitute a stumbling block for efficient resource allocation through enhanced trade and capital flows. Hence the need for continued collaboration between the EU and US on making progress towards convergence on some key standards and more broadly towards equivalence in regulatory regimes. The joint objective ought to be the creation of an open, integrated and competitive market for transatlantic capital flows that is set along the highest standards with enhanced economic growth as the ultimate goal. Therefore, it is very important that jointly, the EU and the US find the best rules, the highest standards along which to regulate, and it is the raison d’être of the fruitful transatlantic dialogue on financial markets. Sarbanes Oxley may impose high costs, but it was essential in the face of egregious corporate crimes that politicians in Washington react. The string of corporate malfeasance that plagued the US at the height of the tech bubble undermined the system of corporate capitalism as an engine for economic growth. Financial markets operate on the basis of trust, so it is essential that investors believe corporate officers adhere to high ethical standards and an acute sense of public responsibility. The SEC is keenly aware of the associated costs of SOX, particularly related to the inability of European firms to deregister, and is actively looking to resolve the problem.
 
According to Snow, there are three great domestic challenges for the US: reforming the liability system is essential, since the current structure fosters fear and inhibits businesses from investing and undertaking risk. The current administration has a very ambitious agenda in the field of social security reform. Unfunded obligations today exceed $11 trillion, or the equivalent of American GDP. The survival of the social security system will depend on finding funding sources. Finally, savings are the driver of economic growth. It is essential that long term savings rise in the US. Policy measures to encourage American households to increase their savings will be pursued.
 
On global macroeconomic imbalances, Snow focused on three topics. The US is looking to consolidate the large fiscal deficits that prevailed in recent years as a result of an economic downturn and the US-led war on terrorism. In talks with its trading partners, the US will continue to insist on greater flexibility in fixed exchange rate regimes. Flexibility is important, since the exchange rate represents the relative price between similar baskets of goods in the tradables sector. As such, if market-determined price signals are clouded by policy interventions, there is a risk that scarce economic resources will be misallocated, leading to subdued growth rates. Although by no means the only cause of the sizeable US external deficit, low growth rates in Europe and low investment rates in foreign economies despite high savings rates contribute materially to global imbalances. Snow suggested that balance could be restored inter alia by foreign economies undergoing structural reforms to create more investment opportunities domestically.
 
The Secretary was given the first copy of the book “Deep Integration. How Transatlantic Markets Are Leading Globalization”, which is the result of a cooperative effort between CEPS and the Transatlantic Centre at Johns Hopkins University, Washington. The book will be made available to participants of the EU-US summit on 21 June 2005.
 
 
Read the full text of Secretary Snow’s speech.