60% of the world’s GDP, 40% of world trade and $3 billion a day in trade, services and investment — EU and US businesses have a good thing going, says Günter Verheugen, the avuncular vice president of the European Commission. But there is room for improvement. Verheugen believes a number of obstacles — not in the form of tariffs or quotas, but rather a host of diverging rules, regulations and standards — are holding the economic partnership back, despite well-intentioned efforts from all sorts of public and private initiatives over the years. This is where the Transatlantic Economic Council (TEC) comes in. It’s a new EU/US consultation body set up with the encouragement of German Chancellor Angela Merkel and US President George Bush in July, which Verheugen co-chairs — together with Allan Hubbard, President Bush’s economic policy adviser. The TEC’s aim is to serve as a conduit for better co-operation, using its political clout to spur slow-moving policymakers and regulators into action. It’s already tackling issues ranging from intellectual property rights to innovation. And as Verheugen discusses here, there’s also something in the TEC for CFOs.
What was the rationale for establishing the Transatlantic Economic Council?
The EU and US have by far the strongest economic relationship in the world, but it is under-exploited because we have a lot of barriers as a result of divergent regulations, standards and norms. For a couple of years now we have been trying to overcome that. We have a lot of technical dialogues running in parallel but there has been a lack of political visibility. So the idea was to create a system that would ensure greater political ownership of the process and guarantee the delivery of a co-operation that has already been started.
How has the council been set up?
I’m very glad to say that we needed just a couple of weeks to agree on all the arrangements — size, composition and working methods. We will have a very lean and flexible structure. The council itself has only a very limited number of permanent members. If we have to deal with an issue that falls under the responsibility of a member of the American government or a member of the commission who is not a permanent member of the council, that person will be invited as a member or can participate upon request. Then we have a group of advisers with which we will closely co-operate on relevant issues.
But will the council have the teeth to advance economic co-operation?
The main reason for establishing the council is to guarantee delivery. It’s very much results-oriented. We do not discuss procedures and processes; we discuss concrete results. But we have to respect the responsibility of the regulatory authorities on both sides of the Atlantic and the personal responsibilities of those who are in charge.
One of your priorities is to bring about the mutual recognition of US GAAP and IFRS, without the need for reconciliation, by 2009. What will the council’s work on this involve?
The council relies on the Financial Markets Regulatory Dialogue, for which my colleague Charlie McCreevy [European Commissioner for Internal Market and Services] is responsible, and that is one of the reasons why he will be a permanent member of the council. It shows how important the issue is. Good progress has been made so far. The US Securities and Exchange Commission [SEC] has announced its intention to issue a final ruling on recognition of IFRS before the end of this year, with effect from 2009. The EU will reach a conclusion on the recognition of US GAAP in the course of 2008.
The IASB and the FASB have already done a great deal of work on this issue. Is the council now taking ownership of it from these two bodies?
The Financial Markets Regulatory Dialogue [an informal body set up in 2002 which includes, among others, the European Commission, the US Treasury, the SEC and the Federal Reserve Board] is leading the process here. The council is not taking ownership. We want to let different parties work together and we will be providing political support for their efforts.
The council also wants to see greater convergence and mutual recognition of securities regulation. Which areas, in particular, do you intend to focus on?
There is huge interest in this subject on both sides of the Atlantic — and it is urgent. As Charlie McCreevy has indicated, we are still at an early stage, but we have to seize the opportunity, represented by the high level of political interest in achieving concrete results, to make progress.
On the European Union side, we need to engage with the member states, the European Parliament and market participants to define priorities. At this stage, our main objectives are as follows: access criteria [to financial markets] should be transparent and objective, so that there cannot be any cherry-picking of member states [that qualify for mutual recognition]; and EU markets should be governed by EU law and EU regulators — regulatory spill-overs must be avoided.
How confident are you that the council can achieve its objectives?
I must say I am positively surprised by how strong the American interest is. President Bush made an excellent choice in appointing Al Hubbard as the American co-chairman. He’s very much the same type of person as I am — he has a very hands-on approach and is very results-oriented. The personal chemistry between us is excellent. We do not need much time to find agreements so my overall feeling is more than positive.