Globalisation and Transatlantic Economic Policy
| Date | 01 May 2019 |
| DOI | http://doi.org/10.1111/1758-5899.12664 |
| Author | Edward Price |
| Published date | 01 May 2019 |
Globalisation and Transatlantic Economic Policy
Edward Price
New York University
Abstract
During and immediately after the global financial crisis, transatlantic economic policy broadly harmonised. In the years since,
transatlantic economic policy has drifted apart, not least as the US economic cycle moves faster than the EU’s. The result is a
legacy of homogenous international financial regulation overlaying heterogenous fiscal, monetary and economic realities. Is
the above dichotomy evidence of de-globalisation?
If the process of international market integration should be
most simple between the free market economies, then any
transatlantic trade friction should be studied. This is because
such frictions indicate either de-globalisation or, the oppo-
site, regional idiosyncrasies that have been highlighted
exactly because of further globalisation.
Immediately during and after the global financial crisis,
transatlantic economic policy broadly harmonised. Policy
makers on both sides of The Pond took emergency mone-
tary and fiscal policy actions, although the US acted rather
more quickly than did the EU. Transatlantic and global pol-
icy makers also agreed to further internationally-derived
financial regulation. In the years since, transatlantic eco-
nomic policy has drifted apart, not least as the US economic
cycle moves faster than the EU’s. The result is a legacy of
homogenous international financial regulation overlaying
heterogeneous fiscal, monetary and economic realities.
Macroprudential policy
Macroprudential policy, in vogue since the global crisis, is
financial regulation concerned with risks in the financial sys-
tem as a whole.
Financial crises reduce economic growth. Consequently,
macroprudential policy has aimed at reducing the level of
what it considers a rough proxy for the likelihood of such
crises: credit risk and liquidity risk in interconnected banks.
Indirectly, macroprudential policy might therefore be consid-
ered a popular (even populist) policy. The global policy com-
munity responded to the economic threat of financial crises,
but into the bargain also to political economy concerns
about taxpayers’money bailing out too-big-to-fail (TBTF)
financial institutions.
On the other hand, post-crisis regulation might be consid-
ered the opposite and instead a contributing factor to so-
called populism in both the US and the EU. This is because
reducing credit risk in banks means reducing credit income
for banks, which is another way of saying reducing the
number of bank loans to the real economy. The result, many
contend with special reference to Europe, has been under
par growth in the decade since 2008.
Trade policy
Trade policy is concerned with influencing the volume and
terms of world trade, traditionally with a focus on goods, in
order to maximise that international economic growth
derived of exposure to trade.
Recently, in the US, trade policy appears to have shifted
away this traditional first order concern. Instead, US trade
policy now appears to focus on domestic economic distribu-
tion by countering perceived unfair trade practices in other
countries. This appears a popular development, albeit logi-
cally questionable, for many of those who have lost jobs in
exporting industries.
The problem is good old-fashioned game theory. The
other fellow is going to hit back. Some industries may there-
fore be protected at home, while overall growth derived
from trade exposure will suffer. How popular this will all
prove to be is anyone’s guess.
Fiscal and monetary policy
Just as the Europeans have navigated their post-crisis inter-
national position with tight fiscal policy and loose monetary,
the Americans have embarked on the reverse.
The US engaged in a large bout of fiscal stimulus under the
Trump administration and its central bank, the Federal Reserve
Board (FRB),is engaged in a series of rate hikes and quantitative
tightening. This is not quite the mirror image of European eco-
nomic policy in the fiscal and monetary space. Yet, in post-crisis
Europe, fiscal policy has refused to support short-term growth.
Instead, the euro area in particular has embraced the idea of
austerity. Due to fiscal policy’s tight or neutral stance, a nd as a
result of design flaws in the euro area, the European Central
Bank has thus been propping up the European economy and
financial system with low-to-negative rates and with quantita-
tive easing. In other words, the euro area has exported its vari-
ous nations’fiscal responsibilities to its central bank while the
US has, as always, exported the same to international investors.
This is to observe one political economy dynamic of the world’s
reserve currency, the dollar: it highlights transatlantic differ-
ences in the amountand type of economic policy space.
©2019 University of Durham and John Wiley & Sons, Ltd. Global Policy (2019) 10:2 doi: 10.1111/1758-5899.12664
Global Policy Volume 10 . Issue 2 . May 2019
290
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