Critics dismiss calls for global financial regulation

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There has been much talk about the EU and the US co-operating more closely on financial regulation, but in reality transatlantic regulatory convergence remains elusive.

Last week French president Nicholas Sarkozy called for the European Union to work towards creating a global financial regulatory framework to help prevent a repeat of the US subprime crisis. Germany also favours adopting an international approach to financial market regulation, particularly since one of its large banks, SachenLB, became the latest victim to suffer from the fallout of the subprime crisis. “We need an international approach, and the United States needs to be part of it,” said Peter Bofinger, a member of the German economics advisory board.

But UK experts dismiss the idea of a global approach to financial regulation as unrealistic. They say one only has to look at the debacle surrounding the implementation of Basel II, a piece of European legislation, to realise that the markets are different and that the US will not accept European intervention. The implementation of Basel II in the US has been a struggle partly because it has been stigmatised by some as European legislation being imposed on the US. Although US regulators and European supervisors are working together more closely, the reality of global legislation for the financial markets is “pie in the sky”, says one UK economist.

Iain Begg, a visiting professor at the European Institute at the London School of Economics, says an indirect influence on the US, primarily through the Bank for International Settlements, is all Europe can hope for.

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