BRUSSEL S FORU M PAPER SER IE S

Guardians of the
Global System
What the transatlantic economic
partnership should give the world—
and why it might not deliver

Richard Salt
Transatlantic Fellow
The German Marshall Fund of the United States
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 Guardians of the Global System
What the transatlantic economic partnership should give
the world—and why it might not deliver

Brussels Forum Paper Series

March 2008

Richard Salt
Transatlantic Fellow
The German Marshall Fund of the United States

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Foundations for a Strong Global Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Need for Economic Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
A Transatlantic Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Why the Transatlantic Economic Relationship Requires a Strategic Purpose . . . . . . . . 14
Prospects for a Cooperative Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Adopting a Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1 Introduction
Why should we care about intensifying
transatlantic economic cooperation? After all, the
European Union and the United States remain
the world’s dominant economic powers, and it
is now widely acknowledged that transatlantic
trade and investment ties dwarf those seen
between any two continents in history. After a
period in which these ties survived the political
fallout of transatlantic disagreement over Iraq
more or less unscathed, demonstrating the
robustness of commercial links, can we relax?
The answer is no. Today’s global economy
brings unprecedented opportunities for trade,
investment, travel, and interaction. It also faces
significant challenges, in part caused by the
same globalization—to resolve the tensions
that differences in national policies can create
internationally, and to overcome the growing
political, economic, and environmental
challenges that require transnational solutions.
Spreading prosperity, addressing climate change,
stopping terrorist financing, preventing the
spread of disease—these are all foreign policy
challenges as much as they are economic,
and all require international cooperation.
Yet the international cooperation we need is more
difficult than is often assumed; globalization
itself makes our ability to work together even
more fraught with problems. The conditions
that led to much of today’s economic governance
and its institutions no longer exist and, unlike
the immediate post-war period, there is no one
state able or willing to address these challenges
on its own. In its place, the global economy
requires leadership from its strongest, most
powerful members. Sitting at the core of the global
economy, this confers a particular responsibility
on the United States and the European Union.
The challenge doesn’t stop there. If we are to fulfill
this mission, it requires concerted, long-term
cooperation based on a shared understanding of the
challenge. In practical terms, the European Union
and the United States must, at the heart of their
dialogue, acknowledge that they are guardians of
the global system, and give sufficient weight to this
fact when calculating their self-interest. They will The European
need to build domestic political support for this Union and the
objective, which will require them to offer a vision United States
of the partnership that does more than trade market
must acknowledge
access in different sectors of the economy. Long-
that they are
term cooperation must be based on more than
guardians of the
the potential economic benefits from closer trade
and investment ties. The ability to cooperate fully global system.
depends on building a coalition of support, both
across the Atlantic and domestically from people
increasingly worried about what globalization, in
all its forms, means to them. As Ellen Frost argued:
“What is primarily at risk is not the transatlantic
relationship as such, but rather the opportunity
to inject shared foreign policy leadership
and forward momentum into the post-Cold
War global political-economic order. This
is a strategic issue if ever there was one.”1
This paper is an effort to illustrate a number of
factors shaping the global political economy, in
the hope of generating a long-term foundation
for transatlantic cooperation.2 The first part
1 
Frost, E. (1997) p. 3.
2 
This paper was prompted by a series of discussions I have been
either a party to, or privy to over recent years—each discussing
strategic arguments for closer transatlantic economic cooperation.
In particular, I had the privilege of attending, with then-British
Chancellor of the Exchequer Gordon Brown, a Council on
Foreign Relations working group led by Henry Kissinger and
Larry Summers—an exercise that helped crystallize thinking that
developed further with Robin Niblett, then director of the Europe
Program at the Center for Strategic and International Studies. Dr.
Niblett deserves my utmost appreciation for his ideas and input,
and no responsibility for any errors I have made with it.
Guardians of the Global System 3
describes the scale of the challenge in two ways—
by reminding us why globalization generates
particular challenges that require international
solutions and by illustrating why it is so difficult
to secure the necessary international cooperation.
Drawing on this, the second part will argue that
4 The German Marshall Fund of the United States
transatlantic cooperation is likely to be essential,
and that the European Union and the United
States have a particular responsibility conferred on
them by their size and power—but that significant
political obstacles seem, at present, likely to
block progress.
2 Foundations for a Strong
Global Economy
Today’s global economy is more deeply integrated
than at any point in history,3 bringing together
an increasing share of the world’s countries and
population, with goods, services, capital, and people
crossing borders at a rapidly growing rate. With this
integration of markets, and the deeper networks of
people, communications, and finance that support
it, globalization creates both opportunities and
challenges at an unprecedented rate, both for the
global economy as a whole, and for individual
economies and states. No country that wishes to
secure the potential gains that it offers can afford to
ignore the interaction between its domestic policies
and those of other states4—integration means that
domestic political choices have an increasingly
international dimension. Equally, the choices
made by the larger, more powerful economies
or the global community, or even the impact of
the markets themselves, can influence domestic
policy and its consequences around the world.
Global integration offers clear economic benefits
for the economy as a whole, but also some costs
that are often concentrated on particular groups
of people or industries. In turn, this implies that
each country also faces something of a tradeoff
in domestic policy choices, one that widens the
more the economy is open to globalization. Taking
a decision based entirely on domestic interests,
even if due to entirely legitimate preferences,
will impose a greater cost (in terms of benefits
foregone) when these policy choices differ from
those of international norms, rules, or those of one’s
economic partners. Each country has the incentive,
therefore, to try and influence international
norms or rules in order to bring them into line
3 
See Bordo et al. (1999) for a comparison with the “first age of
globalization” in the early 20th century. They conclude that not only
are commercial and financial integration more extensive than in the
earlier period, but that today’s political system gives a louder voice
to special interests (a theme picked up later in this paper).
4 
For different perspectives on this relationship, see Friedman
(1999) and Drezner (2007).
with their own preferences. But not everyone can
have their own way if policies are to converge.
In foreign policy, globalization increases
the potential for economic policy to help in
achieving wider foreign and security policy
objectives; the value of trade and investment
flows means that preferential trade agreements
and economic partnerships, or the lure of World
Trade Organization (WTO) membership, can be
leveraged to secure broader non-economic goals.
Equally, however, the effectiveness of such policies
is undermined if other states are not willing or
able to coordinate their policy. Sanctions, for
example, can be made less effective if others are
willing to step into the economic void created
(CSIS, 2006). Meanwhile, the arbitrary, unilateral
use of some international economic policy is
necessarily constrained by the parallel objective
of maintaining a “rules-based” trading system.
Integration creates tradeoffs in other spheres.
Not only can consumers and businesses seize
opportunities; so, too, can terrorist networks and
countries wishing to pursue radically different
interests. The economic channels and networks
that underpin globalization do not, of course,
just offer opportunities to the well-intentioned.
In a similar way, the growth of faster transport
links that service the global economy and provide
opportunity for personal travel also facilitate
the more rapid spread of infectious diseases, as
illustrated by the speed with which the previously
unknown SARS virus spread across the world
from its suspected source in China in 2002–2003.
In the environmental sphere, the pace of
economic growth across the world and rapid
industrialization in a number of major emerging
economies holds the promise of raising millions
of people out of poverty, but increases demand
on natural resources. Not only does this raise
the potential for political and economic tensions
Guardians of the Global System 5
 between states seeking to make use of the same
resources, but growing demand also risks making
environmental degradation more likely. Once
environmental damage, either actual or potential,
has been identified, globalization makes the task
of addressing these problems more difficult.
Maximizing the Finally, global integration changes the domestic
benefits of a context in which a given state’s international
economic policy develops, particularly when it
global economy,
comes to economic openness and greater trade
and minimizing
and investment liberalization. Rules underpinning
its costs, requires the global trading system necessarily limit
more and more the scope of governments to buy support for
international (or acquiescence to) liberalization policies
cooperation. by offering targeted protectionist solutions.
Improvements in communications and media
appear to have strengthened the hand of special
interests; liberalization tends to provide diffused
benefits to the economy as a whole, with the
costs concentrated within increasingly vocal
and motivated sub-groups. The increasingly
technical nature of some international economic
policymaking (such as international regulatory
policy) makes it hard to command broad-based,
informed public support. On the other side of
the communications equation, of course, is the
potential for a more effective global civil society
to develop and advance a globalist policy agenda.
Yet that is still largely a vision, not yet a reality.
Maximizing the benefits of a global economy, and
minimizing its costs, requires more and more
international cooperation—to establish and enforce
the rules or norms that deliver stable international
financial markets, or rules-based trade and
investment agreements; to deliver enforceable
rights across borders; to secure as much consensus
as is possible for coordinated international action
in a given area, such as addressing environmental
degradation or preventing the financing of
terrorism; to resolve differences and tensions
arising from divergent domestic policy preferences;
6 The German Marshall Fund of the United States
and to regulate global markets to facilitate
commerce, while limiting the potential abuse of the
system either by other states or non-state actors.
These are all examples of global public goods.
Left entirely to private or voluntary action, many
public goods tend toward under-provision because
of two key characteristics—economists describe
them as non-rival, meaning that the consumption
of the good by one person or state does not
diminish the consumption of any other (a standard
textbook example is often the safety and light
provided by a lighthouse); and non-excludable,
meaning that once the good is provided, it can
be consumed by people or states that have not
contributed to the costs of its provision. The
optimal outcome for many individual states is,
therefore, for everyone else to pay and to “free-
ride” on the goods provided by others. As a
consequence of these two characteristics, it is
often hard to secure collective action for their
provision without some form of compulsion, and
the good is either not provided, or is not provided
in optimal quantity. Mancur Olson argued:
“… unless the number of individuals in a group
is quite small, or unless there is coercion or
some other special device to make individuals
act in their common interest, rational, self-
interested individuals will not act to achieve
their common or group interests.”5
Within states, we know how to address this
problem—the government often playing the
principal role in the provision of public goods
and enforcing contributions through the tax
system (for example, it is this compulsion that
forces taxpayers to finance defense expenditures).
Internationally, however, there is no similar
authority to force states to act, to contribute to
a global public good against their will, nor to
5 
Olson (1965), p. 2.
force an agreement between states that, although
they may agree on the ultimate objective, refuse
to compromise on the approach taken.
In such an anarchic international system,6
the dispersion of power and influence gains
importance. When there are a large number of
states of comparable size, it can be reasonably
assumed that many global public goods will
be under-provided because of the free-riding
problem—each would rationally prefer every
other country to provide the good without itself
contributing.7 However, where there are only a
small number of states, the good is more likely to
be provided, both because the costs of agreement
and organization are smaller, and it is more
readily apparent to other states if one chooses
not to contribute (political pressure can thereby
be brought to bear against the transgressor).
Even more likely to lead to the provision of some
global public goods is when at least one state is
so dominant (by virtue of its economic, political,
or military weight and influence) that it gains
6 
International relations scholars have long been familiar with
this conception of the international system as anarchic.
7 
For example, every country would like the rest of the world
to address climate change by reducing carbon consumption,
without having to bear its own share of the costs.
such a significant share of the benefits from the
good’s provision that it is in its own interest to
provide it unilaterally—even if no other country
subsequently contributes to the costs.8 In these
cases, the group is said to be “privileged.”9
Even then, however, we cannot rest easy. Certainly
power appears to help matters, but it does not,
Even if states
alone, mean we can assume that any given public
wish to cooperate,
good will be provided (Keohane 2005). As Michael
Mandelbaum argues, “No iron law of history to provide global
or immutable tendency in international society public goods,
impels the strongest member of the international the international
system to supply it with public goods.”10 system makes
such cooperation
It is important to understand that the problem difficult.
is a largely systemic one. It is not necessarily a
failure of will or ambition on the part of states
that causes the good to be under-provided, but
the international system itself. Even if states wish
to cooperate, even if they wish to provide a public
good, the system makes cooperation difficult.
8 
A stronger form of this point underlies what is commonly
known as Hegemonic Stability Theory—namely, that a dominant
power is required for the establishment of a liberal international
economic order. See Gilpin (2001) for a discussion.
9 
This is not true of all public goods. Barrett (2007) points out
that it depends on the type of public good itself, some of which
(so-called “weakest link” public goods) necessarily require all
states to act.
10 
Mandelbaum (2005), p. 16.
Guardians of the Global System 7
 3 The Need for Economic Governance
Governance occupies a special place among the
various public goods that can be provided. Not
only is it a public good in and of itself, but by
overcoming some of the problems of an anarchic
international system, it increases the likelihood
of other public goods being delivered. To the
extent that it helps provide the means—or the
Strong and opportunity—for collective action in other areas,
effective other public goods are more likely to be supplied—
strong and effective governance regimes change
governance
the context in which states make calculations of
changes the
their self-interest (Keohane 2005). As Ahearne et
context in
which states al. (2006) put it, institutions of governance “are a
form of capital because, by relying on founding
calculate their
principles and internal governance rules, they
self-interest—
help tackle new issues as they emerge”.11
and provides
the means for Governance, as defined by the Commission on
collective action. Global Governance in 1995, is “the sum of the
But it is too often many ways individuals and institutions, public
under-provided. and private, manage their common affairs. It is
a continuing process through which conflicting
or diverse interests may be accommodated and
cooperative actions may be taken. It includes formal
institutions and regimes empowered to enforce
compliance as well as informal arrangements that
people and institutions either have agreed to or
perceive to be in their interest.”12 Governance
does not mean the same thing as government;
rather, it is a loose description of the many means
through which international partners can act.
Despite its importance to global cooperation,
governance falls victim to the same problems as
other public goods, too often under-provided.
As G. John Ikenberry puts it, “Even in the best
of times the collective management of the
international system is work in progress.”13
11 
Ahearne et al. (2006), p. 5.
12 
Commission on Global Governance (1995).
13 
Ikenberry (2005a), p. 30.
8 The German Marshall Fund of the United States
Indeed, despite the increasing need for
international cooperation, global leadership
has failed to keep pace with these demands; the
supply of governance falls some distance short
of what is required, so much so that the future
of the international economic system is under
considerable threat (Atlantic Council 2007).
The record is not all bad. Governance has been
provided in the past and sustained over time,
perhaps most obviously through the Bretton
Woods institutions set up in the immediate post-
war period. In some cases, the global community
has proved remarkably successful in delivering a
number of important public goods; for example,
the successful efforts in recent years to address
the use of harmful CFC gases under the Montreal
Protocol (Barrett 2007). Equally, however, there
are many more areas that one can point to where
governance falls substantially short of its optimal
provision for the global economy. An example is in
international monetary relations, where collective
action has often been conspicuous by its absence.
The fear remains that recent tensions and difficulties
in a number of spheres may be symptomatic
of a wider retreat from “internationalism” in
policymaking, and a strengthening of nationalist
tendencies. Ikenberry (2005a) argues that “it is
striking that over the last few years, almost all
of the world’s global and regional governance
institutions have weakened,” which pointed to
problems then facing (in some cases, continuing
to face) the United Nations, the European Union,
NATO, the G-8, and the Nuclear Non-Proliferation
Treaty. If we find ourselves staring at failure within
the institutions and agreements that have helped
provide governance through much of the second
half of the 20th century, a failure that results from
declining internationalism, what chance do we have
of building new governance for the 21st century?
In the economic sphere alone, the WTO faces
a considerable challenge from the continuing
failure of the Doha Development Round of trade
talks (for a fuller treatment of these issues, see
Corbet and Guinan 2008). The World Bank and
the International Monetary Fund (IMF) require
reform and strengthening, as does international
cooperation to help address the growing energy
challenge. Concerns over the national security
implications of foreign capital, particularly through
sovereign wealth funds, have assumed a largely
unwarranted place in domestic policy debates,
reinforcing a wider suspicion of the benefits of
foreign direct investment. And even as the threat to
the planet from climate change is widely accepted,
efforts to develop a workable successor to the
Kyoto Protocol on climate change remain short
on firm commitments from powerful key players,
with significant disagreement remaining even
on the basis for establishing who should bear the
burden of adjustment and how it will be funded. At the same
time as the need
In other words, at the same time as the need for
governance is growing, its supply is faltering, for governance
perhaps even declining. The governance gap is growing, its
is widening. supply is faltering,
perhaps even
declining.
Guardians of the Global System 9
 4 A Transatlantic Responsibility
Bridging the gap between the growing demand
for governance and its supply should be at the
very heart of transatlantic economic discourse.
The first and most fundamental reason why is
the economic power and influence of both the
European Union and the United States, which
The United States confer a particular responsibility for leadership to
and the European help overcome global collective action problems:
Union are the
• Leadership from powerful economies is neither
world’s only
a necessary nor a sufficient condition for
genuine economic
international cooperation, but it helps.
superpowers.
• It is often the case that the largest economies
benefit the most in absolute terms (though
not necessarily in relative terms14) from the
provision of global public goods.
• Their ability to provide such governance is
clearly strengthened by their greater ability
to commit the necessary resources and to
determine key elements of how the good should
be provided (hence power, including hegemonic
power, can facilitate cooperation).15
• The principle that the most powerful, richest states
should bear the largest burdens in the provision of
global governance is well established.16
14 
The significance of relative versus absolute gains is a key factor
in much of the international political economy, but need not
prevent cooperation in this instance. Keohane argues that the
complexity of multilateral relations reduce such concerns: “Most
issues of potential cooperation, however, from trade liberalization
to climate change, involve multilateral negotiations that make rela-
tive gains hard to calculate and entail little risk of decisive power
shifts for one side over another … the relative gains argument
merely highlights the difficulties of cooperation where there is
tough bilateral competition; it does not by any means undermine
prospects for cooperation in general,” Keohane (1998), p. 88.
15 
Daniel Drezner, for example, argues that in the case of global
regulation: “A great power concert is a necessary and sufficient
condition for effective global governance”; Drezner (2007) p. 204.
16 
For example, within the United Nations (2004 figures), the
European Union’s (EU25) Assessment represents almost 37% of
the UN’s regular budget; while the corresponding figures for the
United States is 22% (the maximum for any single country with-
out which the U.S. contribution would be higher; indeed, in the
UN’s early years, the U.S. bore a far greater share of the burden
reflecting its economic position).
10 The German Marshall Fund of the United States
The United States remains the world’s most
powerful economy. Meanwhile, the European
Union stands, by some margin, as the next most
significant economic power, comparable to the
United States in its population and economic
weight (see Chart 1: Economic size in perspective).
Other candidates, perhaps most obviously Japan
and China, are both markedly smaller economic
powers and do not have the same capacity for
global leadership—leaving the United States and
the European Union as the world’s only genuine
economic superpowers (Bergsten 2002).
The global trends that have diluted U.S. power
affect Europe in the same way. “Europe has
become a powerful global player. But the world
has changed too, only more so,” note Jean Pisani-
Ferry and André Sapir.17 Nonetheless, among
prospective candidates for a global leadership
role, the European Union stands out. It is a
significant player in all trade discussions (and,
with the United States, dominates global trade and
investment flows), the world’s biggest aid donor,
boasting a genuinely global currency (the first real
challenger to dollar supremacy since it became
the global reserve currency, see Bergsten 2005).
The European Union cannot challenge the United
States for outright leadership except in specific
areas—perhaps most obviously in some regulatory
issues (concern exists in the United States regarding
the degree to which the European Union has
itself become the global standard-setter)—but
even in these areas it is perhaps generally better
described as occupying a position of competing for
influence, rather than having assumed the position
of outstanding leader from the United States itself.
As the world’s two largest economies, their
participation is more likely to be necessary
(although not always sufficient) to the provision
of almost any public good than that of other
17 
Pisani-Ferry and Sapir (2007), p. vii.
 Chart 1: Economic size in perspective

EU27 UNITED STATES JAPAN CHINA INDIA

16,000
14,610
14,000
13,195
In terms of
12,000
supplying global
public goods, the
GDP, US$ billion (2006)

10,000
United States and
the European
8,000
Union do not
get a free ride.
6,000
4,366
4,000
2,645
2,000
874

Source: IMF World Economic Outlook.

states. Both also have a reasonable expectation
of benefiting more than other states from the
provision of global public goods. So while not
excluding the possibility that other states or
economic powers might also play a leadership role,
it is with the United States and the European Union
that the primary responsibility for leadership lies.
Joseph Nye captures the special nature of this
responsibility when, referring to the United States’
responsibility for global public goods provision,
he says:
“This puts a different twist on former [S]ecretary
of [S]tate Madeline Albright’s frequent phrase that
the United States is ‘the indispensable nation.’ We
do not get a free ride.”18
Neither does the European Union.
Secondly, neither the United States nor the
European Union alone appear able and/or willing
to provide the economic leadership necessary for
a genuine effort to address the policy challenges
posed by globalization. Neither do they show a
willingness to defer to the leadership of the other.
It would not be realistic or fair of the global
community to expect either the United States or
the European Union to bear that burden alone.
As Scott Barrett puts it, referring to the United
States, “[I]t would be a conceit to believe that
the U.S. and only the U.S. can supply most vital
global public goods unilaterally.”19 Precisely the
same argument applies to the European Union.

18 
Nye (2002), p. 142. 19 
Barrett (2007), p. 10.

Guardians of the Global System 11

 But what is special about the transatlantic partners
is that, more than other economies in the world,
their failure to agree or cooperate condemns most
efforts at global collective action to failure. Agreement
between the United States and Europe will not always
be sufficient to ensure public goods are provided;
however, more often than not it will be necessary.
Agreement
between the So neither would it be reasonable to expect either
the United States or the European Union to stand
United States
aside and defer to the leadership (and interests)
and Europe will
of the other. Each has interests that it wants to be
not always be considered and respected in any leadership effort.
sufficient—but
As a result, the two need to find ways of working
more often than with one another that:
not it will be
necessary. • build on and leverage their common leadership
responsibility;
• acknowledge that each has interests, and
accommodate those as much as possible in any
coordinated approach;
• accept that compromise in some areas within
the transatlantic partnership is likely to entail
lower costs than a failure to secure global
collective action.
The need for such cooperation is perhaps most
obvious when the provision of a public good
depends on the participation of all countries, or at
least those representing a considerable proportion
of the world’s economic output or population—as,
for example, with a workable agreement to address
climate change. But it also matters in the context of
those public goods that can be provided by a single
country or economy, such as regulatory standards
and approaches in certain globalized markets. In
these cases, transatlantic cooperation may not be
critical to the provision of a governance regime, but
can help avoid duplication and redundancy, or the
creation of two mutually exclusive, independent
systems that other states must choose between.20
20 
See Barrett (2007) for an excellent overview of differences in
global public goods, and the different cooperative approaches
they each require.
12 The German Marshall Fund of the United States
Finally, cooperation would help fulfill a number
of shared European and American interests. The
European Union and the United States share,
along with other market-oriented democracies,
a basic interest in furthering a global economy
that is open, liberal, and based on common
rules and norms. As a recent Atlantic Council
report put it: “No two countries or regions
perceive orderly international economic relations
organized along current lines to be in their
mutual interest as much as the United States and
Europe.”21 They share an interest in influencing
the development of globalization and ensuring the
maintenance of a stable, open world economy.
More specific American and European interests
are easy to identify. They include an orderly
moderation of global economic imbalances;
a more liberal trading regime (including not
just a reinvigorated multilateral agenda, but
also a new approach to dealing with regulatory,
behind-the-border barriers as in the transatlantic
marketplace);22 a long-term solution to energy
issues; policy to address climate change; and
progress on development initiatives. Many of
these objectives are ultimately shared—though
not always recognized as such, particularly in
the short run. (For excellent surveys of common
transatlantic interests, see Atlantic Council
2007, and Bergsten and Koch-Weser 2004).
If successful, such cooperation would represent
more than the achievement of an economic
objective; it cannot be separated from wider
21 
Atlantic Council (2007), p. 22.
22 
The deep bilateral trade and investment ties between the Unit-
ed States and Europe are described by Hamilton and Quinlan
(2005) as “… by a wide margin the deepest and broadest between
two continents in history – and those ties are accelerating.” The
demands of such a deeply integrated relationship are forcing
both politicians and officials in Europe and the United States
to develop new means of cooperation and governance which,
while not immediately relevant to many other countries, will be
relevant to, and benefit, more and more of the global economy as
global integration continues apace.
foreign policy objectives because a stronger
international economic system leaves us better
able to deal with collective political, security, and
environmental challenges. It facilitates international
cooperation by changing the incentives facing
policymakers in areas such as counterterrorism,
disease, and climate change, or by bringing states
into an open international economy based on
transparency, accountability, and the rule of law.
And since addressing many of these challenges is
likely to have a clear economic component (think,
for example, of environmental standards or taxes
imposed on tradable goods, or carbon emissions
permits, or of the economic regulation required
to prevent money laundering and cross-border
financing of global terrorism), they will themselves
risk generating economic disagreement between
states over the best way to tackle the problems.
The firmer the foundation of governance for
international economic relations, the less likely Iriuscidunt verci
these are to harm international commerce. tinciduisi. Lis ad
What we achieve here, in terms of governance, elessi. Um alis
determines much of what we can do elsewhere. dolor si. Ing eum
dolorem nullaor
tionseq uipsum
ipsusto dolore
feum quiscil iscilis
er si et vent amcor
ad dio eum vel
Guardians of the Global System 13
 5 Why the Transatlantic Economic
Relationship Requires a Strategic Purpose
Understanding the need is one thing, making it
happen is another thing entirely. The foundation
for future transatlantic economic cooperation
is weaker than might be first thought, despite a
largely impressive post-war record of cooperation
centered on the transatlantic relationship.
The foundation Much of this can be traced back directly to the
for future decisions made in the early 1940s (see Keohane
2005 or Ikenberry 2005b) and the particular
transatlantic
circumstances that prevailed—not least the
economic
interplay between economic policy and wider
cooperation is security concerns. Even before the United States
weaker than entered World War II, President Franklin D.
often assumed. Roosevelt’s administration had begun preparing
for the post-war economic order, drafting (with
British Prime Minister Winston Churchill) the
Atlantic Charter that set out, inter alia, a “desire to
bring about the fullest collaboration between all
nations in the economic field” and a commitment
“to further the enjoyment by all states, great or
small, victor or vanquished, of access, on equal
terms, to the trade and to the raw materials of
the world which are needed for their economic
prosperity.”23 These objectives embodied a clear
desire to avoid the economic turbulence of the
inter-war years when a return to economic
nationalism had ended the first era of globalization.
The Bretton Woods Agreement, focused on
fostering global economic stability in the post-war
period, put the spirit of these goals into policy.
What emerged were, in effect, a number of public
goods—a stable, open trade regime (the General
Agreement on Tariffs and Trade, or GATT, and
subsequently the World Trade Organization,
or WTO); a monetary regime founded on the
gold standard, facilitated by the creation of a
new institution (the IMF) with the U.S. dollar
The Atlantic Conference: Joint Statement by President
23 
Roosevelt and Prime Minister Churchill, August 14, 1941 (often
known as “The Atlantic Charter”).
14 The German Marshall Fund of the United States
as the anchor currency; and an institution
geared at financing economic development
(the International Bank for Reconstruction and
Development, now part of the World Bank Group).
The United States, as the undisputed global
economic hegemon, provided the lynchpin
around which negotiations took place. It began
to supply other public goods based on security.
The United States helped ensure access to oil
from the Middle East, in part by providing
security of supply (Mandelbaum 2005 and
Keohane 2005). More broadly, the United States
also supplied a security umbrella for various
regions of the world, most obviously Western
Europe and Japan, facilitating trade and economic
cooperation through stability, with the intention
that the two should be mutually reinforcing.
Key to the United States assuming these
responsibilities was the fact that its self-interest
was seen as being consistent with the objective
of a stable, open international order, particularly
given the wider foreign policy and security
concerns that characterized the Cold War era.
The United States was both the pre-eminent
economy, best able to benefit from openness, but
also needed to build up European economies as
economic partners and as a bulwark against the
Soviet threat and the spread of communism.
Moreover, domestic political interests in the
United States (and Europe) were supportive of this
internationalism. As Ikenberry (2005b) argues,
the domestic political debate then prevailing in
the United States emphasized the “New Deal-
era liberal ideas about economics and politics
and security”—and there was a huge degree of
confluence in interests among domestic voices:
“Realist geo-strategists, free traders and business
internationalists, anti-communist crusaders,
old-style Atlanticists, and one-world idealists all
could support the synthesis of internationalism
and national security liberalism that defined the
evolving post-1945 American vision of order.”
It also rested on a degree of complicity from
the United States’ partners in Europe (and
Japan), many of whom wanted U.S. leadership,
despite occasional grumbles to the contrary
(Kagan 2004 and Lundestad 2003); in the
monetary field, for example, Germany and
Japan were the largest holders of dollar reserves,
effectively paying a security tax for U.S.
support (Mandelbaum 2005). Underpinning
the relationship was an understanding that
“military-political considerations almost
always took precedence over economic ones.”24
This was the grand transatlantic bargain.
While American power helped provide the
foundation for much contemporary economic
governance, it was far from being the only factor.
The same conditions do not exist today, helping to
explain the apparent decline in the willingness of
states to supply governance observed in recent years:
• First, and most obvious, is the decline in
American power in relative terms. Even as it
remains the world’s single most important
economy, and the most dynamic in the
developed world, its relative power has been
eroded by the growth of other economic
powers—and an increasingly assertive role they
have been able to play.
• Second, perhaps the most obvious example of
a rival economic power is the European Union
itself, which has asserted its interests forcefully
in some spheres (most apparent in trade policy).
• Third, there has been a gradual unwinding of
the post-war transatlantic bargain between
the United States and Europe—geopolitical
change, and the apparent lack of a common
24 
Lundestad (2003), p. 289.
enemy in the form of the Soviet Union
weakening a sense of need for a community of
security (see, for example, Kupchan 2006).
• Last, the domestic coalitions that sustained
support for post-war policies appear to be
no more; a quick look at Ikenberry’s (2005b)
analysis captures the change. Realist geo-
Iriuscidunt verci
strategists, rather than facing a challenger
tinciduisi. Lis ad
contained and ultimately undermined by
the open world economy (the Soviet Union), elessi. Um alis
are instead facing a system in which those dolor si. Ing eum
same economic forces are now the source of dolorem nullaor
growth for major emerging players like China, tionseq uipsum
India, and Brazil, and work to strengthen ipsusto dolore
some potential security challengers through feum quiscil iscilis
worldwide demand for natural resources. er si et vent amcor
Meanwhile, the poor quality of debate on ad dio eum vel
trade and openness too often brings “one
world idealists,” increasingly emphasizing
their commitment to fair, rather than
simply free, trade, and the pursuit of global
environmental and labor standards, closer to
the protectionist lobby. Finally, Atlanticists and
anti-communist crusaders can no longer rely
on a broad-based appeal against the threat of
communism to solidify an open global order
based on the transatlantic partnership.
The degree to which this post-war era was an
exception, not the norm, is all too easily under-
estimated.
A new transatlantic bargain?
What would a new transatlantic bargain, based
on leadership of the global economy, look
like? What could the underlying principles
be? What would the next era of international
economic cooperation look like?
Guardians of the Global System 15
 There are some clear messages for both partners.
For the United States:
• Above all, it means listening to, working with,
and compromising with the European Union,
in a way befitting a near-indispensible partner.
That, in turn, requires moving toward the more
Above all, the
“globalist” approach to foreign policy taken
United States
by the European Union, which, as Ivo Daalder
must listen to,
points out, is largely based on the premise that
and compromise
today’s policy challenges, largely created by
with, the European global integration, require cooperative solutions
Union, a near- among states.25
indispensible
• It means for the United States to recognize that
partner.
the European Union has a valid interest in U.S.
Meanwhile, the
domestic policy.
European Union
must accept that • It also means that the United States needs a
its economic better understanding of the European Union—
power comes with its capacity, its functions, its competencies (and
responsibility— how these are shared with the member states);
and become more where the European Union is a united group and
can act; and where it cannot. This also requires
outward-looking.
a degree of sensitivity as to why the European
Union does not always speak with one voice—it
is, and will continue to be, an unprecedented
means of international cooperation, not a nation
state. A failure to recognize this can lead to
excessively high expectations of the European
Union, a factor that Peterson (2001) argues
marred transatlantic relations in the 1990s.
For the European Union:
• It means accepting that, above all, power
comes with responsibility. The European
Union has often looked inward as a response to
globalization, drawing on the idea that Europe
can insulate itself to some degree from the
challenges of globalization, an entirely rational
and necessary response to the demands of
the post-war era when Europe’s priority was
25 
Daalder (2003).
16 The German Marshall Fund of the United States
to rebuild and focus on a sustainable political
and economic resolution to intra-European
rivalries. Now, however, that orientation
must change. The European Union needs
to move from what British Prime Minister
Gordon Brown has called “trade bloc Europe
to global Europe.”26 Encouragingly, there are
welcome steps in this direction, with greater
attention being paid to international economic
policymaking by the Barroso Commission
than its predecessors (Sapir 2007).
• It also means that the European Union, in
deepening European integration, will have to
give greater consideration to the external impact
of its own internal liberalization and legislative
processes (see, for example, Peterson 2001)—in
particular, on the deep transatlantic trade and
investment relationship. Again, the Barroso
Commission is taking steps in this direction.27
• And, as for the United States, it means
Europe must recognize that its internal
economic policies are a matter of genuine
interest to its American partners.
In this regard, Europe has a great story and
a wealth of experience to offer. Through the
unprecedented degree of international economic
cooperation among its members, the European
Union provides regional public goods in a wide
range of areas from the economic (the open
pan-European market built through progressive
liberalization, the intra-eurozone macroeconomic
stability afforded to countries which have adopted
the euro as their currency, and the influence in
global trade talks provided by negotiating as
a single body) to the political (cooperation on
26 
Brown, G. (2005). According to a recent U.K. government
paper: “Europe has the opportunity and, more importantly, the
responsibility to work to deliver an inclusive globalization that can
be a force for good across the world,” U.K. government (2007).
27 
For example, European Commission (2006).
justice issues and efforts to leverage the combined
influence of member states in the foreign policy
sphere). The parallel between the European
success story and what is required globally is
startling—and while Europe benefited from a set
of very specific circumstances that gave rise to
and facilitated its creation, Europe’s responsibility
should be to use this experience and expertise
such that others might benefit in a similar way.
The United States could see this as an opportunity.
Europe’s experience, and the source of its legitimacy,
has immense value, and the stronger the European
Union is, the more influential a partner it can be.
As then-U.S. Secretary of State James Baker put it
in 1989:
“As Europe moves toward its goal of a
common internal market, and its institutions
for political and security cooperation evolve,
the link between the United States and the
European Community will become even
more important. We want our transatlantic
cooperation to keep pace with European
integration and institutional reform.”28
28 
Baker (1989).
For both partners, it means moving beyond
earlier political tensions and recognizing that this
cooperation is neither about spreading a particular
American economic model, nor a continental
European economic model, but the building of the
next era of global economic governance on shared
principles. It means putting transatlantic economic
cooperation at the service of the global economy. Transatlantic
cooperation
But the potential for progress, and agreeing on a
new transatlantic “economic bargain,” is perhaps should be put
limited by, and linked to, defense and security at the service
questions. Remember, the post-war bargain traded of the global
the American security umbrella for complicity economy—to build
in the U.S.-led liberal economic order. Where we the next era of
have come from will no doubt influence where global economic
we can go—and in this case, it may be difficult for governance.
the United States and Europe to agree on a new
bargain regarding economic cooperation without
also coming to a simultaneous bargain on foreign
policy issues. If one side is, or perceives itself to
be, shouldering a disproportionately large burden
of responsibility in defense, security, and foreign
policy issues, would it be willing to accept a more
equal role for the other in economic policy?
Guardians of the Global System 17
 6 Prospects for a Cooperative
Partnership
Setting these issues aside, at least two significant
obstacles stand in the way of cultivating a new
transatlantic bargain.
The first is the absence of political leadership.
The relationship has certainly been put under
strain because of a number of high-profile
Political will for trade disputes (among them, bananas, aircraft
genuinely close “hush-kits,” subsidies to aircraft manufacturers,
genetically-modified organisms, and hormone-
cooperation
treated beef)29—although these, and other,
seems to be
disputes still cover only a small fraction of
lacking. But strong overall trade, and disagreements were common
political leadership even under close post-war cooperation.
is required at the
highest levels of More significant, perhaps, is the approach that
government. each is taking in global trade liberalization, an
area of economic policy where the European
Union and the United States have previously
been characterized as operating a de facto G-2
leading global policy (Bergsten and Koch-
Weser 2004). It is widely recognized that their
ability to finalize agreements on a number of
sensitive areas led directly to the conclusion
of the Uruguay Round of trade negotiations
(see, for example, Pollack and Shaffer 2001).
The trend, however, appears to be toward
domestic considerations carrying a progressively
greater weight in calculations of economic self-
interest. Meunier and Nicolaidis (2006) point to
developments on both sides of the Atlantic:
• The United States began to lower its
commitment to multilateralism after calculating
that bilateral deals might better advance some
of its key interests, particularly in services and
intellectual property.
• In the European Union, public demands
for protection from global integration
and liberalization go beyond the post-war
See European University Institute (2002) for a detailed
29 
overview.
18 The German Marshall Fund of the United States
compromise of a liberal order “that would not
ultimately trump the domestic concerns of states
participating in the system.”30
Indeed, with the continued failure to bring
the Doha Development Round to a successful
conclusion, the chief characteristic of contemporary
global trade liberalization efforts is bilateralism.
There is considerable concern that this “spaghetti
bowl” of preferential trade agreements can not
only lead to trade diversion (which can have a
non-negligible economic cost if it leads to imports
from less competitive sources), but that it may
also threaten the global trade system by eroding
the key principle of non-discrimination that lies
at the heart of the GATT/WTO (Wolf 2007 and
Bhagwati 2005). On the one hand, it makes the
system more complex from an administrative
perspective due to the plethora of rules necessary
for preferential deals to function. On the other,
there is suspicion that it encourages powerful
economies—in particular the United States and
the European Union—to engage in a competitive
grab for market access. In other words, far
from putting the joint stewardship of the global
economic system at the heart of their international
economic policy, the European Union and the
United States risk doing precisely the opposite.
At the highest levels, political will for genuinely
close cooperation seems to be lacking. John
Peterson describes the relationship as being
characterized by “profound ambivalence,” resulting
from increasingly “powerful domestic constraints,
weak political leadership, and a set of trade
relations that have become emphatically issue-based
(i.e. often uninformed by overarching strategies).”31
Yet the evidence suggests that a cooperative
relationship requires strong political leadership
30 
Meunier and Nicolaidis (2006), pp. 510–511.
31 
Peterson (2001), p. 45.
at the highest levels of government. The steps
forward taken during the 1990s, under the auspices
of the New Transatlantic Agenda (NTA), were,
according to Pollock and Schaffer (2001), still
largely driven by these “inter-governmental”
links rather than links at lower levels of
government or among civil society groups.
Considerable progress has been made over the
years, particularly in dialogue that relates directly
to the development of a deeper transatlantic
marketplace (Phillipart and Winand 2001).
A growing number of “trans-governmental”
networks (i.e. official, governmental links not
controlled by the policies of heads of government),
such as those involving regulatory agencies,
have emerged in many areas, most notably in
financial market issues. Anne-Marie Slaughter
argues that such networks of officials can provide
a considerable degree of governance,32 and
their development across the Atlantic is to be
encouraged. But progress across sectors has been
mixed, and has tended to fall short of what had
been hoped, despite pressure from the Transatlantic
Business Dialogue, an influential CEO-level
group that has done much to advance the cause
of a more open transatlantic marketplace.
Beyond the transatlantic marketplace, however,
there is little evidence that the dialogue between
the highest levels of government is sufficiently
deep as to be able to support the kind of
sustained cooperation that is required over
the long term. The EU–U.S. Summit process
appears relatively weak, struggling to secure
significant progress, and has been reduced
from a twice-yearly exercise to an annual event
since the NTA was signed. And it surely says
something about the adequacy of the existing
level of cooperation when the creation of a new
See Slaughter (2004) for a thorough overview of such groups,
32 
and their potential for governance.
institutional dialogue in 2007 (the Transatlantic
Economic Council) to provide political impetus
to transatlantic marketplace discussions already
risks being swamped by demands for the dialogue
to take on a range of issues more global in
nature—most notably sovereign wealth funds.
The European Union and the United States
The European
must not underestimate the importance of deep
Union and the
personal contacts in building a foundation
for strategic cooperation. Closer formal and United States
informal ties—involving consultation, dialogue, must not
and efforts to build mutual understanding— underestimate
change the context in which policymakers the importance
make calculations of self-interest, and making of deep personal
it more likely that American and European contacts in
approaches, policies, and conceptions of building a
interest will be complementary, and that those foundation
complementarities can be sustained in the future. for strategic
cooperation.
This is by no means an argument for more set-
piece summitry, but relationships and dialogue
matter. It is widely recognized that there are
significant structural weaknesses in the existing
channels of dialogue—both in the bilateral
framework, and in each side’s approach to dialogue
in recent years (European Commission 2005).33
The European Union is itself a perfect example
of the utility of such strong relationships, and
how they can embed cooperation. Robert
Cooper describes the European Union as
representing “a quality of political relations
and a stability in political relationships never
known before. To create an international society,
international socialization is required.”34 The
33 
Among the defects of the New Transatlantic Agenda identi-
fied by the report are: in the United States, a low public profile
for transatlantic dialogue, and a tendency for political represen-
tation in the dialogue to be “…dependent on the personal incli-
nations of senior officials” (p. 6); and in the European Union, a
lack of transparency in European processes “… leading to a low
sense of ‘ownership’ on the part of the EU’s member states.” (p. 5)
34 
Cooper (2003), p. 36.
Guardians of the Global System 19
 transatlantic partnership need not enjoy the
same depth of personal contact and dialogue
as European ministers and officials do
within the European Union, but it is a useful
model. Ivo Daalder made this point clearly
during the period of tension over Iraq:
A domestic “Contrast the paucity of recent transatlantic
coalition of personal interactions with the European norm.
European foreign ministers see each other as
support will not
often as three times a month. There are monthly
be built without
General Affairs Council meetings of the EU, the
leadership—and quarterly meetings of the European Council,
a persuasive case biannual and annual meetings of international
to which people organisations ranging from NATO to the United
can relate. Nations General Assembly, and frequent bilateral
contacts. Each meeting provides an opportunity to
resolve outstanding questions—and often enables
countries to pre-empt disagreements that would
otherwise occur. Of course, frequent contacts do
not guarantee that conflict will be avoided, nor
is infrequency of contact a guarantee of conflict.
But it helps create mutual understanding, making
conflict less, and agreement, more likely.” 35
The second problem facing the United States
and the European Union is seemingly weak
domestic support for their global mission,
which cannot be separated entirely from the
fact that there has too often been little effort
paid to communicating a strong political case in
favor. The tone of public debate gives cause for
concern; in both the United States and Europe,
economic populism has become a siren sound
in public discourse. Populism and skepticism of
the benefits of globalization have been apparent
ahead of the November 2008 U.S. presidential
election, particularly since (at the time of this
writing) vibrant primary contests were ongoing
to identify each party’s nomination for office.
Nonetheless, there are some grounds for believing
that an argument for openness based on global
35 
Daalder (2003).
20 The German Marshall Fund of the United States
responsibility can still be made. Despite a number
of concerns, recent survey evidence (Perspectives
on Trade and Poverty Reduction Key Fundings
Report, 2007) suggests that a majority of both
Europeans and Americans continue to hold a
favorable view of international trade (75% and
64% respectively); of freer trade (69% and 60%);
of the promotion of trade with poor countries
(76% and 69%); and, small majorities even look
favorably on globalization itself (53% and 52%).
Perhaps more striking in this context, majorities
of both Europeans and Americans believe that
free trade makes the world more stable and that it
increases prosperity around the world. Moreover,
clear majorities in both economies supported an
initiative to deepen transatlantic economic ties
(69% in Europe and 64% in the United States)—the
most popular reason for which was because it
would “help the European Union and the United
States to set standards for the world economy.”
Political leaders would appear to have some
foundation on which to build support for
engagement. In the United States, there may
be an opportunity to appeal to the tradition of
global engagement in the post-war period. In
Europe, the challenge is perhaps more difficult,
because while survey evidence indicates a
similar attitude to economic openness as the
United States on aggregate, that picture varies
widely across member states. Support is weakest
toward international trade in France and
among the newer member states surveyed.
The public views outlined above are by no means
universal, and exist alongside considerable fears,
particularly over foreign investment and the impact
of openness on jobs and domestic economic/
social inequality. The challenge will be to address
those concerns without compromising global
responsibilities. However, a domestic coalition of
support will not be built without leadership—and
a persuasive case to which people can relate.
7 Adopting a Mission
Today’s increasingly integrated global economy
brings immense opportunity, but also a wealth
of challenges in the foreign, economic, security,
health, and environmental fields. More and
more, those challenges require solutions
developed and delivered by international
cooperation. The international system makes
delivering such cooperation more difficult than
is often appreciated—and confers a particular
responsibility on the most powerful economies
to lead these efforts. In particular, it means
leadership to provide genuine global economic
governance—the foundation not only for
sustaining the positive side of our economic
inter-dependence, but also, through providing
the means for cooperative action, the foundation
for future international cooperation to address
the wider challenges of globalization.
Making this argument for transatlantic leadership
in global economic governance matters almost
as much as the argument itself. Before one can
truly look at how to address a problem, one needs
to understand why. The ability of the United
States and the European Union to play the role
outlined is constrained precisely because that role
is not well understood, and is, without doubt,
poorly communicated to the public. Both sides
have a tendency to think of their interests too
narrowly—in terms, for example, of the potential
gains from the removal of trade barriers. But for
as long as transatlantic cooperation is conceived
of in terms of short-term gains or costs and
tradeoffs, political and public support will not be
sufficient to sustain the longer-term role of the
transatlantic partners. Can the United States and
the European Union build the shared political
understanding, a sufficient web of dialogue and If the United
consultation, or strong-enough domestic coalitions States and
of support necessary to sustain cooperation? European
If the United States and the European Union begin Union act as
to define their interests broadly—as guardians guardians of the
of the international economic system—and international
their actions reflect that role, it will help secure economic system,
greater legitimacy for their wider influence in it will help secure
the world. As Joseph Nye points out: “We gain greater legitimacy
doubly from such a strategy: from the public for their wider
goods themselves, and from the way they influence.
legitimize our power in the eyes of others.”36
To Atlanticists, the value of stronger transatlantic
economic cooperation is self-evident. To
others, the idea can, like its foreign and
security counterparts, sometimes be rather
cynically viewed as a solution looking for a
problem. For good or ill, it shouldn’t be.
36 
Nye (2002), pp. 143–4.
Guardians of the Global System 21
 8 References
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