“In a globalized world, no element is more interconnected than the financial community.” Robert M. Kimmitt
U.S. Deputy Secretary of the Treasury Kimmitt sees three key groups of issues on today’s transatlantic economic agenda, all of them global in scope and impact:
1. The Further Reduction of Trade and Investment Barriers
Chancellor Angela Merkel‘s 2007 Transatlantic Economic Partnership was, in Kimmitt’s words, the “the most important transatlantic economic initiative ever to come from any EU Presidency”. The initiative’s focus is evidence that cross-border investment continues to rise in importance . This largely positive development has, however, been accompanied by growing calls for investment protectionism. “In the mid-term,” said Kimmitt, ” [this could] become a challenge like [the issue of] trade protectionism” today.
Sovereign Wealth Funds (SWF) and Hedge Funds
An area of investment that has recently come under close scrutiny, SWF was discussed at last Friday’s meeting of G7 finance ministers. While the EU and the U.S. are finding more in common in their approach to the issue, SWF and the policies of their countries of origin remain heavily debated. German Finance Minister Peer Steinbrück‘s call for an international “code of conduct” for SWF was, for instance, understood differently in Europe and the U.S. due to semantic differences. While the phrase is understood as an informal agreement in Germany, it was taken in the U.S. as a call to define a formalized set of rules.
In reality, the transatlantic difference over this issue is not as large as the semantic misunderstanding might suggest: like the German approach, the U.S. strives for a “voluntary set of best practice” rules for both SWF and Hedge Funds. Kimmitt remarked that a swift establishment of guidelines on SWF are in the transatlantic community’s best interest, and one can expect SWF to grow in importance in the future. Though significant increases in the size of SWF or political motivation for their investments continue to worry critics, one should not forget that SWF have been around since 1960 (Kuwait), and are usually welcome as patient, and long-term investors. Kimmitt noted that, in order to find appropriate answers to the challenges that SWF present, it is important to have countries of origin involved in the deliberation process.
Kimmitt also praised the German Minister of Finance for putting the issue of hedge fund regulation high on the G7 agenda. Contrary to popular understanding, here too, “the United States and Germany pursue the same goal”: solutions geared towards the stimulation of market-based solutions.
Foreign Investment and National Security
The U.S. works both with the EU and individual European states to establish common policies. Within the US, very few business transactions are subject to national security concerns. The American legislation on foreign takeovers of security-sensitive companies is not directed specifically at certain economic sectors, but follows a flexible factor-oriented approach.
2. Economic Sanctions on Iran
Kimmitt noted that, while a lot more could be done to implement existing UN sanctions, preparations should be made for the next round of measures in case Iran again fails to negotiate on its nuclear program. The Financial Action Task Force has intensely criticized Iran for failing to focus on preventing money laundering and funding of international terrorism. Therefore, a clear message should be sent “to banks all around the world to be exceptionally careful in dealings with Iran.”
Kimmitt commended Germany’s leading role in trying to curb Iranian nuclear weapons ambitions. Despite the country’s close economic ties with Iran, German banks and companies have lived up to all obligations under UN and EU sanctions. In some cases, foreign-based subsidiaries of U.S. companies are still engaged in sanctioned business with Iran. However, said Kimmitt “we have strongly encouraged” the respective U.S. mother companies “to withdraw from Iran, and we continue to watch closely.”
3. The Current Economic and Fiscal Situation in the U.S.
The global economy has been shaken up by both U.S. credit and housing market concerns. According to Kimmitt, though the decline in housing prices is a major concern “the U.S. economy has strong underlying fundamentals”: More than 49 consecutive months of job growth, a fiscal deficit down to 1.2 per cent of GDP (less than half the Maastricht criterion), and a current account deficit that has gone from 6.8 to 5.5 per cent of GDP.
Written by Andreas Beckmann
Following the breakfast Mr. Kimmitt sat for an interview with Bloomberg News’ Chris Burns. The eight minute video is available online at Bloomberg.
Atlantic Initiative co-founders Dr. Johannes Bohnen and Jan Kallmorgen with U.S. Deputy Secretary of the Treasury Robert M. Kimmitt.