Canada, the European Union, and Transatlantic Financial Governance

The focus of economic relations between Canada and Europe - and more specifically, the European Union - is usually on trade and investment, not finance. This has been true since at least the 1970s when Canada's was in vogue, the third option being the idea that Canada should expand and deepen its trade relations with Europe so as to reduce its economic dependence on the United States.1 More recently, the negotiation of a comprehensive economic and trade agreement has dominated the public discussion of Canada's economic relationship with the EU.2 In terms of international finance and its governance, Canada and the EU are normally not concerned with each other but rather with the United States. This is because in the post-World War II period, the US has dominated capital markets and the setting of international financial regulation.3 Cooperation between Canada and the EU in matters of financial governance has instead taken place in international organizations and forums such as the G7, the G20, the International Monetary Fund, the Bank for International Settlements and its Basel committee on banking supervision, and the Financial Stability Forum (now the Financial Stability Board), whose decision-making has traditionally been heavily influenced by the United States.4Today, however, the United States no longer dominates international finance. After a rise in US financial power in the 1990s, the last decade has seen a number of events undermine America's influence. The first was the burst of the dot-com bubble in 2000. The exponential rise of the Nasdaq stock exchange and the massive entry of foreign capital that accompanied the US information technology boom in the second half of the 1990s reinforced the United States' position as the leader of the globalization game. The dot-com bubble crash put a dent in US leadership, however, because the crash was blamed in part on inadequate regulation and supervision of the brokerage firms that promoted the shares of dot-com companies to the public. The second hit was the result of major accounting scandals at Enron and WorldCom in 2001 and 2002, which resulted in their bankruptcy, as well as that of Arthur Andersen - Enron's auditor and one of the world's top-five accounting firms at the time. In this case, it was US accounting standards and corporate governance practices that were blamed for these failures. The third (and final?) nail in the coffin came with the burst ofthe US subprime mortgage bubble in 2007, resulting in a financial crisis that went global and in turn caused the world economy to suffer the so-called great recession.5 In this last case, blame was put on insufficient regulation and supervision ofthe US financial sector. As a result of these failures, the United States' reputation as a beacon of financial stability has been severely dented, which has greatly undermined its ability to influence the governance of global financial markets.Given the dominant role that the United States has played in the domain of international finance in the last 60 years, one should not be surprised that Canada and the EU have focused their international financial governance attention on the US rather than on each other. But now US financial hegemony appears to be waning, and at the same time, Canada's financial profile has reached some kind of apex: its banks did not experience a crisis, while the EU is facing serious economic challenges of its own. What does this situation mean for the economic relationship between Canada and the EU and the challenges that they face in matters of global financial governance? More specifically, how have Canada and Europe responded to the rise and fall of American financial hegemony? Have their responses been similar or different? To what extent have their responses involved collaborating with each other?To answer these questions, the remainder of this article is divided into three parts. First, it is argued that, based on theoretical considerations, Canada would have been expected to follow the US lead in matters of financial governance, while the EU would have been expected to oppose US hegemony. …

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