As prepared for delivery.
Thank you very much. It is a pleasure to join you this evening. As most of you probably know, I have a bit of experience with running an international company. A couple of years ago, I would have been sitting with you in the audience. Now I can confirm, from what I have learned on both sides of the podium, that foreign policy is not just the work of governments. The business community has played an invaluable role in building the world’s most successful economic partnership. Companies promote the global reach of free markets, free trade and free enterprise in a way that governments cannot. Thank you all for your commitment.
This year, the European Union and the United States celebrated two important anniversaries – the Marshall Plan and the founding of the European Union. Both these institutions were instrumental in shaping Europe’s vast and productive economic recovery. It is important to note, however, that since the end of the Cold War, economic integration between the United States and the European Union has become more intense than ever before. Increased investment and more corporate partnerships tie our business, people, consumers, workers, and farmers together.
The U.S. and the EU now represent the world’s two largest economies. Together we account for roughly 60% of global GDP and 40% of global trade. More than three billion dollars a day in trade, services and investment cross the Atlantic every single day. Fourteen million jobs depend directly on trans-Atlantic trade.
Germany enjoys a role today in Europe which is unique in its long history. Its role within Europe is of central importance to its neighbors, to the United States, and to the world economy. Germany is a vital economic partner for the United States. The United States is Germany's second largest trading partner. Over 2000 American companies are located in Germany with almost double that number of German companies located in the United States. All together, these firms provide close to 1.500.000 jobs in our two countries.
The most dynamic American investment in Europe is happening in eastern Germany. American commitment to German reunification has gone beyond political and government agreements. The U.S. is the biggest foreign investor in the eastern German states. Over one-third of all U.S. companies in Germany have operations in the eastern region. Investments total well over $20 billion. New and established companies like Oracle, Goodyear, Gillette, e-Bay, IBM, Cisco Systems, and Motorola account for over 25,000 jobs – and that number is rising. I am especially pleased about investments in renewable energy and energy efficiency technologies – areas in which Germany and the United States are world leaders.
In July, I attended the opening of a First Solar plant near Frankfurt Oder, close to the Polish border. First Solar is an American company. It has brought to market state-of-the-art solar cell technology that it developed in close collaboration with researchers at the U.S. Department of Energy. First Solar also profited from the support of the German federal government, the state of Brandenburg, and the city of Frankfurt. It’s that kind of private-public cooperation that is bringing alternative energy into the mainstream in Germany and in the United States. Together we are addressing the crucial global issues of climate change and energy security. Along the way, we are creating jobs and strengthening our economies.
This is an example of how our partnership can flourish in the new global context of the 21st century. The benefits of our close bilateral relationship extend well beyond our respective borders. This was one of the underlying messages of Chancellor Merkel’s twin agendas for Germany’s EU and G8 presidencies. One of the main achievements of Germany’s EU presidency from the trans-Atlantic viewpoint was the agreement on a new framework for economic integration between the United States and the European Union. The goal is to expand economic ties by cutting barriers to trade and investment.
Well-functioning financial markets are essential for a prosperous economy. American capital markets are the deepest, most efficient, and most transparent in the world. The United States is the world's leader in mergers and acquisitions advice, venture capital, private equity, hedge funds, derivatives, securitization skills, and Exchange Traded Funds. With this expertise, our major financial institutions have contributed greatly to economic success throughout the world.
The sub-prime crisis in the US surprised a lot of people, including some of Wall Street's leading financial experts. So it should come as no surprise that many people in Germany were equally unprepared for its impact on financial institutions here. The incident has led some to raise questions about the ability of credit agencies to evaluate risk. As a former private sector person I would be surprised if we found that there was not plenty of information available. Too many people get greedy.
So while we agree that the issue deserves consideration, we would caution against major regulatory changes until the causes and effects of the situation are carefully investigated.
The sub-prime sector of the mortgage market has seen tremendous innovation in recent years. New lending products have made credit available to more people. For the most part, this has been a positive development. New investment vehicles have speeded up business in much the same way as the Internet. Used wisely, they are power tools in financial markets. As one analyst said, if you know how to use them, power tools, compared with using hammers, screwdrivers and handsaws, are exponentially better and faster for building a house. If you don't how to use them, however, you can drill a hole in your head.
The federal government is taking a variety of actions to make the mortgage industry more transparent to reduce the likelihood of having the same kind of lending problems we have seen recently happen again. But it is not the primary responsibility of the government to protect lenders and investors from the consequences of their financial decisions. Developments in financial markets can, however, have broad economic effects. The Federal Reserve has made clear it will take those effects into account when determining policy.
Moreover, as President Bush announced last week, federal banking regulators are improving disclosure requirements to ensure that lenders provide homeowners with complete, accurate and understandable information about their mortgages.
One of the great strengths of our markets is their dynamism. Markets need to change with the times to serve the needs of investors and businesses. They are not immune to challenges. In the last 15 years, we have experienced years of economic expansion and the exuberance of the late 1990s. We saw what happened when the technology and telecom bubbles burst. A wave of corporate scandals undermined investor confidence in the United States. But in all cases, we weathered the storms. At the same time, global capital markets around the world have evolved and developed, creating extraordinary growth in private pools of capital, including hedge funds. Each of these changes has presented its own set of benefits and challenges.
Key, however, is the underlying recognition of the importance of open investment policies to the growth and productivity of the global marketplace. The free flow of capital in open, competitive markets contributes directly to higher productivity growth and efficiency. Economic growth creates new jobs and higher incomes, spurs economic and legal reform, stimulates technology and innovation, promotes democratic political systems, and helps lift large numbers of people out of poverty. That enhances international security by advancing prosperity and economic freedom around the world.
At the same time, governments are debating about how best to deal with legitimate national security concerns raised by globalization. American investment policy has always recognized the need to protect national security, a need that is internationally recognized as a defensible exception to an open investment regime. The United States has numerous laws and regulations that provide this critical protection. The Committee on Foreign Investment in the United States or CFIUS is the major forum for decisions on these issues. CFIUS is an interagency group, chaired by the Secretary of the Treasury, comprised of six departments and six White House offices, and advised by the Director of National Intelligence. This committee has played an increasingly important role at the nexus of investment and national security policy and has adapted its membership and procedures, as the security situation evolves.
High profile foreign investments such as the recent plans by a Dubai-owned company to manage six of the largest American ports have initiated concerns about the need for further controls. This summer, President Bush signed legislation to reform the interagency process for reviewing foreign acquisitions of U.S. corporate entities. Parties can obtain a safe-harbor for their transaction by voluntarily submitting to a confidential vetting process conducted by the CFIUS. The new law expands the scope of review to include transactions involving "critical infrastructure.” That includes any vital system or asset, physical or virtual, whose destruction or incapacity would have a "debilitating impact" on national security. The new law also mandates that CFIUS investigations consider a country's relationship with the U.S. and its record in nonproliferation and counterterrorism. The legislation closes what some in Congress viewed as a loophole governing transactions involving certain foreign governments.
At the same time, the legislation sends an important signal that the U.S. will always welcome foreign investment on a responsible, nondiscriminatory basis. It also provides a positive example for other nations reconsidering their laws governing inbound investment. Chancellor Merkel has said that she favors the CFIUS model for joint European action but she is also considering legislation to shield certain German firms from foreign takeover. The U.S. Treasury has been pushing for the International Monetary Fund and the World Bank to issue a list of best practices for sovereign wealth funds. This underlines the ongoing challenge for both government and business to strike the right balance between investor protection and market competitiveness. The right balance assures investors the system is sound and trustworthy. It also gives companies the flexibility to compete, innovate, and respond to changes in the global economy.
As Bob Kimmitt, former Ambassador to Germany and now the Deputy Secretary of the Treasury, says, questions have been raised about whether the doors to foreign investment will remain open in the future in both in Europe and in the United States. The answer for the United States, he says, is, "Yes, we are open for investment." I’m confident the answer is the same in Europe.
In fact, as I said in the beginning of my remarks, economic integration of our economies is one of the most important bonds we have to keep our politicians, governments, and diplomats from disrupting our bilateral relationships over less than significant issues.
To those in the private sector, I say “Keep up the good work.”
Any reference obtained from this server to a specific commercial product, process, or service does not constitute or imply an endorsement by the United States Government of the product, process, or service, or its producer or provider. The views and opinions expressed in any referenced document do not necessarily state or reflect those of the United States Government.
Diplomatic Mission to Germany
/Public Affairs/ Information Resource Centers
Updated: June 2008