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Two ways US and Europe can boost their economies

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Yet even going over the cliff is unlikely to do serious damage to the American economy, provided an agreement can be reached within the next couple of months. The effects of the missed deadline will have begun to take effect by then, and that pressure will make a deal more likely.

Meanwhile, the European debt crisis has appeared less dramatic in recent weeks, after the European Central Bank stepped up its activities and temporarily calmed investors. Also, eurozone finance ministers finally agreed today that the European Central Bank should become the regulator for a new EU-wide union of large banks. That’s an important step in bringing uniform oversight to the banking sector, and addressing the kinds of structural problems that caused the debt crisis in the first place.

Beyond solving their own internal crises, the US and the EU finally have the chance to get more from their economies by bringing them even closer together through a free trade agreement. Both sides should join hands and plunge into talks.

Chances for a deal are better than ever. A working group of high ranking US and EU officials is evaluating the feasibility of such a pact, which would remove remaining barriers to trade and investment flows. Tariffs would be greatly lowered or swept aside and compatibility between standards and regulations would be harmonized.

This will require effort. Consider, for instance, differences in agricultural standards for genetically modified food, in product-safety requirements, data privacy, and restrictions on foreign investment. But the effort is worth it. Although hurdles to transatlantic trade are already relatively low, the sheer size of this marketplace – nearly half the world’s gross domestic product – ensures that even small improvements would produce significant gains.

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