Wall Street Journal (09/25/08) P. A3; Dean, Jason; Walker, Marcus; Ramstad, Evan

The turmoil in the U.S. financial sector is giving ammunition to foreign officials who question American economic leadership and oppose policies that follow the U.S. model. Analysts in China, for example, say the U.S. effort to convince China to let the market determine the value of its currency may be undermined. South Korean opponents of plans to liberalize that nation's financial industry are pointing to the U.S. financial crisis as proof of the correctness of their position. Meanwhile, German chancellor Angela Merkel has cited the events on Wall Street in her defense of a law that gives the state an effective veto over takeovers of Europe's largest auto maker, Volkswagen AG. The financial troubles of the past several weeks seem to have done more than any downturn in recent decades to raise doubt about the U.S. approach, undercutting those who share the American preference for capitalism. A quick recovery to the current crisis could restore some faith in the resilience of the U.S. system. Observers note that after previous financial crises, the United States has gone on to become as strong or stronger. But support for America's international priorities, such as greater deregulation in continental Europe could be undercut. "The U.S. model had a limited attractiveness for Europe before," says Nina Hauer, a Social Democrat member of Germany's parliament. "Now it has lost its attraction entirely." America's track record of fast-rising productivity and growth has for years pressured Europe to change its ways to a more deregulated version of capitalism, and while most economists in Europe still say the region needs more free-market changes to improve long-term growth, calls have now increased for a more regulated form of capitalism.(www.wsj.com)

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