Right now, the world has too little capital, too few jobs, and too little growth. So what do Europe’s leaders want to do? Press for yet more job-killing regulation and more investment-stifling oversight, with a heaping helping of “global governance” on top. If this wasn’t so dangerous, it would be laughably irrelevant.

The European plans, unveiled on Sunday in the run-up to the G20 summit in April, are breathtaking in their intrusiveness. All financial market activities around the world should be regulated to ensure that they foster “sustainable economic activity,” promote economic ‘balance,’ and do not upset market stability. All tax havens must be abolished, and the way must be cleared for the “establishment of a global governance structure” that will prevent the development of all market “excess.”

This is, frankly, ridiculous. The idea that government can ensure the stability of markets is wrong, but it is hardly new. For years, we’ve been told that the U.S. showed the unacceptable, unregulated face of capitalism, while in Europe, governments ensured that markets worked responsibly. But that’s not how it’s worked out. In both the U.S. and Europe, governments have made things worse.

In the U.S., it was the collapse of the mortgage market that triggered the landslide. That market was pushed to unsustainable heights by the Federal Reserve, the Federal Housing Administration, Fannie Mae, and Freddie Mac, government entities all. The money that poured into the housing sector was created by the state, and directed into that sector as an act of policy. And where the government led, U.S. banks happily followed.

And if you think the U.S. is in trouble, you’ve not been paying attention to Europe. Most U.S. banks in Summer 2008 were leveraged at less than 20 to 1. By contrast, European banks were leveraged up to 50 to 1, which is why Royal Bank of Scotland and Lloyds have now been nationalized, and why the remainder are at the mercy of the ongoing collapse of Eastern Europe. The idea that the European system of regulation would work better if it was made even bigger is foolish.

That goes double for the Euro, which, as Milton Friedman insisted it would be, has been a catastrophe. Far from preventing excess, the Euro has promoted it. It has imposed inappropriate interest rates and thereby distorted investment decisions across Europe. And, of course, the Euro was adopted for political reasons. Recessions, recoveries, and growth are a normal part of every capitalist economy, but the exaggerated bubble that is now bursting was fostered by governments. By setting a goal of maintaining market stability, governments only make the inevitable corrections worse.

Conservatives obviously accept that markets cannot flourish without government to make and enforce law. But that is not what the European leaders are up to. What they want is what they always want: a more centralized and stasis-bound European Union in an economically ossified world. The problem Europe faces is that the rest of the world has more flexible labor markets. Over time, this means Europe increasingly finds it harder to compete and more difficult to pay the costs of the welfare state.

The European campaign in favor of economic ‘balance’ and against ‘tax havens’ gives the game away: what really upsets them is that money they could be taxing is eluding their grasp. The financial crisis offers the perfect opportunity to close this loophole, and, if the rest of the world is dumb enough to go along, to impose more European-style burdens on everyone else. Slowing down the freer economies of the world would improve ‘balance’ by making Europe’s markets more attractive by comparison.

German Chancellor Angela Merkel offered a perfect illustration of European hypocrisy with her comment that “When I look at the restructuring plans of some American [auto] companies, there are a lot of state funds flowing into them.” She’s right: the U.S. auto bailout is a protectionist disgrace. But that’s what governments do when they go beyond setting the rules of the game: they protect their own, try to pick winners, and make decisions for reasons of politics instead of economics.

The European proposal would mean a massive expansion of political authority over the world’s markets, a corresponding decline in political and economic freedom, and even more opportunities for governments and the markets to get it catastrophically wrong. The U.S. must not allow itself to be led down this European path.