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Monday, December 12, 2011

Cameron must persist with EU reform strategy

We've got a piece in City AM today, assessing what the EU summit conclusions really mean for the UK financial services sector. Despite much of the noise in the media not all that much has changed. That said it is vital that Cameron pushes forward with his strategy for EU renegotiation in order for his veto approach not to be in vain. See below for the full piece:
NOW that the dust is beginning to settle on last week’s tumultuous EU summit, where Prime Minister David Cameron blocked a change in the EU treaty, we can start to assess the consequences of his decision. So, what could the summit outcome actually mean for UK financial services?

Despite the clamour in much of the media, structurally it doesn’t change that much for the City. The UK would never have actually taken part in the proposals that were on the table to shore up the euro ­– for example, the monthly meetings among Eurozone leaders – so Cameron has not lost a seat at the table as some have incorrectly reported. The UK may not have gained any additional safeguards, but it isn’t visibly any worse off on financial services. That said, there are a couple of valid background concerns.

Firstly, since there are no safeguards in place, there’s still a risk of Eurozone caucusing, with the 17+ countries deciding for all 27. Some have argued that this risk is now greater since Cameron lost a lot of good will, which could lead to retaliation from EU partners, particularly with regard to financial regulation. Let’s be honest though, the Eurozone has much bigger problems to worry about for now and doesn’t have the time to punish the UK, nor can it afford self-defeating regulation.

Second, there is a concern over a Eurozone financial transaction tax (FTT) – an EU-wide FTT is still a non-starter and the UK retains its veto. The impact of a Eurozone only FTT on the City is unclear. It could be positive, as businesses relocate from the Eurozone to London to avoid the impact of the FTT – they would still have to pay the FTT to access the Eurozone, but would not have to do so with international trade. As such, London would have a competitive advantage. At the same time, it may have a negative impact by reducing financial transactions in Europe generally – something which the City would lose from since it is often seen as a gateway to European markets. The overall impact is unclear though and the same points can be made for any Eurozone specific financial regulation.

So, if Cameron didn’t gain or lose much, what was this all about? Fundamentally, it was about announcing a new strategy in the UK’s negotiations with the EU and flagging up the City as an area of vital interest. Perhaps Cameron’s demands were too detailed, so didn’t lend themselves to EU treaty negotiations, while his timing wasn’t ideal. Perhaps he also failed to link his arguments to wider efforts to develop a more competitive and outward-looking EU. But, due to domestic political pressure and the looming threat to the City from EU regulation, Cameron may have had little choice but to take the approach he did.

There is no doubt that Cameron expended substantial political capital with this move. For this not to be in vain he must continue to push a reformist line, ensuring sound and proportionate regulation. The agreement formed at the summit does not solve the Eurozone crisis and throws up huge legal questions, not least over whether the Eurozone will be able to use EU institutions to enforce decisions. There could be instances in the near future of the Eurozone needing the approval of the UK. Cameron should stick to his guns, but needs to do a better job of communicating his overall strategy and why the City is important to the UK economy. This is not over by a long shot.


Anonymous said...

This is pretty weak stuff! The truth is that none of the three leaders involved is up to the task and none emerges with any real credit.

Cameron is the fall guy as he was the one that ended up with no chair when the music stopped.
The other two should have recognised that they were playing a dangerous game and called a time-out. But there are no statesmen in Europe (which includes the UK) just when we need them.

The scramble back must now begin. What all seem to be missing, and notably this blog, is that what has been decided is a mixture of actions within and without an EU treaty context. The UK cannot be excluded from the former, a point intelligently made by the Chancellor of the Exchequer.

The other notable point being missed is that the concluding paragraph of the Euro Area statement does not specify what exactly are the "measures" to be "adopted through an international agreement".

This is what Open Europe should be devoting it attention to, not trying to camouflage the fact that its man - through making the biggest political miscalculation of all involved - has taken a near knock-out blow and may just, only just, succeed in getting back up from the canvas.

Jon Moore said...

I thought we already had FTTs in the UK for many financial transactions: stamp duty, Insurance Premium tax, etc.
The question is, do other EU states have similar imposts and if not does a level playing field exist at the present time, in any case? I understand that the key point of any 'Tobin' tax was that it would go directly to the Eurosoviet organs, for what purpose, is anyone's guess. This is the point of any veto, since any 'local' FTTs raised in Britain go to the UK exchequer and that is already acceptable to the British government. As to the rest of the debate after Friday's waffle and disinformation by the likes of the BBC and other sources, Cameron's failing is his inability to lay out the points made by such as Open Europe in a logical, idiot-proof fashion, and to take the hype out of the hysteria about Britain's future or now changed position in Europe. Why has he not for example mentioned on the ten o'clock news the fact that an FTT was put in place and later removed as a disaster by the Swedish government who irreparably damaged their financial sector after their bust in the 90s? Why does he let Sarkozy and the BBC get away with peddling the lie that the Euro crisis is somehow tied up with 'Anglo-Saxon' capitalism when it is wholly the fault of Euro-zone politicians and other amateur functionaries who have never had real jobs or carried the tools, other than to be lawyers, MEPs or, in the case of France, elite products of their outrageously incestuous 'Grandes ├ęcoles' fraternity?

Anonymous said...

Further to the above;