Back in 2011, as part of a series of measures designed to improve financial stability in the currency bloc, the ECB decided that any clearing house wanting to process a significant number of euro-denominated trades would have to be based in the Eurozone. This would have been a disaster for the City, as twice as many euros are traded in the UK as in the whole of the Eurozone. Large clearing houses, like LCH.Clearnet, might well have had to move to Frankfurt or Paris. It would also have damaged the integrity of the European Single Market.
Unsurprisingly, the UK government challenged the decision, and out came the doom-mongers to say that we can never win these cases, so would be better off outside the EU altogether. Except we won. And we won emphatically, as the ECB was told it had no right to regulate securities clearing systems, and that if it wanted to do so it would need to request a change to its charter. This is considered very unlikely indeed.
So, as hangovers fade and many in the City breathe a sigh of relief that they won’t have to up sticks and move, what are the longer-term lessons for Britain’s future in Europe?
The first is that Britain can and does win important victories in the EU institutions. Also important is the manner in which we succeeded. In this case, the British claim was supported by Sweden, which like the UK is home to clearing houses which trade in euros. Stamping our feet and demanding special treatment is rarely effective; building alliances with like-minded countries works. The success of this approach can be seen in the agenda of the new European Commission, which includes completing the Single Market, capital markets union, and cutting regulation.
The other positive takeaway relates to the position of “euro-outs” relative to the Eurozone countries. The fear has always been that the EU institutions would prioritise the Eurozone over the Single Market, to the detriment of the UK. This ruling has shown that the ECJ remains fully committed to defending the four freedoms of the EU, including the free movement of capital.
Anti-Europeans have long peddled the myth that EU membership is damaging to the City. Nothing could be further from the truth. The City, as the lord mayor pointed out on Monday, is Europe’s financial capital. It would not be the force that it is today without free access to the 500m consumers of the European market. The ECJ’s judgment means that that vital access has been protected.