Yesterday, we warned that David Cameron’s EU renegotiation was at risk of ignoring vital questions about the future of the UK’s financial services.
A focus on immigration and benefits has overshadowed the hugely vital issue of how the rest of Europe views financial regulation and what implications this has for dominance of the City.
It now seems that such a warning was prescient, and that Cameron’s deal fails to deliver a convincing mechanism for defending the City.
The document includes lots of nice, fluffy principles about respecting both the Eurozone as an entity, and non-Eurozone states alike.
This is all well and good, but let’s take a look at how the proposed system would work in practice: if non-Eurozone states (not just the UK) believed that new rules (on, for example, financial transaction taxes) clashed with the principle of respecting non-Eurozone states, they could delay the measures by calling for further debate.
The European Council president would then consider their objections and may seek an amendment to the legislation that addresses the concerns and keeps everyone happy.
However, it is perfectly possible – and some would say likely – that Brussels would simply push on regardless. The president will still hold the cards.
Chancellor George Osborne wrote in this paper back in September: “One of the greatest threats to the City’s competitiveness comes from misguided European legislation. So a central demand in our renegotiation will be that Europe reins in costly and damaging regulation.”
Using his comments as a barometer, it’s difficult to see how yesterday’s proposals help the situation. Donald Tusk’s letter contains some positive language and useful clarifications – on the Bank of England’s control of macro-prudential issues, and on protecting UK taxpayers from any potential Eurozone bailouts – but ultimately the EU will keep regulating and legislating as it sees fit.
Being an EU member has undeniable advantages for business. However, some member states, especially in the Eurozone, are unsympathetic – or even hostile – towards Britain’s financial services.
Yesterday’s proposals suggest that little will be done to protect the Square Mile from further “costly and damaging regulation”. Without the kind of substantial measures that would require a treaty change, Tusk’s letter is little more than a press release.