Despite its current woes, the European Union also remains the UK’s most significant trading partner, accounting for around half of our trade.
However, the on-going crisis and the inevitable, but still-developing, political response from within the Eurozone could risk not only fragmenting the single market but undermining the UK’s position within the European Union as well.
There is little doubt that countries such as Germany and France would attach strict conditions to further support to the Eurozone’s periphery; conditions which would doubtless require a greater integration of the fiscal and monetary policies of the Eurozone countries.
If the euro is to survive and if these countries are to restore a sense of credibility and trust, this is the only answer to the problems they face.
However, the UK government is highly unlikely to concede more powers to Europe – indeed, many are seeking a return of powers previously conceded. By removing the prospect of the UK ever joining the Eurozone, our relationships with our major trading partners would change and the development of a Eurozone single market would continue with the influence of the UK severely diminished, if not ignored.
Many might see this as a positive step if it frees us from the bureaucracy of Brussels and allows us to reshape our economy to be more competitive on the global scene. However, others will worry about the threat of protectionism and the difficulty a small country might face when negotiating with powerful economic blocs and countries such as China and India.
The latter is a very real concern, and we are already seeing a rise in protectionism across the globe. In Europe, the ECB’s proposal to require clearing houses to be based in the Eurozone if they hold more than 5 per cent of any euro-denominated market is a case in point. With the UK responsible for 40 per cent of all over-the-counter derivatives trading, the impact upon the City could be significant in the long term.
That is why it was so gratifying to see the government backing the position of the UK financial services industry so publicly and so unconditionally over this issue.
The future of the single currency and the European single market hangs in the balance, and there is no going back to the previous regime. Change will happen and we need to continue to encourage our government to take a firm line on any proposal that threatens to undermine our competitive position. I hope both our central bank and our regulators also take this on board, something they have been reluctant to do in recent years.
The next few years will be the most challenging the City has faced since the “Big Bang”. We have no right to an existence and we need not only to up our game but also challenge the somewhat complacent attitude that persists in some corridors of power.
Stuart Fraser is the policy chairman at the City of London Corporation.