There’s no third way for the City in Britain’s relationship with the EU
22 November 2012 12:15am
TODAY David Cameron travels to Brussels to take part in a critical summit on the EU’s budget from 2014 to 2020. The occasion will involve more than just budget negotiations, however.
This summit has implications for both the City of London and the UK’s broader position within the EU – areas where the coalition’s approach is more short-term tactical expediency than long-term strategy. Consequently, its ability to dictate terms on these two vital matters is fast eroding.
Historically, there are two models of a successful financial centre. The first – an onshore version – is a hub city that services a sizeable domestic market. Think New York. The alternative is an offshore approach, which depends on attracting business via competitive tax rates and other selling points like a respected legal system and a skilled workforce. Think Switzerland.
Until the 2008 financial crisis, the City enjoyed elements of both and benefited handsomely. It took on the role of an offshore-onshore financial centre to the European continent and developed a light-touch regulatory approach that attracted huge volumes of foreign money. But the arrival of the financial crisis fundamentally changed the rules of this game.
Since 2008, the Eurozone has demanded greater oversight of its financial infrastructure. It has asked awkward questions about the ability of UK regulators to prevent the system silting up, and about whether it is sustainable for euro-denominated risk to be cleared offshore in London. In turn, the City has questioned how long it can avoid being infected by EU financial directives without its competitiveness being fundamentally damaged.
The invoking of the British veto at last December’s EU summit was billed as an aggressive demonstration of the UK’s intention to retain the City’s offshore/onshore model. But to many EU partners, it was seen as an unrealistic and petulant attempt to maintain an unsustainable status quo.
In reality, that veto was less about the future of the City and more a political gesture aimed at keeping eurosceptic wolves from the door, ideally until well beyond 2015. The backdrop to that last summit was an unexpectedly large “rebellion” in support of an EU referendum. Yet the Prime Minister’s superficially popular move only hardened eurosceptics’ resolve to extract further concessions.
Since then, matters have moved on apace. The EU is finalising work to set up a single bank supervisor. Meanwhile, the coalition has failed to see off another rebellion on the UK’s relationship with the EU, this time over its budget. Another summit showdown is surely inevitable.
The uncomfortable truth is that there is no third way in the UK’s relationship with Europe. The Prime Minister’s understandable instinct is to play for time – to placate eurosceptic passions with aggressive talk about renegotiating our relationship with Brussels, while smoothing relations with European partners behind the scenes. But this approach is no substitute for a clear view about how Britain’s economic interests are best served, and particularly how the City – our only substantial, globally competitive industry – should evolve.
If the Prime Minister sees our future in the EU, with the City remaining closely integrated into the vast domestic European market, a collaborative approach with our European partners is now required. This path will involve facing down UK eurosceptics. Time will also need to be spent extracting the best deal for the City through careful diplomacy and the building of alliances.
If, however, he truly believes that the raft of EU directives coming this way are anathema to the long-term interests of the City, and that its future is best served by adopting an offshore model, a path towards British withdrawal from the EU will need to be sketched out before long.
Talk of fundamental renegotiation is illusory. We may not like it but, when it comes to the EU and the City, the choices ahead for the UK are increasingly binary. This has arisen because of the absence of any strategy on how we see the City operating in future and what relationship Britain should enjoy with the EU in the years ahead. As it stands, the UK government has no clear answer on either of these issues. This is a perilous position for the national interest.
Mark Field is Conservative MP for the Cities of London and Westminster.
In other news
Women's teams will feature on the forthcoming Fifa '16 video games - marking the first time women's football has [Read more]
Just a day after the Queen's Speech confirmed what we knew the Tories would have to do, a bill has dropped into [Read more]
Economic growth is generally considered a positive thing for the people living in that country - it brings jobs, [Read more]
Avago Technologies has sealed a $37bn acquisition of fellow semiconductor company Broadcom to create an industry [Read more]
Russian President Vladimir Putin has accused the United States of meddling in affairs beyond its jurisdiction [Read more]
The UK's GDP increased by 0.3 per cent in the first quarter of 2015, according to the latest figures from the [Read more]
Five people were arrested after the anti-austerity protest in Whitehall and Trafalgar Square turned voilent yesterday. [Read more]
Claire Perry has said “at times, the delays and disruption that are occurring are simply inexcusable.” [Read more]
Like electing a boss of Fifa whose surname isn’t Blatter or extracting an apology from Thomas Cook, reforming [Read more]
Britain's FinTech sector is a particularly bright spot in the UK’s recovering economy. Investment in London [Read more]
Currency volatility did Kingfisher no favours in the first quarter of 2015, but investors have not been put off. [Read more]
Power systems manufacturer Rolls-Royce has signed an €80m (£57m) contract with General Dynamics European Land [Read more]
Tool hire giant HSS saw its shares rise yesterday after reporting first-quarter trading in line with expectations.
Irn-Bru maker AG Barr announced yesterday that it plans to expand its state-of-the-art canning plant at Milton [Read more]
A group of Tesco shareholders seeking compensation from the supermarket claim the troubled supermarket "committed [Read more]
Yahoo will face a US class action lawsuit alleging wiretapping violations of emails sent to its users from non-Yahoo [Read more]
Your train is late again. Do you sigh, grit your teeth and try to keep smiling or mutter to yourself that you [Read more]