DAVID Cameron risks facing his own personal European groundhog day. A watershed European summit last month advanced proposals for a Eurozone banking union. Final approval is due in December. The aim is to break the fatal link between euro area banks and sovereigns. Less painful for Germany than eurobonds, but seen as credible by financial markets, it will turn the European Central Bank (ECB) in Frankfurt into a Bank of England style super-regulator.
Unlike the fiscal compact the Prime Minister vetoed last December, banking union is an essential step towards resolving the Eurozone crisis. For Britain, the risks or rewards of new Eurozone banking structures depend on how they interact with the single market, arguably the EU’s greatest unifying achievement.
About a quarter of the firms based in London are headquartered in the Eurozone, and whatever rules the new banking union established will apply to them.
One example of potential risk is the ECB’s demand that central counterparties offering euro-denominated clearing must be based within the Eurozone. The UK has rightly taken the ECB to the European Court of Justice over this on the grounds that such a requirement is discriminatory. If allowed to stand, big clearing houses based in London may up stakes and move into the Eurozone.
A single market compatible banking union requires consultation with non-euro members, including Britain, to ensure that common rules safeguard the free movement of capital and financial services are applied equally. It also means upholding the mandates of the European Banking Authority based in London and the European Systemic Risk Board. These bodies work for all the EU’s 27 members and would work to coordinate the ECB and non-Eurozone national regulators.
Economically liberal member states like Germany value the integrity of the single market and do not want to see Britain become an associate member of a two-tier club. George Osborne has said the demands the UK made at the December summit are “more relevant than ever.” No UK financial institution asked for a veto on financial services then, nor are any making such demands now.
The veto is a blunt instrument. Making such demands, and wielding it when they are not met, fatally undermines our ability to make the case for protecting the single market. Perhaps this has sunk in: David Cameron has said that any new structures should be set up in the EU’s existing treaties.
It is not difficult to imagine what success looks like. An EU with a strong euro. A barrier-free single market stretching across 27 (soon 28) members encouraging competition, job creation and growth. A global European financial centre in London, with the critical mass to provide capital for projects at home and in developing markets. We must fight for what is essential and attainable rather than demanding something that is neither and ending up with another pointless veto.
Roland Rudd is chairman of Business for New Europe.