LONDON defeated a Frankfurt power-grab yesterday when EU finance ministers decided to seat a new European banking watchdog in the City.
Germany had hoped to locate the agency next to the European Central Bank (ECB) in its financial hub with an eleventh hour tweaking of the legislation last week.
Britain and France reacted furiously to the changes, which were seen as a shift in the balance of EU power.
But yesterday a meeting of the Ecofin (Economic and Financial affairs) council decided the new body, one of three “super-watchdogs”, should be headed up in London.
The location of the other two remains unclear but it is likely they will be based in Frankfurt and Paris.
Ecofin also diluted the Eurozone’s ability to dominate the watchdog by allowing the General Council of the ECB, which includes heads of all 27 national central banks, to vote for who gets the top job, instead of the ECB chief getting it by default.
Details of the agreement have still to be thrashed out in the coming weeks but Treasury sources are confident the seat of power will remain in the UK. The decision is a slap in the face for the European parliament, which was desperate to see the agency set up in Frankfurt.
The move represents a remarkable U-turn, with the decision to move the authority to Germany seemingly a foregone conclusion just days ago.
The Treasury welcomed the move, saying it is a vote of confidence for the UK as a financial powerhouse.
A spokesman told City A.M.: “This is really good news for London and the UK. London is Europe’s only truly global banking centre. That’s why George Osborne is so determined that the new banking supervisor should be based here – and all the other EU countries have agreed. It’s a powerful vote of confidence in the City and our financial services sector.”
But Stuart Fraser, City of London Corporation policy chairman, sounded a note of caution. He told City A.M.: “The physical location of these bodies is of little practical concern.
“More important is the confirmation that decisions taken at this level must not contradict the day-to-day policies of national regulators.”
EU politicians had hoped to complete their negotiations by this session but, with talks dragging on and insiders predicting no final decisions will be made until September, it is looking increasingly unlikely the new agency will be up and running in time for the 1 January deadline.