24 October 2012

Nick Clegg: Defending the City in Europe

The Coalition’s starting point is simple: we support difficult regulatory surgery – at home and abroad – where that is needed to stabilise the financial sector. But we will not accept steps that are anticompetitive or protectionist. The playing field must be level. 
  
That’s why, for example, I don’t support a Europe-wide Financial Transaction Tax. Though I would support a global one. Limiting the FTT in this way would skew the playing field. It would be bad for Europe in the world, and bad for the UK in Europe. And, what’s more, at a time of high unemployment in Europe. The Commission has itself said that it would cost more jobs than it creates.  

On the other hand, I welcome the Liikanen Report: a set of reforms for Europe’s banking system. It’s largely consistent with our domestic intentions, as set out in the Vickers Report. And I’m keen that we support implementation of the Liikanen proposals across Europe. Alongside implementing Vickers here in the UK. 

Where our situation is less straightforward is the eurozone banking union – at the top of the agenda at last week’s European Council. And it’s here that we need a sophisticated approach. 

Clearly it’s not a good idea for the UK to be part of a full eurozone banking union designed to break the vicious circle between sovereign debt and bank debt in the single currency area. But let’s not forget that we’re already part of a banking union lite: the single market in financial services. And so, while we have an obvious interest in the full, eurozone banking union succeeding. At the same time, we need to make sure it doesn’t prejudice the UK. The worst outcome would be the creation of an over-powerful banking bloc. Able to undermine the single market. Able to undermine what remains – by far – Europe’s largest financial centre: the City of London.

So the question is: how do we get the best outcome? As someone who worked in Europe for years, my view is the best approach is to engage fully and properly in the debate. Making our case and winning the argument over and over again, while decisions are being made.  

That’s why the Coalition Government will now do two things: One: after last week’s summit, we’ll work flat out to make sure that the rules governing the relationship between the European Central Bank, in it’s new supervisory role, and the Bank of England – and the role of the European Banking Authority -  are settled in a sensible manner. 

Two: we want to work with you to show that the City is not just a British asset, but a European asset too. It’s responsible for over a third of the European wholesale market. 80 per cent of the EU hedge fund industry is based here. Our financial and professional services employ more people than Paris and Frankfurt put together. We’ve got more foreign banks than any other city. The largest insurance industry in Europe. AIM - Europe’s biggest equity market for small business. The City is the biggest exporter of financial services in the world. And you know better than anyone that if London-based firms decided to leave they wouldn’t all head straight to Frankfurt or Paris. Many would go to New York, Hong Kong, Dubai. 

That’s the reality I’m pressing with my European counterparts. And I implore the industry to do more to push this message yourselves – not least City UK. The rest of Europe needs to be crystal clear: If they integrate in a way that hurts the City, they potentially hurt Europe as a whole.

Full speech

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