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The last week has included the EU Summit – where the HOSGs gave President van Rompuy a mandate to produce a detailed, time-bound roadmap within two months – and major European statements by Foreign Secretary Hague and Deputy Prime Minister Clegg. CBI Director General John Cridland and City UK Chairman Gerry Grimstone also spoke at major dinners. (Selected highlights of the published speeches are annexed.) This author has also attended several other British political debates during the week.
As usual at this time of year, there are heavy fogs around southern England and it is abundantly clear that the Continent is indeed completely cut off from the received wisdom of the British political class cocooned in Westminster. Indeed, the fog is so dense that it is not even certain that van Rompuy’s Interim Report “Towards a Genuine Economic and Monetary Union” has percolated through the internet to London, as there is little evidence that it has even been read.
“EU27 minus” seems about to move swiftly to a much deeper union in the financial, economic, budgetary and democratic areas – in effect a `political union’. EU27 minus seems the right way to describe this group as it is only the UK and Denmark that have a Treaty-enshrined opt-out from eventual euro membership. So all other States will have to negotiate from the perspective of their eventual membership of the euro. The existing eurozone members will have an automatic QMV once the new voting weights come into operation in 2014 and this hegemonic process can only be expected to accelerate as the eurozone gets more and more used to taking collective decisions about far more profound economic matters than banking regulations.
So British official assertions that “it will never be acceptable to have a situation in which the eurozone acts as a bloc” ring somewhat hollow. The private sector now seems to be recognising the risk that this might happen, and Cridland argued powerfully from an industry perspective that such a development could be very damaging. The talk at the City UK dinner included the possibility that it might even be in the City’s interest to join `banking union’. But thinking does not seem to have advanced to the point of squaring that with the mainland’s logic of moving to a political union - making the banking union just a natural corollary.
Will the UK’s private sector make this commercial argument sufficiently publicly and strongly that it becomes a potent political force? Otherwise the drift to 'Brexit' remains intact.
Foreign Secretary Hague in Berlin, 23 October
“...the EU’s greatest achievements, the things that have the most real good for the peoples of Europe, are the establishment of the Single Market and the enlargement of the European Union… The Single Market and its four freedoms have helped make today’s Britain. … Indeed, just because some things work well in coordination with all of our European partners does not mean we should do everything at 27. … Clearly the eurozone’s current structures are not working. We respect the democratic decision of the countries of the eurozone to preserve it. … But while developing a governance of the eurozone that really works we must equally ensure this leaves the Single Market coherent and intact. The debate on establishing a full banking union shows that this will be complex and sometimes difficult. There are obvious issues for countries not in the eurozone, for whom it will never be acceptable [author’s emphasis] to have a situation in which the eurozone acts as a bloc in Single Market institutions in a way that determines the outcomes before the others have even met. …: a constructive and serious British contribution to the public debate across Europe about how the EU can be reformed, modernised and improved. … This Coalition Government is committed to Britain playing a leading role in the EU but I must also be frank: public disillusionment with the EU in Britain is the deepest it has ever been. … The eurozone countries must do what they must to resolve the crisis, but the way forward for the EU as a whole is not more centralisation and uniformity but of flexibility and variable geometry...”
Deputy Prime Minster Clegg in City of London, 24 October
“Whether that’s ensuring a sensible approach to Europe: where we’re determined to defend and deepen the Single Market – protecting our place in it – while the eurozone members integrate more tightly…. First, 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 anti-competitive or protectionist. The playing field must be level. … 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% of the EU hedge fund industry is based here.
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.
EU Council President van Rompuy, EU Summit in Brussels, 19th October
And finally, it should be inclusive and transparent: all Member States are free and invited to join. This openness should be reflected in the governance structure, with appropriate rights and obligations for all participating countries.
For a stable Economic and Monetary Union we also need stronger integrated frameworks for budgetary matters and economic policies. On both these fronts we have already done a lot.