Last night’s EU opt-out will be very bad for London banking jobs. Do you agree?
So, David Cameron has extricated the UK from the new treaty strengthening fiscal integration between 23 countries in the EU. And he has done so for the good of the City of London.
Britain will now have a veto on financial services regulations, the details of which are accessible here. Europe won't be able to impose new regulations on the City via the 'qualified majority voting' of its members.
This doesn't mean Europe will have no influence over the City at all. There will still be the creation of the three planned EU financial supervisory authorities, but ‘national supervisors’ will remain responsible for the ‘day to day supervision’ of individual firms. And the European supervisory authorities still won’t ‘replace the exercise of discretion’ by national authorities. Most importantly: ‘3rd country financial institutions’ operating in the UK (ie. US investment banks), will continue to be “authorised and supervised” by the FSA.
Cameron allegedly effected the extrication partly in order to save the City from the repercussions of the EU’s proposed Tobin tax. This is likely to be levied at 0.1% of the value of equity and bond trades and 0.01% of the value of derivatives trades. George Osborne has argued that the tax will result in 995,000 job losses.
However, while catastrophe has been averted, celebrations look premature. As this Spectator article describes, the UK is in no position to prevent a financial transactions tax from being imposed by a subset of EU member states.
A eurozone-only transaction tax will still affect the City. European trading volumes will inevitably fall; revenues in London-based markets businesses will decline further than they have already: the City currently handles half of all euro-dominated transactions. Moreover, the transactions tax may still influence EU banks in London: Nick Kynoch, a partner specialising in financial services regulation at law firm Berwin Leighton Paisner, says there have been suggestions that the tax would be imposed on trades taking place at institutions based upon their place of establishment - suggesting French and German banks in London could still be liable.
Ominously, the document emerging from last night’s meeting, also talks of ‘measures which entail very sizeable levies on the financial sector’ being pursued under qualified majority voting. It's not clear how this applies to the UK.
Most importantly, however, the UK is now almost completely isolated in the EU. The Financial Times argues that it was this isolation that led Cameron to misread the situation in the first place: he was excluded from a crucial pre-summit meeting of the European People's Party, which the Conservatives pulled out of in 2009. Cameron may have felt he had no choice but to stand back from the new treaty, but European regulation of the financial sector remains a reality. The UK has depleted the goodwill that would have helped it influence EU regulations in future.
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