Will EU watchdog bite UK?
Should the European Commission - "Brussels", in the popular parlance - be allowed to step in to order the UK government to save a failing bank, whether it wants to pay the price or not?
The government worries that the City of London, with its 600 banks, 420 of them European, and its flow of 250bn euros a year, could be hit hard by new tighter rules on financial institutions. The debate about this will be the centrepiece of Thursday's meeting of the EU's 27 prime ministers and presidents.
Of course, after the financial crisis there is a clamour for stricter rules and it has been taken up with enthusiasm by France, Germany and the European Commission. The plan on the table is for a new three-headed EU watchdog to control banks, insurance and securities.
The problem, as so often in politics, is "who picks up the tab?" Although no other big government seems seriously worried (Slovenia, Slovakia and Romania are our partners in opposing the plan) the British say that because of the size of the City, we will be affected disproportionately. Ministers say they worry that the EU institution will be able to tell them to pump money into a failing bank: power without responsibility.
The cry of the UK government is not "no taxation without representation" but "no liability without responsibility". It's not quite as catchy, and Gordon Brown won't be rigged out in feathered headgear throwing Earl Grey out of the window of the Council building into the Rue de la Loi outside. But as one source put it, "we're not going to have the Commission take the decision and find the bill lands on our table".
What I can't quite figure out at the moment is whether the objection is a winnable battle, to act as a smokescreen for going along with a lot of other stuff that people in the City won't like (hedge funds won't even be discussed at this summit), or if a British victory would be real, and so completely emasculate the Commission plan.
But this goes to the heart of several debates about the purpose of the European Union. It is pretty clear that financial institutions are multinational and have outstripped the national institutions set up to police them. Some governments want to create multinational institutions to match, others worry about handing over that much of their power. And could the mantra "no liability without responsibility" apply to other areas of EU policy?
This is not the only subject on the agenda: more later on Ireland and the Lisbon Treaty and Commission president Barroso's future.
Update 11:59 18 June: It's "Be Nice To Gordon Day" in Brussels.
Although the leaders of other big EU countries want banks regulated at a European Union level, they are not up for a bruising fight with Mr Brown. Especially not one that humiliates him.
The word around town is that the French are worried that Mr Brown is so weak that to undermine him further could bring a snap general election that much nearer. That would bring a Conservative government that much nearer. Which would bring a British referendum that much nearer. Which would probably kill off the Lisbon Treaty. As one official put it to me, "we can do business with Cameron, but we want to get Lisbon through first".
The same concerns lie behind another big subject at the summit: the guarantees given to the Irish ahead of a second referendum on Lisbon.
The Irish want them copper-bottomed, water-tight and any other secure industrial metaphor you can think of. The best way of doing this is by making them a protocol. But that needs ratification, and would that re-open the argument about referendums in other countries, not least in Britain.
Would Mr Cameron promise a referendum on ratifying such clarifications?
I’m Mark Mardell, the BBC's North America editor. These are my reflections on American politics, some thoughts on being a Brit living in the USA, and who knows what else? My 
© MMIX~RS~q~RS~~RS~z~RS~23~RS~)
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Robert Peston's blog tonight has Mervyn King commenting that the Bank of England has insufficient powers to carry out its legal responsibility. Makes sense that the EU commission takes over some of this responsibility. Things have got to change in the financial markets and the EU should be at the forefront of this
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"The problem, as so often in politics" - Unfortunately that is the problem with the EU as too often has been the case. That any sense or claims of a higher ideal, of doing the best for everyone, in the end is more about what's simply best for 'us'.
As a former Europhile I might trust the EU to ensure such things were in everyones interests if it weren't for all the numerous examples where one supposed agreement or another is either enforced, broken or got round when or as it suits.
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Banks operate internationally. Separate, divergent (maybe even contradictory) rules to regulate them will be both ineffective and create red tape and bureaucracy to no avail. It makes sense, especially in a common market, to have common rules. More likely to succeed. Less bureaucratic than separate rules. By all means haggle over the details, but let's welcome the fact that 27 European countries are trying to find a common approach to this!
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Mervyn King (who I think should be fired) mentioned on small factual item in his speech tonight that is the in proportion to the size of the economy the British banking sector is five times the size and importance to the economy vs the US banking sector / US economy.
This situation is quite obviously insane and very very risky and cannot be permitted to continue. Either the regualtors must reduce to size of the Banking Sector as a whole or encourage the non-banking sector to grow dramatically. It is not just banking that needs regulation is the balance of banking to the whole economy that needs redressing - so banking regulation on its own will not work! (See also Iceland!)
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"Makes sense that the EU commission takes over some of this responsibility. Things have got to change in the financial markets and the EU should be at the forefront of this" - In heavens name why?? The same people who seem to have no interest in changing things like the CAP, where billions each year are wasted supporting this country or that on some political whim, or the CFP which has decimated fish stocks and at times seems to have no interest in enforcing it's own rules when they're breached if it suits their 'major players'.
"It makes sense, especially in a common market, to have common rules. More likely to succeed. Less bureaucratic than separate rules. By all means haggle over the details, but let's welcome the fact that 27 European countries are trying to find a common approach to this!" - Common rules?, that'll be the things like 'freedom of movement', work, recognition of qualifications and such like. No doubt that's why Belgium until recently issued automatic deportation orders against 'EU citizens' if they didn't meet their interpetation of 'freedom' (along with threats about what will happen when the police come round), quite often refused to issue ID cards for years (and all that entails), and where no single UK qualification is automatically, after 30+ years in the EU, recognised as qualifying someone to start a business... A Belgium high-school diploma is of course enough.
Common approach?, yeah...Belgium's Limosa laws where an 'EU citizen' can be put in jail for a year for working here just five days if they don't have the right 'paper'.
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The timing of this thread is interesting coming on the same day as the Chancellor appears to suggest at the Mansion House that there is nothing fundamentally wrong with the present system of regulation while the Mervyn King appears to disagree in at least one substantive respect.
It occurs to me that Europe wide regulation would only be credible if there was a shared interest in the value of the currency. For so long as the UK remains outside the Eurozone, it is a matter entirely for the British authorities as to how they regulate. It is up to the markets to decide whether they have sufficient confidence in the City to consider it a suitable place in which to invest their funds.
This is a double edged sword. If you believe that the 'Anglo-Saxon' model has failed and is primarily responsible for the current crisis, the time has come to join the European collective mechanism. If you believe in the status quo, our European partners have to accept that the right to regulate remains with the issuing authority for the currency.
I agree with #1 and #3 with the one reservation that there are not "27 European countries are trying to find a common approach to this". There are those within the Eurozone and those outside it.
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Mark writes:
"But this goes to the heart of several debates about the purpose of the European Union. It is pretty clear that financial institutions are multinational and have outstripped the national institutions set up to police them. "
Ah, the "purpose" of the EU. Politicians are such curious creatures. Individually they have ambition for more power. Collectively they have "purpose".
Mr Mardell, where did you get the idea that national institutions are set up to "police" banks?
I mean... what do you mean? Which institutions? Police them in what way? Surely you do not mean the FSA? That institution was set up to police share trading scams in the stock market SO THAT ignorant middle class investors would trade more stocks.
Who are the police for the banks?
I have been working on the assumption that, as a privately owned and run firm, the Bank of England was free to do as it saw fit, within the confines of the common law. I understood the bank of England self regulated.
This is a fairly crucial point to clarify, because if the EU is selling a pan European "enforcer" of Brussels policy, what we are really talking about is the ECB taking over the Bank of England, and operating it by proxy.
In corporate terms, the ECB will be the parent company, owning the smaller firm, and appointing nominee directors to carry out the commercial aims of the parent firm.
Anyway, I must admit I am completely lost by the terms of reference. I thought banks made money by lending money. I never realised they performed a crucial social service, without which we would all be desperate and starving in the streets.
But then, I am very foolish. I never realized the EU had a "purpose". I thought it was a political structure created by political parties, which allows political parties to increase their power across Europe. I never realized these wonderful people were doing all that hard work for poor little me.
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I suppose we have all noticed the dimensions of the current crisis, which is the reason why some insist on an international control with the finance system.
One of its consequences is a radical change in the state budget of Germany. Instead of presenting a balanced budget in the autumn last year it has been necessary for the German finance minister and the German government to incur debts, which go beyond all records so far in the history of the Federal republic. It is a conflict between real economy and the finance sector where the latter is threatening the former.
Within the EU there is a common interest or more precisely Sarkozy and Merkel and a number of countries will insist on a regulating of the activities in the finance sector. There is NOT a common interest in going into unclear and insecure arrangements of the kind described in the article. It is a political smokescreen in advance of the negotiations.
I have noticed that also the US president has initiated new control mechanism of the finance sector. The effort of the EU must be seen in connection with this and with the G20 summits, the one that Gordon was leading recently as well as the one that is coming later this year. In this connection I would expect tax heavens to be on the agenda on the EU summit too, but that will probably not present any major problem for the UK.
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Who would have thought that voting to agree to join a free trade pact with a few other countries could become so complicated?
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The banks already have liability without responsibility because someone will bail them out if they get it wrong.
Government has embraced globalisation without really questioning what role will be left for nation states, now they are finding out...Very little.
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MAII wrote: "Who would have thought that voting to agree to join a free trade pact with a few other countries could become so complicated?"
Are you talking about NAFTA? I think that Canadian lumberjacks and Mexican truckers will agree with you that joining a "free trade" pact with a single overbearing neighbour can be complicated enough.
Or are you talking about EFTA, the European free trade pact that was so unsatisfying that Britain ditched it back in '73 to join the then European Economic Community, an organisation going well beyond a free trade pact and committed to "ever closer union" since its founding treaty?
Who's left in EFTA? Well, Iceland (who's knocking at the EU's door, not least because their national banking "regulator" utterly dropped the ball), Norway and Switzerland (who are also members of the European Economic Area, and as such much adopt most of the EU's legislation) and...Liechtenstein. A powerhouse.
Otherwise I just can't fathom what "free trade pact" you are talking about...
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"250bn euros (213 pounds)"
Wow, we really are getting a poor exchange rate to the euro right now.
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Actually, on reflection, that would be a GREAT exchange rate.
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I'm still wondering what hedge funds did to incur the wrath of the EU and US.
id they write the regulations that allowed banks to keep minimal capital and lend to all and sundry without limits?
Did they take the decisions at the top of banks that led to the risky policies adopted?
Nope, non of the above. In my view the only hand they played was shorting bank shares righ at the end when they were anyway on their knees. Effectively they just speeded up the pricing in the market.
Hedge funds were probably hit even worse than banks in this crisis as they have no government backing to save them - they just went to the wall. But then the investors in hedge funds know the risks and were and are still prepared to take them.
Only conculsion I can come up with is that they are a convenient scapegoat to deflect attention away from incompetent politicians, regulators and bankers and also that their capitalist cut-throat nature is at odds with the new socialist Europe.
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100 of millions of people within the EU and some additional millions in other regions of the world are expecting their elected leaders to react to the current crisis. Not least the French president and the German chancellor none of them are socialists by the way - have insisted on regulations of the finance sector. It is not the first time they do so, but now the have some understanding in London and Washington, perhaps less by the socialist PM Brown and more by the not-socialist president Obama.
Within the EU, where the centre-right has just won the EP elections, it is clear to many people that the nation state is not the right instrument to deal with a financial sector running globally 24 hours around the clock. They are therefore expecting their elected leaders to do something about the problem in international relevant fora such as the EU. But before we continue the discussion in G20 with the rest of the world, we have to settle our own issues. Provided the summit is making meaningful solutions it will only strengthen the EU by the citizens.
I have no doubt that the summit participants are aware of this.
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So the EU is not even pretending it would like us to have our say...for some reason I am not surprised.
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The financial services industry is absolutely central to the business model of the UK. To permit the EU to tinker with this - supposedly in EU interest is a recipe for disaster for the UK. Because it will be decimated - so that all the jobs are taken to other EU centres like Paris, Frankfurt etc Even as UK suffers, who cares; Europe will benefit.If you dont believe this is what will happen, ask the other Industries in the UK who have been destroyed as UK is levelled up with the Czechs and the Hungarians first, and then with the Bulgarians and Romanians.The EU does not care if UK looses, in one industry after another. Because the EU gains from UK losses, and UK does not count. If the French are hit, EU policies will be in place to protect France. France is Europe, Germany is Europe, Italy is Europe. UK is not. We should never allow the EU to destroy our Financial Services - beacuse that is the absolute and critical advantage we have managed to keep over France,Germany & Italy.
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The UK must beware of a repeat of the 2001 EU regulation of the art market which destroyed Londons (Sothebys, Christies) 72% share of the European market and drove that business to Switzerland, New York and Hong Kong. Then (as now in with these financial regulations) the goal of a majority of EU member states was to try to raise their rivals costs by imposing their own high-cost restrictive regulations on the minority. This is what is happening today with Germany and France trying to use a qualified majority vote in the EU to impose the high-cost regulatory regime they prefer for finance (which have ensured they are minor players in that industry) onto the minority of one country (UK) which is home to 80% of the financial industry in Europe. These tactics come at no real cost to France or Germany and would satisfy the Commission permanent primary objective of increasing its own power, but would come at a severe cost to the health of the London economy if they result in the financial industry following the art auction industry in relocating to Swizterland or other financial centres outside Europe.
The use of qualified majority votes in the EU to impose high-cost Rhineland regulatory regimes on to the successful industries of other countries is one of the chief reasons why the EU is the slowest growing region in the developed world.
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"we can do business with Cameron, but we want to get Lisbon through first"...Poor chap need not panic. Even if a miracle occurs and a General Election happens soon (Conservative victory) then Lisbon will still get in. As before the three main parties will conspire together; this time to get any ratification reversal stuck in the Westmidden merry-go-round until "Oops..too late".
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The difference between decision-making within a nation-state and decision-making at international level in the absence of solidarity at international level. International decisions that involve money are never decided on their merits, but always solely on the basis of which countries gain and which countries lose. That is why the same countries also support and oppose the EU Common Agricultural Policy. And why there is a permanent 26-1 majority in favour of abolishing the 'British rebate' from the EU budget.
Financial decisions are inherently a zero-sum game with some winners and some losers, so should never be decided by qualified majority votes at international level or by an independent authority like the EU Commission. If this were to be tolerated the international authority would be able to mandate spending decisions on governments against their will and that of their electorate, and the money would have to come from cuts in other public services. We would therefore begin to see the disappearance of the most vital of all government functions; the essential 'guns versus butter' spending decisions, from democratic politics.
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@Freeborn John
Perhaps you can give us a link about the EU regulation which affected Sotheby's and Christie's. Because the only thing I could find was a price fixing scandal and last time I checked price fixing is a bad thing for the free market.
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Maybe I am missing something, but cannot financial institutions from one state operate throughout the whole EU (and not just the euro zone) based on simplified rules and with limited oversight of local state authorities? If that is the case, does it not make the sense to regulate financial institutions EU wide? Another option is to cancel the EU passporting rules and give the state regulators full power to permit the local activities of financial institutions. In other words, abolish what is the internal market in financial services (or rather a fledgling attempt at an internal market).
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RCalalvo #11
This is not about EFTA, it is not about the Banks. It's about the EUSSR and a tyrannical government in Westminster that ceded British sovereignty to the tyrannical government in Brussels without the consent of the British people. That's what a supertate is about, central control over your life. Lisbon and the EU Constitution are merely legal mechanisms to transfer more of that sovereignty in an ongoing process whose ultimate goal is crystal clear. What's interesting is that not only was Lisbon passed without a public debate, Lisbon is signed by one single individual, the tyrant Gordon Brown without even discussion in his rubber stamp parliament. Since no majopr political party in the UK including the Tories has made a serious issue of re-examining the UK's relationship with the EUSSR and if unacceptable then to exit, the British people clearly have no voice in this, nor have they demonstrated outrge over their government usurping their inalienable rights to self determination, to their liberty to decide how their nation shall be governed, taxed, regulated, and for what those taxes will be used. They haven't even spoken up to the degree Iranians are speaking up now when merely one election was stolen from them by the theocratic tyranny that rules their nation. Here the entire UK has been put at the service of an outside entity they do not control whose goals do not necessarily always coincide with the best interests of the UK and there is no backlash, no mass sense of outrage. Should something like this happen in the US, a hundred million guns would decend on Washington DC to demonstrate that the people are sovereign over the government and not the other way around as it is in Europe, as it is in the UK. Not only don't Europeans like Brits have a democratic government, they don't even understand what one really is. So what's left. Either you leave the UK for somewhere that is sovereign and democratic which surely means outside of Europe or get used to the idea that a secret commission in Brussels will tell you when to jump and how high.
It's too bad we in the US did not know 70 years ago that Europeasns did not want to be free or ruled by democratic government or it could have saved a lot of American lives and money by allowing it to fall into the EU sooner under other names such as the Third Reich or the USSR. But it comes as no surprise to me. This type of tyranny is at the heart of every European culture and it has been demonstrated for far more than a thousand years. It's one more reason Europeans will never understand America which is not that way.
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Ticape (21):
http://www.guardian.co.uk/business/2000/feb/16/7
http://news.bbc.co.uk/1/hi/business/553943.stm
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The major problem about the City of London is that it has lots of opportunity and authority but zero responsibility for its actions, dumping the responsibility on the government in power and the pockets of the taxpayers who have zero authority! Bailing out "banks which are too big to be allowed to fail" just increases the cosy gross irresponsibility of those banks' senior managements, knowing as they all too well do that the lender of last resort is the hapless taxpayer.
Therefore, tight market regulation and supervision is clearly needed to keep the City cowboys in line. If the government of the day and the BAnk of England cannot do it then it should be done at the EU level. To protect us ordinary, taxpaying and powerless citizens............
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To MArcusAureliusII:
I suggest you help set your own house in order (the USA) which is in a utter mess after 8 years of Republican rule for the haves, before you start criticising the European Union and its member States.
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#26. mikewarsaw,
Yes of course. We haven't heard a word from this American (?)on neither the collapse of the American car industry nor the collapses in the US finance sector nor the effort by president Obama to clean up this mess.
Actually I don't think it is necessary to spend more time on contributions of that kind.
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@24 Freeborn-John
Thank you for the links, interestingly enough the law was implemented in 2001 and the British art market was booming until the financial crisis I guess the law didn't had the effect the critics had predicted.
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If some UK banks are nervous about being regulated from Brussels, UK authorities have but to look across the pond for a possible solution. In the US we have national and state regulators. Financial institutions can select their regulator. Why not offer European financial institutions the same option ? You might want to build in some kind of structure that provides that where banks banking across frontiers within the Community decide to remain "National" rather than "Community" banks, their overseas operations will be regulated by the national regulator in the country in which the international operation is established. If the bank is a "Community" bank then all of its operations, domestic and international, would be "community" regulated.
Under this kind of regime, if a "community" bank gets into difficulties, it becomes the obligation of Brussels to bail it out!
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Ticpae (28): The EU regulation on art auctions was agreed in 2001, but it did not begin to come into effect until 2006 and the duty will not reach its full level until 2011-2013. The EU regulation is based on the French 'Droit de suite' law, which has existed since the 1920s and was long considered in France to be driving business from Paris to other European markets (Sothebys, Christies, etc. in London, the Dorotheum in Vienna, the Maastricht Art Fair, etc).
You like to ask me to provide evidence to support my comments. So can I ask you would for some evidence to support your claim that a French law which has long been acknowledged in France as driving business to other countries, would not drive it outside the EU when it has become an EU regulation?
The EU directive in question was initially opposed by all those member states (the UK, Ireland, Austria and the Netherlands) who feared its effect on their art auction houses. However under qualified majority voting rules they simply did not have the numbers to oppose the majority who wished to raise their rivals' costs. This situation would of course be repeated if qualified majority votes are used to raise the costs of conducting financial business in London, by Continental governments that are even more jealous of London's dominance as a financial center than they have been of its dominance as a center for art auctions.
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Mr. Mardell: You are using some most interesting (grammatical) subjects. Is BBC a part of the British government?
From media with other perspectives the (breaking) news at the moment is:
The British PM is the big bird of ill omen on the summit in Bruxelles.
The positions are these: Gordon Brown will not accept a change of the Lisbon treaty (he will need to sign once again and we all remember the stunt the first time) and the Irish Taoiseach says he cannot win a referendum if the Irish opt-outs are not written into the treaty.
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Mathiasen: Oh well, better forget all about it then . . .
The Irish government strategy has always been to play for time if possible and hope that a new British leader rides in to save the European peoples from their political classes (again!). Brian Cowen is probably humming 'Land of Hope and Glory' right now.
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#32 Freeborn-John
Your approach is so strange that it took me a couple of minutes to find out what the meaning of it is.
I understand you are not informed about the situation or you pretend not to be: The Taoiseach has given the 26 partners in EU a written statement with the contents I mention in #31.
Gordon Brown has tonight blocked the Irish wish, he obviously wants the UK to stay in the EU, and the summit has postponed the whole issue till tomorrow hoping that the two leaders will find a compromise in the meantime.
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old saw from warsaw
"I suggest you help set your own house in order (the USA) which is in a utter mess..."
The one small consolation is that at least it was a mess of our own making. It wasn't imposed on us from the outside as the rules Brussels lays down for UK banks will be. We still steer our own fate even if we choose to sail right into a headwind. The UK OTOH will be a passenger confined to quarters even in a raging storm. The most you will do is be required to pay more carfare.
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#30 Freeborn John
From the Cambridge journal start reading from PDF page 14, under the header "France and the international market". Basically France failed to liberalize and modernize their art market unlike their Anglo-saxon rivals and that is why all the French art market lost its customers to foreign art markets. Droit de suite isn't even mentioned.
So if droit de suite wasn't the reason why the French art market was performing poorly in the past centuries or so now why would the law negatively affect Britain and other EU countries? The answer is: it wouldn't and it's nothing more then scaremongering.
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This comment was removed because the moderators found it broke the House Rules.
I'm continuously baffled by the need of the European Union to ratify the Lisbon Treaty.
Is has failed to be accepted. It will continue to fail to be accepted. So why keep 'flogging a dead horse'. The use of the referendum is pointless. How can you explain to a country's population the real pros and cons of such a treaty. Can we envisage deep and meaningful discussions over the federalisation of Europe in the local village pub while people drink their beer and watch the latest football match on the T.V.
I think not.
I once attended a meeting in Brussels where Neil Kinnock tried to explain the previous incarnation of the Lisbon Treaty to a group of sober, intelligent business men.
He failed there. Why should we believe that this latest 'sequel' will fair any better?
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MA2 do you live in Washington D.C.?
Else about all your regulations and decisions come from "the outside" as well. The American voting system is about as democratic as the EU system (both are not excactly brilliant but something that was born out of compromises - actually if your system was as brilliant as you sometimes seem to think Mr. Bush would not have even been president twice, so actually some of the mess you are in now was created from a prehistoric election system rather than from your population) and living in a single nation with ~300 mio inhabitants makes you about as well represented from your government as we are now being one out of 450 Mio - just that out national governments are still far more in charge than the governators of a single US-state.
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