UK mugged by eurozone banking union?

 
Canary Wharf

Whether we like it or not (some don't) the City of London and financial services is important to the UK economy. Depending on what you include in that industry, it represents between 8% and 14% of national output or GDP - and banks and banking are (again for better or worse) the core of the City.

When the entire banking system went to the brink of collapse, and in the process hobbled our economy for years to come, we learned the hard way that proper regulation and supervision of our banks (which was so singularly absent for years) is of the greatest national importance.

Which is why there are mixed feeling in the government and among our regulators at this morning's agreement by eurozone leaders to centralise supervision of eurozone banks: during the course of next year, the European Central Bank will acquire responsibility and the tools for trying to prevent banks going bust and winding up those that get into irredeemable trouble.

In one sense, this will be seen as very good news for the UK - because it is an important step on the way to preventing a disorderly fracture of the currency union, which could muller our economy.

The reason this kind of so-called "banking union" matters is that in time (though we don't quite know when, but probably next year) it will be the trigger for transferring the financial burden of bailing out and strengthening Spain's chronically weak banks from the beleaguered and over-stretched Spanish state to all eurozone members, via the European Stability Mechanism or ESM (the currency union's new bailout fund).

In that sense, banking union is actually a precursor to the kind of fiscal burden-sharing by all eurozone members which many regard as the sine qua non of eurozone survival.

So hooray for that, George Osborne might say.

But there is a less welcome corollary for the UK of eurozone banking union, which is that it creates an identity of interest on banking and financial matters for the 17 members of the eurozone. This introduces the serious risk that the UK will always be outvoted when decisions are taken on the regulation of banking and finance in the European Union.

And, just to state the bloomin' obvious, this is one of the many areas where the UK has ceded sovereignty to the European Union.

To put it in stark terms, it is more than a theoretical possibility that the interests of the UK and the City in shaping financial rules will be systematically ignored or over-ridden.

This does not necessarily mean the EU will impose hob-nail-boot rules in contrast to a more delicately calibrated British approach (the notorious "light touch" of yore). As it happens, the most recent tension between the Treasury and the EU on banking was down to the Chancellor wanting the Bank of England to have the power to force banks in the City to hold more capital than a new Europe-wide minimum.

That said, Berlin and Paris have for years cast an envious eye over the way that London dominates financial services, including euro-denominated financial services. Twice as many euros are traded in the UK as in all the euro area countries combined, for example. London is responsible for half of all investment banking in Europe (according to the lobby group, the CityUK). As for international lending, Britain's global share is 19%, compared with 8% each for Germany and France.

Or to put it another way, a euro banking union, overlaid on euro currency union, could well have a solidarity of purpose in trying to mug the City of London.

It is not at all clear how the government will prevent the UK becoming an increasingly marginal voice in European financial policymaking. And although you might be tempted to think that the arcana of how banks are regulated is of little interest to you, the economic mess we're in would prove you wrong.

Which is why the eurozone's life-saving banking union could be the trigger for a momentous debate in Britain, about whether the centralisation of economic and financial decision-making in the currency union, arguably necessary to its survival, will inevitably push Britain towards EU exit.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -1

    Comment number 20.

    4-haveigotthiswrong.
    Stop being dense. A hair dresser doesn't create a "product", and neither does a masseuse, lawyer, wedding planner,estate agent etc. They are services and wealth is created when people buy their services and they turn a profit.
    But I bet you already knew this and were just making a cheap shot!

  • rate this
    +2

    Comment number 19.

    When the "threat" of EU politicos leaving us out of their plans is mentioned, commentators always seem fall back on talk of us being "on the margins" and losing "influence". How about a concrete example? Just one. Just for a change.
    BTW, banking "union" is the usual EU hypetalk. There'll be union when we see UK banks in the French retail network (and vice versa) and cheques usable everywhere.

  • rate this
    +12

    Comment number 18.

    It would be very easy to welcome this development as a great means of controlling our 'greedy, dangerous, grasping' bankers, but, it really is time that people realised just how critical finance is to our economy. It is virtually our only world-class industry and creates a vast amount of wealth for the nation. I'm no fan of bankers and they do need to be regulated, but we should do it ourselves.

  • rate this
    +43

    Comment number 17.

    We have seen since 2008 pushing bad banks together to make good banks simply does not work

    It would be far better to isolated bad banks rather than bring All banks together into a banking Union

    As We Are seeing who then Bails out the banking union. Oh Yes of course the tax payer yet again

    Let them go bust

  • rate this
    +1

    Comment number 16.

    I agree with Ignionnet. I'm not a Euro hater, but it's not in a fit and proper state, and just seems a tool for France and especially Germany to lord it up on a larger platform.

    I think being outside the Euro is best for us. We'll still trade with the Eurozone as we do with everyone. We'll survive, and thrive with our independence. As the Olympics has proved once again, we're a great nation

  • rate this
    +3

    Comment number 15.

    When the first major UK headquartered bank ups sticks and moves to Frankfurt or Paris, then I'll worry.

  • rate this
    +1

    Comment number 14.

    To HaveIGotThatWrong, yes you have. The 'product' in this case is financial services.

  • rate this
    0

    Comment number 13.

    It comes to pass exactly as I suggested yesterday - whilst Merkel had everyone 'looking right' with her comments on fiscal union an anti-Britian stitchup was happening to the 'left'.

    Banking may just be 'shuffling bits of paper not producing anything' but if Britain gets a fee for shuffling foreigners' bits of paper then we can afford more petrol, gas, ipods and NHS for ourselves.

  • rate this
    +3

    Comment number 12.

    Why is the UK so terrified of renegotiating its relationship with the EU? Do we really think that Europe will somehow turn its back on one of its few genuine net contributors, or might they take the pragmatic approach and allow events to follow their natural course. The UK is fundamentally ill-matched with the EU's aims and sentiments, better to find a parallel course that works for all.

  • rate this
    +25

    Comment number 11.

    This could be one of those make or break points for the UK. This govt doesn't want to live by the EU roles yet lectures the Coalition Partners that you can't "pick & choose" which Policies to implement - yet it is doing exactly that. You are either 'In' or 'out'. The UK Finance sector may not last for ever. So the UK has to either put up or shut up. or be excluded from decision making.

  • rate this
    -13

    Comment number 10.

    Being no expert on these matters I do have observations on the banking sector as a minion in society. I believe that the casinos (as called) neds to be called, and we have a poweer struggle with London, New York and any of European capitals. Adapt or die.

  • rate this
    +2

    Comment number 9.

    3. "a great many financial institutions will prefer to have easy access to as many markets as possible, rather then being stuck with just one insular system......"

    Except that the financial markets don't stop at the EU's borders; it's a global market. Can't see how the EZ proposes to shut out London without also shutting out New York, Tokyo and Shanghai. Happy to call their bluff. Again.

  • rate this
    -2

    Comment number 8.

    We must do all we can to ensure the eurozone doesn't create this union. Germany has tried this twice before, and we need won then. Cameron needs to get the churchill spirit and stand up to europe's 3rd attempt to control us.

  • rate this
    +46

    Comment number 7.

    "UK mugged by eurozone banking union?"

    Yes we have. The very nature of banking means that more and more money is leeched out of the "real" economy, and we all become increasingly dependent on the banks. Repeat cycle: More dependence - until we can't live without them

    We need less relying on finance and move on making things to sell - Before they take ALL the money for themselves

  • rate this
    +43

    Comment number 6.

    Isn't the UK getting 'mugged' by the EU every day as it is??

  • rate this
    +39

    Comment number 5.

    Sorry to correct you Robert, but...
    "which could muller our economy"
    Muller make rice puddings, and yoghurts, with or without the umlaut. I think you meant 'mullah', which derives from 'The Mad Mullah' which was the ring name of a particularly intimidating and brutal wrestler.

  • rate this
    +32

    Comment number 4.

    Article says :"banks.. it represents between 8% and 14% of national output or GDP".
    -----
    GDP is Gross Domestic Product. Product ? That implies making something - and what exactly do banks make then ? All they do is shuffle money (and other people's at that) from one pocket to another pocket.

    Where exactly is their product ?

  • rate this
    +1

    Comment number 3.

    We'll certain to struggle to retain our financial centre of Europe status - a great many financial institutions will prefer to have easy access to as many markets as possible, rather then being stuck with just one insular system......

    ...I might be wrong, but one only has to look at the comments over the years from business leaders to see what they want & where they take their money.....

  • rate this
    +15

    Comment number 2.

    Fantastic reporting as usual by Robert Peston - it will be fascinating to watch all this pan out now armed with with this valuable information.
    My biggest fear is whatever happens the rise of the far right (Golden Dawn etc) is looking ominous and all of my alarm bells are sounding loudly.

  • rate this
    +80

    Comment number 1.

    There is of course the profound risk that we could end up like Switzerland or Norway if we leave the EU. This would be truly tragic and a disaster for Britain so we're told by some commentators.

    Then you note they're considerably wealthier than we are and have considerably higher quality of life.

 

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