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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -8

    Comment number 80.

    UK politicians think that they are living in 1912. They are out of touch. The UK economy is not the biggest and best in the world. We need to be part of a currency union to survive. If we leave EU our currency will be massively devalued, our imports of food and raw materials will cost more and who will buy our goods in the EU, where we will be regarded as traitors.

  • rate this
    0

    Comment number 79.

    The EU is nothing more than a "corpo-nation" that was founded on greed. Mugged? More like raped.

  • rate this
    +1

    Comment number 78.

    It's simple folks... we as a nation decided not to become part of the Euro so we have no right to comment on how it's run nor do we have a right to complain if we lose out because of it.

  • rate this
    +2

    Comment number 77.

    As a European I'd recommend the UK leaving the EU. It would make everything so much easier for both sides and the majority of British people would get what they want.

    Take Switzerland: Not in the EU as it doesn't want to compromise its neutral status. Has its own currency. Has a lot of banking. It is even surrounded by the EU and yet, it does perfectly fine and is a good neighbour to the EU.

  • rate this
    0

    Comment number 76.

    As usual there is some bank bashing going on but about 400,000 people work in banking in the uk and more in other financial services. Banks are important to us and taking the view that all bankers are greedy and corrupt isn't helpful. Many staff are decent people on counters or in call centres.
    Banks create wealth and at the moment we need all we can get, support your local gunfighter! (banker)

  • rate this
    +25

    Comment number 75.

    The mugging is closer to home. The City and bankers; betting shop culture is mugging the taxpayer out of 100s billions of £££££ which the government forces us to pay to subsidise their stupidity.

    Stop talking up how important banking is to the country's economy in such a brainless apologist manner. They almost brought the country to utter ruin.

    BBC Mr Peston get back to real journalism!

  • rate this
    +1

    Comment number 74.

    Perhaps we should stand up and administer a kick somewhere delicate and get on with being British. Not the playthings of a vile and sordid undemcratic union.

  • rate this
    +8

    Comment number 73.

    Another nail in the UK's independence coffin! Mr Cockerham is right...it's inevitable, Germany and France want to control of Europe but ironically, their differences may well be it's downfall.

  • rate this
    +60

    Comment number 72.

    Such a huge part of our economy based entirely on juggling numbers around and producing nothing of value.

    Kind of sad really.

  • rate this
    +2

    Comment number 71.

    UK mugged by eurozone banking union?

    Robert, you, like us, will never know the workings of global finance.

    Stick to easy questions like 'Why no law for the rich'.

  • rate this
    +3

    Comment number 70.

    1.Ignitionnet - ".......they're considerably wealthier than we are and have considerably higher quality of life"


    But it would be far too simplistic to think that they do so well because they are outside the EU....

    ....their much more pluralistic politics probably has more to do with with, such as the way they share their collective wealth around more through both direct & indirect means...

  • rate this
    +4

    Comment number 69.

    Arguably it is Germany taking the big gamble here. If banking union is indeed merely a precursor to fiscal union - it will be Germany which will pay the long term price
    ------

    Deutschland über alles
    literally, "Germany above all"

    So this is really all about control of the City of London, the only remaining large cash generating EU industry in which which Germany has no significant presence

  • rate this
    +3

    Comment number 68.

    @1.
    Ignitionnet

    "There is of course the profound risk that we could end up like Switzerland or Norway if we leave the EU...

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

    Big difference of course being Switzerland actually makes things people want and Norway actually spend their oil revenues wisely. !

  • rate this
    +1

    Comment number 67.

    We may not like what is happening in the Eurozone but we made a bed big enough for our partners to be included and equally we have not got a broad enough trading platform on which we can do business. Too much reliance upon the the financial services sector has made the UK's position far too weak.

  • rate this
    -3

    Comment number 66.

    We should just get out of Europe altogether and dominate the banking sector without such regulation/transaction taxes that are planned and thereby attract more banking to the UK.

    Like it or not, it's one of our very few growth areas. We cannot possibly compete in manufacturing with stupid things like minimum wages in place, other countries will simply work for less

  • rate this
    +7

    Comment number 65.

    Going off topic...
    5.
    steve_the_english

    "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'..."

    I think Muller's correct, derives from a sort of mortar and pestle bit of equipment... to grind down something, Mullered - adapted to mean 'Destroyed'.

  • rate this
    +5

    Comment number 64.

    Gavin Hewitt wrote today "A view is taking root that the UK is turning its back on the EU."

    I hope British businesses have taken note and are going hell for leather in developing overseas markets. If the UK gets an in/out referendum it is highly likely answer will be 'out'. The faster UK rebalances its economy and looks beyond EU the better.

  • rate this
    +1

    Comment number 63.

    Whether it is the economy, security or otherwise UK is better off with the EU just like Scotland is with the rest of UK. It serves no purpose to isolate yourself from big clubs such as the EU. The Franco-German union within EU poses a great deal of threats for the UK. Running is not a solution... The ultimate aim of these two is to move their Euro trading hub from London to Frankfurt.

  • rate this
    +13

    Comment number 62.

    Mr Peston: The UK being mugged - as your headline suggests - would be a disaster. UK leaving the EU would be a much bigger disaster. Please don't confuse the two.

    And why is your article so insular? There are about a dozen EU countries not in the Eurozone. We may be the biggest of them but we all have common interests. Or do you believe in divide and rule?

  • rate this
    +1

    Comment number 61.

    @41.Saurabh

    By extension of your argument a minority opinion can then be ignored? Or only when you disagree with the minority opinion?

 

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