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
    -12

    Comment number 120.

    112 Little_old_me

    I disagree with you as a result of watching the British medias response to nearly everything the EU does. The BBC is as guilty as all the rest of them or misrepresenting the EU and as per normal (For British media..) giving a very loud voice to dissenters BUT NEVER EVER allowing pro euros on the main news programs.

  • rate this
    +5

    Comment number 119.

    This is what happens because London put its eggs into one niche industry basket of banking with 'neglect to all other industry sectors' from the rest of the UK.

    From an EU perspective, you can't blame them having more or full control over banking, since it did rob every citizen of every penny plus more.

    What is London going to do now if their banking monopoly diminishes?

  • rate this
    0

    Comment number 118.

    "UK mugged by eurozone banking union?"

    or

    "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."

    Who's the bully?

  • rate this
    +5

    Comment number 117.

    @77.markus_uk
    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

    Yes a very good neighbout to the EU, The EU tells it to obey a whole raft of rules in the form of 10 treaties & it just does it

  • rate this
    +41

    Comment number 116.

    As long as people like Bob Diamond get away with billion pound frauds like the PPI scandal (oh, you stole billions? well, if the victims ask please give back some of the loot) nothing will change. The culture of impunity will not stop if the perpetrators are allowed to keep most of the loot. Regulation sounds good, but as long as the law is not applied it makes zero difference.

  • rate this
    -3

    Comment number 115.

    At least it's just a blog. We don't need to listen to him.

  • rate this
    -1

    Comment number 114.

    Another 'spectacular' blasts-off

    "Bigger they are, harder they fall"

    Always 'right' to fear for individual & national liberties

    Especially in lack of 'equal representation', unequal & unstable meaning sham

    As insecure individuals, we are set to fall, in work & out, 'conscience lost to No.1', pulling-down real selves, firms, states, 'the union', our planet

    Yes to help-out, but in Full Employ!

  • rate this
    +1

    Comment number 113.

    At "between 8% and 14%" the city is (like it or not) one of the most important parts of our economy, bringing a lot of money into this country. Since we don't manufacture much anymore, our mines are empty and we don't produce enough food... we need the money. We should celebrate the world leading centre. Frankly, if it wasn't in london it would still cause us all the problems without any benefits

  • rate this
    +3

    Comment number 112.

    106.Bobble


    Journalists very rarely write their own headlines, the editorial team do that.....

    That so many right wingers claim proEuro BBC bias shows your stateement can't be true - both you & the rapid Europhobes are wrong, the Beeb is not bias on this issue.....

  • rate this
    +3

    Comment number 111.

    'Mullah' I think, not 'Muller' unless of course you are trying avoid some attention from resentful Shia clerics...

  • rate this
    +1

    Comment number 110.

    "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" ...

    A very interesting article Mr. Peston. Though can I ask: Have you been watching a few repeats of the Sweeny of late?

    Your language is positively Flying Squad.

    You should have ended with "I haven't had my had my dinner!" :-)

  • rate this
    0

    Comment number 109.

    I think the point you (Robert) are making is, that as the Eurozone becomes more of cohesive entity it will wield so many votes within the EU that it will de facto decide EU policy and as a result, will marginalise non EU members. That is a major flaw in the 'club within a club' scenario and is not tolerable - whatever the club

  • rate this
    +26

    Comment number 108.

    @britstudent "I would have followed my dad and studied engineering, just i'm not dumb and know that the city and the banks is where the real money is..." Yep, it seems you will fit in very well...

  • rate this
    +6

    Comment number 107.

    It does't matter who's in power. We are controlled by the international banking elite and they look after themselves first and throw titbits to their toadies. The rest of us are simply The Great Unwashed.

  • rate this
    -6

    Comment number 106.

    Dear Robert Peston - The title you have used here is exactly why MISINFORMATION and negative attitudes about the EU exist! BAD Reporting and a disgracefully biased title. Biased BBC anyone...

  • rate this
    +1

    Comment number 105.

    One thing that might be useful to know is how much tax the financial industry pays in.. That is all tax, income tax from employees, corporation tax, NI and so on.

    Then we could determine how much of the welfare state we would have to get cut if we stamp out this sector of our economy.

  • rate this
    -1

    Comment number 104.

    One part I don't understand, UK doesn't want the EURO but wants to be at the centre of EURO-denominated financial services. How about Germany or France being in centre of Sterling-denominated financial services?

  • rate this
    +1

    Comment number 103.

    @92.vikingsarecoming
    Supervision had been under Labour control for 13 years, and the debt mountain we now have can be laid squarely at their feet- but people still try and blame just the banks?

    What about the Tories who supported Labours light touch regulation & occasionaly argued it was still too heavy handed. Light touch financial sector regulation was a core tenat of Thatcherism

  • rate this
    +8

    Comment number 102.

    "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."

    It should be noted, of course, that the interests of the UK and the City are not always the same. In the long run, in fact, they may well be mutually exclusive.

  • rate this
    -1

    Comment number 101.

    65 I would have thought Peston picked it up from the modern use of mullered in sports journalism rather than the root usage, especially football apparently his other passion , where it has been suggested its use derived from being beaten due to the goals of Gerd Muller the German striker and goal machine, as in, England were Mullered.

 

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