October 16, 2019

For Britain, Another Step Away From Europe

Many bankers and economists are pondering that question after Mr. Cameron’s surprising decision last week to leave Britain out of a historic accord aimed at moving Europe closer to political as well as monetary union.

Mr. Cameron said the pact lacked safeguards to protect the City of London, Britain’s version of Wall Street, against future regulations that might not be in its best interests. And because France and Germany would not bend on his proposed protections, he would not sign on to their plan for more tightly coordinated oversight of European Union governments’ revenue and spending.

Now, though, some in Britain worry that the nation’s ability to halt or shape what is expected to be a wave of future financial regulation from European Union headquarters will be severely constrained if Britain does not have a seat at the negotiating table. And so it remains to be seen whether the City financiers Mr. Cameron wanted to protect will eventually end up feeling grateful — or marginalized.

To be sure, few believe that his decision represents an immediate and mortal blow to London’s ambition to remain a center of international finance. Whatever banks and their overseers might eventually do on the Continent, much of the rest of the financial world — including the money centers of New York, Hong Kong and Tokyo — is likely to still see London as a primary node in the round-the-world, round-the-clock network.

Britain’s banks make more cross-border loans than those of any other country in the world, 18 percent of the global total. London is also home to the largest foreign exchange market in the world. And it remains the headquarters for the large banks that trade European sovereign debt, a business unlikely to go away any time soon.

Financial machinery aside, language, habits and history suggest that London will continue to be a magnet for the globally minded.

But some analysts nonetheless worry that Mr. Cameron’s desire to espouse the stubbornly independent British bulldog could harm the City over the long term.

“This is the worst possible news — the relative decline of the City of London relative to other financial centers in Europe is now a very real risk,” said Graham Bishop, a former London banker who is a consultant on European financial and regulatory matters. 

The decline will not happen at once, he argued. Europe is well aware that financial institutions in London have strong and deep links to the Continent.

But Britain, whose refusal to adopt the euro currency has long put it somewhat at odds with the European Union’s other biggest economies, appears to have estranged itself further from Europe’s policy inner circle.

With Britain now essentially having but one vote among 27 others in the European Union, the chipping away of London’s competitive position will be inevitable, Mr. Bishop contended.

Mr. Cameron has been cheered by the powerful faction of his Conservative Party that sees evil in all that Europe does. But it is unlikely that the constituency his veto was meant to protect — banks, hedge funds and insurance companies operating in the City of London — would welcome a further waning of Britain’s ability to influence regulations from Brussels.

Those executives, many of whom are French, German or Spanish, are a pragmatic, global lot. And they tend to shy away from public confrontation and wish only for an operating environment that continues to play to the City’s strength: providing competitive banking and financial services to an increasingly global economy.

“They will be very worried,” Mr. Bishop predicted.

For Britain, the stakes are huge.  

The fear is that the pact the other European Union members agreed to at the Brussels summit meeting will harden an emerging 17-member euro zone caucus within the 27-member European Union — a bloc that votes together on issues, particularly on financial regulations, that could work against the City of London.

Until now, Britain has been able to assemble blocking minorities on measures it opposes. That happened, for example, with a recent proposal to raise revenue for European governments by taxing financial transactions — a tax that would have put new fees on every trade of stocks, bonds and other financial instruments.

It is not hard to understand why Mr. Cameron and Britain vehemently opposed that particular measure. The new tax would have been imposed on activities that occur in the City more often and at greater volume than anywhere else in Europe.

Article source: http://feeds.nytimes.com/click.phdo?i=f0d325c22de74f274e8b6336b1a8b29b

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