Mon, Dec 19, 2011 - Page 9 News List

London versus eurozone saga enters new chapter

By Howard Davies

Ever since the UK joined the European Economic Community in 1973, after the French withdrew former French president Charles de Gaulle’s veto of its membership, Britain’s relationship with the European integration process has been strained. The British are reluctant Europeans, for historical and cultural reasons.

For centuries, British foreign policy strove to avoid permanent European entanglements, but, most importantly, it aimed to prevent a single continental power from achieving dominance — especially if that power happened to be France. In the meantime, the British colonized large portions of the globe.

Later, after the sun set on their empire, they tried to maintain a “special relationship” with the US. Joining the EU was not an affirmation of belief in European integration, but a reluctant recognition that the transatlantic strategy had run its course. British public opinion concerning the EU has since remained lukewarm, at best.

In recent years, having opted out of the single currency and the Schengen area (which allows Europeans to cross borders without passports), the UK has distanced itself from important EU initiatives. Nonetheless, British Prime Minister David Cameron surprised everyone by vetoing a new EU treaty on Dec. 9 — a first for the UK since joining the EU — leaving the other 26 member states to press ahead with greater fiscal integration on their own. More surprisingly, the negotiations broke down over arcane details of financial regulation.

For example, Cameron wanted to strike a “red line” through the proposal to subject the planned Deposit Guarantee Scheme Directive to the Qualified Majority Voting procedure (meaning that no member state would have veto power). Cameron also objected to the requirement that third-country financial firms in London without business in other EU states be required to hold a “single passport,” which would enable them to operate in any member country, but would also require them to submit to Europe-wide regulations.

These points are not entirely insignificant, but I would not care to explain them to a meeting of ordinary voters puzzled about Britain’s new European policy. So why has financial regulation become the unlikely casus belli between the UK and its partners?

The explanation is partly political. Cameron’s Conservative Party includes members who have been spoiling for a fight with the EU for a long time. For them, any excuse will do, and EU Internal Market Commissioner Michel Barnier has provided them with ammunition by pursuing what many see as an excessively restrictive regulatory agenda.

When horse-trading for commission jobs took place in 2009, former British prime minister Gordon Brown was warned of the danger of allowing the French to hold the Internal Market post, but he chose instead to bid for the EU foreign-policy job for his Labour Party ally, High Representative of the Union for Foreign Affairs and Security Policy Catherine Ashton.

When Barnier was appointed, French President Nicolas Sarkozy described it as a “defeat for Anglo-Saxon capitalism.”

And so it has proved — though perhaps not in the way he envisaged.

However, beneath the politics, there are other substantial conflicts between the UK and its continental neighbors. Barnier favors European directives that impose uniform rules for all member states — so called “maximum harmonization” measures. Previously, EU directives tended to impose minimum standards, which individual countries could supplement if they wished. They could outlaw initiatives that the UK holds dear, such as new rules to ring-fence retail banks’ subsidiaries and impose higher capital requirements on them. Bank of England Governor Mervyn King has voiced his anxieties on that point.

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