There’s a long tradition, dating back to darker eras of European history, of hostility towards “Anglo-Saxon” finance. Now it’s true that the City and Wall Street hardly distinguished themselves in the noughties, but their misdeeds are making a very useful alibi for the problems now besetting the euro zone, a gimcrack monetary union now suffering from the malign effects of the single currency, a piece of financial engineering so poorly constructed, so idiotic, so irresponsible and so dangerous that even those wicked Anglo-Saxons might have blanched (indeed quite a few of them warned against it).
And bashing “Anglo-Saxon” finance is also a handy way for the oligarchs of Brussels to bring the U.K. to heel (and do the U.S. down while they are at it too).
There has long been a rather petty jealousy on the Continent about the success of the City and financial services in Britain as a whole. That the massive growth of the sector was sparked in the 1980s and epitomised by the Big Bang is particularly galling. Margaret Thatcher was not considered a good European by the Grand Project bien pensants across the Channel.
Paris and Frankfurt’s loss has been Britain’s gain. While the UK has four globally significant banks (the Royal Bank of Scotland still just fits that title despite political pressure to turn it into a dull domesticated bank, a sort of compliant and uncomplaining cow), Germany has just one. Of all cross-border bank lending, the UK has a 19pc global share compared to 8pc in both France and Germany. In foreign exchange, the UK has a 38pc share, compared to 3pc in France and 2pc in Germany.
The UK’s trade surplus in financial services totalled £31bn in 2010. There are 251 foreign banks based in London, far higher than the number based in New York, Paris or Frankfurt. More French people live in London than most French cities. Many of them, ambitious to create wealth and make some themselves, bring their taxes and their spending power here because the British celebrate success and don’t consider marginal tax rates of 75pc on income fair.
The bonus cap is payback time. France and Germany have scented an opportunity and the EU is their Trojan horse. Using the very same stick of public opprobrium sometimes wielded by our own politicians (when will they learn?) the EU has forced through a series of changes which have all been to the detriment of the UK’s financial services [although note some complications raised by Richard North here]. And therefore to the detriment of Britain and the hundreds of thousands of jobs supported in the UK.
Plans put forward by the European Commission for a financial transaction tax will have a disproportionate impact on the cost of doing financial business in London.
At the same time, Brussels is retreating from plans for a Vickers-style “ring-fence” between a bank’s investment and retail arms. So, where the British Government has led, Europe has deliberately failed to follow. Deutsche Bank and BNP-Paribas are most grateful. In France, their ring-fencing proposals are so weak, only a very small percentage of their banks’ activities will be captured by the new rules.
New and costly hedge fund regulations controlling pay and transparency were pushed through by Europe in the form of the Alternative Investment Management Directive. More than 80pc of the European alternative investment sector is based in the UK.
The EU is attempting a slow reversal of the Big Bang, a series of moves to throw grit in to the City machine. For the moment, London and the UK still possess great skills and depths of service that are unrivalled around the world.
But the momentum is in the wrong direction. What about the new bank divisions, the new jobs? Where will the large global banks decide to locate new services when decisions reach board level?
For all its faults, finance is a key British industry. The EU is now trying to tear it down.
The prime minister has now to choose where he stands: in or out. Neither option is easy. But the hostility of Britain’s EU “partners,” a hostility made worse by the stresses and strains of preserving the U.K.’s place in an union in which it no longer (if it ever was) is suited, ought to have made that choice a great deal easier.
The answer, David, is out.