The Corner

Something Wicked This Way Comes

Writing in the Daily Telegraph, Allister Heath frets that Jean-Claude Juncker, the sleazy Anglophobic mediocrity who will shortly be taking over the EU’s bureaucracy, is going to take a run at the UK’s financial sector:

 Enough is enough. The City of London is Britain’s most important industry and we can no longer allow the European Union to trample all over it. Over the past few years, we have all too often turned a blind eye to the EU’s increasingly vexatious attacks on financial firms, largely because few politicians had the self-confidence to be seen to be taking the side of bankers. But with the Brussels machine now gearing up for an intensification of the hostilities, it is time for the British Government to become much more forceful in its defence of our economic interests.

There are two immediate dangers; both require a considerably more vocal response from the Government than we have seen so far. The most worrying development by far is that Jean-Claude Juncker, the incoming European Commission president, is considering the creation of a powerful new financial services directorate that would oversee the City.

Given that David Cameron sought and failed to block the appointment of Mr Juncker, a man who has frequently expressed his disdain for traditional Anglo-American capitalism, this should be seen as payback time for the UK. Rather than seeking to make the financial system more robust, while promoting free trade in services (which was the single market’s original justification), the new directorate is bound to concoct endless new schemes to weaken the City, hitting British growth and jobs. It will be run by people who neither understand nor value markets, who will be ideologically hostile to financial capitalism and who will be seeking to get their own back on the UK.

This settling of scores will be about more than Mr. Cameron’s humiliatingly unsuccessful attempt to block Juncker’s appointment. Juncker, one of the architects of the single currency that has wrecked the lives of millions of Europeans, has never forgotten or forgiven the way that free markets eventually showed up the euro for the reckless and destructive gamble it always was.  He won’t want to risk a repeat.

Back to Heath:

The EU has long contained two opposing intellectual forces: a socialist, corporatist and inward-looking strand, which sees the European project as a vehicle to protect the Continent’s welfare states from globalisation; and a classical liberal, pro-competition tendency that seeks to use the single market to enhance efficiency. It is clear that the first side has emerged victorious, at least when it comes to financial regulation. Mr Juncker’s new directorate will institutionalise the European Commission’s war on the City and will epitomise all that is wrong with the EU.

Heath is too kind. The corporatist strand has “won” in many more areas than financial regulation, as it was almost certainly always bound to. The classical liberal side was not a natural fit for the EU: it was a graft that in the end could not take, and (in retrospect) was probably never going to.


One of the great lessons of the financial crisis is that bank bosses and regulators need to be experts who can actually understand the difference between a credit default swap and a collateralised debt obligation. We have learnt that lesson; Brussels hasn’t. The result will be that growth will be reduced and business will gradually migrate to rival financial centres such as New York or Singapore. For Britain, this will be a disaster. The financial services industry and its employees paid £65 billion in tax in 2012, 11.7 per cent of total receipts, according to PwC, the accountants.

The industry’s contribution to the public coffers is huge: without it, taxes on the rest of us would have to soar or public spending would have to be slashed. As long as they are prudently and honestly managed, we need more banks, insurance companies and hedge funds, not fewer, and we need them to employ as many people as possible in the UK. Britain’s decision to allow the EU so much control over the City was an act of extreme foolishness for which we risk paying the price for years to come.

Britain accounts for 61 per cent of the EU’s net exports of financial services. Yet we have just 72 out of 736 seats in the European Parliament and only 12.3 per cent of votes in the Council of Ministers. We can easily be outvoted and therefore cannot defend our most important industry, even if we were minded to do so. Our pusillanimity in this area has been pathetic, and stands in stark contrast to the way other countries have fought for their national interests.

Pusillanimity. Good word. But sadly something even more dispiriting than that is at play: David Cameron has repeatedly failed to demonstrate that he either understands or cares about the threat that the EU poses to Britain’s national interests or, for that matter, what’s left of its democracy.  And even if he does change his tune, there are good reasons for doubting that he has the sophistication, guile or toughness needed to fight his country’s corner against its ‘partners’ in a perverse enterprise in which Britain is the second largest net financial contributor, but is treated like a pariah. Business as usual should be off the table. Scorch some earth: Veto, obstruct, and never, never, never give up (as someone once said).  Throw in some linkage too. To take one example, Britain’s military resources have dwindled dramatically, but they still count for something in a region where many countries have replaced their armies with faith in the supranational order and expressions of ‘grave concern’. The UK should not therefore do more than the bare minimum under its NATO obligations to help those of its supposed allies who, in an EU context, prove to be anything but.

The best outcome continues to be for Britain to quit the EU, using the Article 50 exit procedure provided for by the EU Treaty to engineer the reasonably civilized divorce that would be the best way to drain the poison out of the UK’s relationship with the continental neighbors who ought to be its friends. This won’t be easy, but it is a more realistic option than the ‘one leap and we’re free’ approach argued for by far too many euroskeptics. Sadly, Cameron shows no sign of taking it. 

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