essays Britain, Europe and the City of London: Can the triangle be managed? By Philip Whyte
★ Relations between the UK, the EU and the City of London have become more fraught since 2008. ★ A common belief across Europe is that tensions across the Channel partly reflect British resistance to regulating financial markets. This belief is mostly mistaken. ★ The UK and the continent are being prised apart by British euroscepticism and the eurozone crisis. There is a growing chance that the UK will leave the EU after 2015. ★ The future of the City of London will therefore be shaped not just by the emerging regulatory environment, but also by Britain’s uncertain relations with the rest of the EU. Introduction The City of London, the British government and the EU co-exist less harmoniously than they used to. Before the global financial crisis, British governments could casually assume that what was good for the City was good for the UK and the rest of Europe. Britain’s membership of the EU was widely seen as a boon for the City, not least because non-EU firms saw London as a bridgehead to the European market. The EU’s efforts to remove barriers to trade in financial services were supported by the UK and the City. And while some EU member-states resented the fact that Europe’s largest financial centre was physically located outside the eurozone, British governments could plausibly claim that the City was a European asset whose success was vital to the region’s prosperity. Since the financial crisis, however, the triangular dynamic between the UK, the City of London and the EU has changed in important ways. The UK has discovered, or relearned, that it has a comparative advantage in a sector whose excesses can have a ruinous impact on the ‘real economy’. Attitudes to the City elsewhere in the EU have also become more jaundiced. Not only has the global financial crisis revived old suspicions about ‘Anglo-Saxon financial capitalism’, but some continental European politicians now see in the City of London a nest of malevolent speculators bent on destroying the eurozone. Finally, while the City finds itself under siege from stricter regulations at UK and EU level, the often awkward relations between the UK and the EU have become more fraught than ever. This essay explores the sometimes paradoxical way in which relations between the City, the UK and the EU have changed since 2008. It argues that differences over financial regulation, or the UK’s historically protective attitude to the City, play a fairly marginal role in explaining why relations between the UK and the rest of the EU have become harder to manage. Occasional spats over regulation have flared up across the Channel. But the reason is not – as is often claimed elsewhere in Europe – that the British do not want
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