We do more harm than good in ignoring the EU
Loyal Morning Wire readers will know that I am forever trying to drum up interest in the European Union. How many of us realise that 98.8 per cent of the cost of the FSA’s regulations originates in Brussels? The EU is not a quirky continental side show – its decisions are at the core of the City’s future. So it’s a pleasant change to see Europe in the headlines for once.
The City has a careful balancing act to play when it comes to Europe. On the one hand, we must engage wholeheartedly with the European policymaking process. For example, 59 per cent of UK banks’ exports in 2007 were to the EU.
On the other hand, the City is much more than just a European financial centre. It is the only truly global financial hub in Europe, which means that we have the most to lose from any inward-facing, euro-centric moves from Brussels. We saw a powerful illustration of exactly this problem last week, when London-based hedge fund managers threatened to quit the UK over European Commission proposals to limit their borrowing. The City competes in a global market, not a European one. We cannot afford European regulation which damages the EU financial sector’s competitiveness relative to non-European centres.
Next week, European Heads of Government will meet to vote on reforming financial services regulation. On the table will be the European Commission’s latest proposals. The Commission’s objectives are spot on but I worry that too much emphasis has been placed on inventing new structures and not enough on delivering better outcomes. On micro prudential supervision for example, the Commission wants to go headlong into a European System of Financial Supervisors to coordinate and harmonise supervision across Europe.
I am more convinced of the immediate need for a new European Systemic Risk Council to spot potential risks to the financial system on the horizon. If this body were credible, independent and worked closely with peers in the rest of the world, it would be a very welcome move indeed. But the current plans for the ESRC look a little weak in parts: it will be chaired by the President of the European Central Bank which could make it eurozone-centric; and will be comprised only of representatives of Central Banks and regulators, with no industry representation at all.
It will not be easy for the 27 European leaders to hammer out a reform package they can all agree on. Inevitably, there will be a temptation to get mired in debate about the structure of new institutions. But I urge European leaders to keep their eyes fixed on the goal – an open, competitive, efficient and well-regulated financial services industry.
Stuart Fraser is chairman of Canada’s Policy and Resources Committee.