Europe’s Assault on the City of London

It has long seemed clear that the European institutions wish to rein in the City of London. They never call it that, of course: it is justified as ‘transparency’ or ‘monitoring’ or ‘disclosure’ or ‘co-ordination’ or, above all, controlling ‘regulatory arbitrage’, But what the EU really hates is anything they cannot control and order around.

Now four new measures continue the erosion of the City of London’s opportunity to retain its competitive edge.

Perhaps most important is the report of Mr Canfin, a French, Green MEP. His report, which is now over 90% through its EU enactment, gives ESMA (the European Securities and Markets Authority) sweeping powers to intervene, restrict and prohibit short selling and credit default swaps. Naked short-selling will simply be prohibited.

Of course, in order to exercise its powers, ESMA has to be able to gather information so the burden of compliance automatically grows greater as well. If ESMA decides a firm or organisation needs investigation, it has been given “… all the powers necessary, as well as rules on administrative measures, sanctions and pecuniary measures, to enforce the rules.”

Mr Canfin’s measure is complemented by that of the German Christian Democrat, Werner Langen. His report – a word which in this context means a draft law, we might call it a Parliamentary bill – also over 90% enacted, introduces an entire new regulatory framework on derivatives.

Again, supposedly justified by the Crisis, it also demands that detailed information is provided on all OTC derivatives for the supervisory authorities with stringent rules on prudential support and conduct, with contracts standardised: standardisation is another normal control technique. No regulator is much concerned, of course, about its impact on the capacity for market innovation and competitive advantage.

Parallel with this are measures which “improve” – their word – “increase control and the regulatory burden” – my words – of financial conglomerates. Little thought is given to the way in which they are constantly upping the stakes in the inevitable ‘arms race’ which always exists between regulators and tax officials on one side and business, its accountants and compliance officers on the other. The more time spent on these issues by business, the less time is available for useful activity.

Nor do the EU’s officials care much about the potential for business to be driven out of Europe as a result.

On that score, waiting in the wings but about to take centre stage is an EU financial transactions tax. People in Brussels call it a Tobin tax – with the implication that it has ‘global’ justification and approval. But this not so and is an insult to the Nobel laureate economist, James Tobin.

When Tobin suggested his currency transaction tax in 1972 at Princeton, he emphasised the importance of universality: it only works if it is truly global. The underlying concept is negated by selective introduction which allows tax arbitrage between jurisdictions.

That is what the EU institutions seem simply to have failed to grasp. And the damage will be to the City of London above all.

At this point, you may react by comparing this with my first paragraph. It merely illustrates how self-serving and tendentious is the Commission’s use of arguments. The City suffers both ways.

None of this is surprising.

Many commentators are now saying that the Conservative Party is increasingly Eurosceptic. They may be so – in their rhetoric. But none of that is translating into actions which stop continuing and ever-growing damage to City interests.

The goal of damaging us has virtually been admitted by key Eurozone figures.

Perhaps the British Coalition government might care to explain their enthusiasm for Christine Lagarde at the IMF. After all, she said ” …. the Franco-German axis works well in staying firm on the matter of tax havens, rating agencies, speculative funds and European supervision. It’s not really surprising that not everyone agrees because you have on one hand the members of the eurozone and on the other those that are outside of the eurozone. In particular there is Great Britain, which is directly concerned since it is a traditional hub of the financial services industry and it is not in the eurozone.”

How can this mean anything other than that she has an anti-British, anti-City agenda?

It is all of piece: a vital, 300 year old engine of British prosperity has been and is being sold out, in the name of the European ‘project’.

Supplied by Tony Brown

%d bloggers like this: