Banking union and the UK

 

Once again the UK has shown herself to be a good European. By asking to stay out of the banking union, the UK has spared the rest of the EU the complication and the danger of having to regulate and stand behind the very large and sometimes wayward UK  banks.

The UK stayed out of the Euro. This saved the Euro from catastrophe during the Credit Crunch. Then as now the UK saved the EU by its decision to be offshore from the full EU arrangements. The Euro may well have been lost had the currency scheme had  the excessive UK state debts and the overmighty UK banks to contend with as markets tested the structure. The rest of the EU would not want to have to stand behind RBS and the other state financed UK banks.

Just look at the stresses the banks of Ireland, the property crash of Spain and the state finances of Greece have imposed on the Euro. The numbers for UK banks, UK property losses and state debts are so much larger than any of these. Our property and banking boom and bust would have been worse if it had been supercharged by membership of the Euro.

So far so good. The banking union is designed for the 17 members of the Euro. The UK government claims to have negotiated so that the UK will opt out of the new system. The UK will not have to accept all the rules and regulations the ECB decides to impose on Euro area banks. To prevent the European Banking Authority repeating all the ECB rules and imposing them on the rest of the EU members, there will be a double lock. The Banking Authority will need to win a vote not just of the banking union members, but also of the non banking union members before it can place new requirements on the banks of the 27 member states including Britain.

This system only works if there are other countries remaining out of the banking union. So far the Czech Republic and Sweden have said they will be outside for the time being. Bulgaria, not a Euro member, has volunteered to join the banking system. Denmark, the only country with the UK to enjoy a legal opt out of the Euro, has not decided yet about the banking union. As eight of the ten countries outside the banking union are meant to be preparing to join the Euro, and as most of them want to join it, we cannot rely on this group remaining outside the banking union. Nor should we assume that their interests will usually align with the UK and the City of London, rather than with the other banking union members of the EU. Whilst the double lock is a neat idea and offers some reassurance, I doubt it will work well from the UK’s point of view. It is not nearly as effective as a UK veto.

There is a fundamental flaw in the thinking about all this.The City can be damaged or changed by the large amounts of EU law and regulation that already apply to it, and by the future decisions of the European Banking Authority and the equivalent bodies involved with insurance and financial services. The Coalition government inherited a position where most financial regulation comes from Brussels already, and has gone along with further Directives which confirm that progress. They have gone along with it because the UK government and Bank of England have wanted more regulation themselves, so it has not seemed to matter much to them if it mainly comes from the EU. They also thought they had little option, as so much of it now is enacted by qualified majority vote.

There is a fundamental weakness in this approach. Some of the current regulation is probably damaging, and unlikely to prevent some of the absues it is ostensibly designed to stop. When government wakes up to this, there is a world of differnece between changing UK based laws and rules, where Parliament can do it relatively easily, and changing EU laws and rules. This may prove just about impossible, given the large number of governments, the European Parliament and the Commission involved in the task. The UK needs a new relationship with the EU, which will include having much more power and sway over our own businesses.

So far the climate of antagonism to banking and finance, the rash of new laws, the higher taxes and the demands for much larger amounts of cash and capital have led to a sharp decline in City employment. It has led to a big fall in tax receipts from highly paid people, and to various activities moving to new locations where the tax and regulatory system is more benign. The EU is often hostile towards what it calls “Anglo Saxon capitalism” and is busy inventing new laws to control what they see as the excesses of the banking and financial sectors. The EU authorities are also keen to transfer business from London to the Euro zone, though their policies are better at transferring it out of the EU altogether. The UK is currenly having to fight a court case to try to preserve its legal right in the EU to carry out various transactions in Euros!

The government was right to stay out of banking union, and right to seek some protection for the UK. The truth remains that thanks to past Treaties and decisions one of the UK’s great commercial success stories, the City of London, is vulnerable to hostile legislation from the EU. The German motor industry is looked after by the EU. The City cannot expect the same treatment. It is one reason among many why the UK needs a new relationship with the EU that leaves us free to trade with them but not governed by them.

71 Comments

  1. Brian Taylor
    December 19, 2012

    How can you get this blog into the main media,this article should be in all the papers and on the TV either in the news or as part of a financial program.
    As this is linked to Twitter this should be RT by all!

  2. lifelogic
    December 19, 2012

    The battle is surely already lost. Cameron is waving the white flag while trying to distract with minor issues like gay marriage and gender neutral royal succession. Personally I have no problem with gay marriage but as Norman Tebbit puts it:

    Just what is it that is so pressing about homosexual “marriage” that it takes precedence in the mind of Mr Cameron over Europe, immigration, airports or energy. We know that neither the Cabinet, the Conservative Party, nor the people are desperately anxious to for it. For my part I doubt if it will be an election-winner.

    Cameron has still not even sorted the electoral boundary review. He has proved he cannot win elections even against he hapless Brown what future does he and the party he is busily burying actually have.

    Listening to Tim Yeo on the daily politics I find it extremely hard to believe that he is so infected by the renewable religions as to believe the nonsense he utters. (Raises issues about Mr Yeo)

    I wonder how many will shiver through the winter in his Suffolk constituency as they watch the pointless over expensive, bird chomping, wind turbines so often not turning?

    1. Steve Cox
      December 19, 2012

      The main issues it raises about Mr. Yeo (is does he have to declare his income and interests? etc ed)

      Reply: Yes, Mr Yeo like all MPs has to declare his income, its sources, and his interests. In any debate or committee proceeding an MP is also under an obligation to declare any relevent interest again when he or she speaks. All MPs are advised to avoid conflict of interests.

      I do not wish to post allegations about any named individual ( and did not do so during the Labour years either) because I do not have the time and resources to check it all out. There are formal systems for raising these matters with the authorities if people have evidence against the conduct of individuals, and there are newspapers who specialise in pursuing individual cases, backed by a team of investigators and lawyers. In each case there needs to be evidence, chapter and verse, to back the allegation.

    2. Disaffected
      December 19, 2012

      ANd the US pokes its nose in to say the UK will have more influence in the EU than outside it. Well, if they thought about that 200 years ago they could still be part of the UK and be part of this damn union as well!! For a country who spouts on about independence and freedom they talk a load of boulder dash. Best they practice what they preach and change their foreign policy while they are at it.

      1. Disaffected
        December 19, 2012

        What is the position when the UK fully joins the Lisbon Treaty in 2014? I suspect the government knows that the EU controls our banking regulation already and it is perfectly happy to accept the EU control, however it is a good way to disguise this from the British public.

        1. Denis Cooper
          December 20, 2012

          In what way(s) will the UK fully join the Lisbon Treaty in 2014?

    3. Leslie Singleton
      December 19, 2012

      Comment on Lifelogic–God Bless Lord Tebbit and I agree totally about Yeo. On point, Lord Lawson who, having made a plonker of himself on the ERM, is fast redeeming himself, was spot on about shale in his article in the Mail recently and did everyone read that letter from an Energy Consultant (also in the Mail) convincingly and patiently explaining that the shale extraction process is very old hat and a big deal is being made of it out of thin air?

  3. Leslie Singleton
    December 19, 2012

    Is there a banking union between say Canada and America? Of course not –the question is perhaps regarded as ridiculous. Does Canada worry and humiliate itself about whether there is a single market with America? Again ridiculous–they have NAFTA. What is it that makes us want to treat Continental Europe, with which we do not and have never had much in common, rather the opposite, as anything other than already to all intents and purposes a single country and stop bleating about lack of influence within it? That putative single country wants to do certain things. Fine, but what has that to do with us? We thought we were getting in to a European equivalent of NAFTA but look what’s happened. Why wouldn’t they happily agree a NAFTA equivalent with us? If there is doubt that they would be willing to do this, why would that be, and what conclusions should we draw? The idea of our being part of a banking union led by the ECB is fatuous. I am still trying to get my head round the Spanish banks not being a responsibility of Spain. Surely we don’t want any of that, thank you very much. We should Thank God for the Channel. Cameron wants to get his toe out of the water and jump in. If he won’t, viva UKIP.

    1. Leslie Singleton
      December 19, 2012

      Postscript–Will Norway and Switzerland have to join in any banking union (unless they want to of course)? I rather doubt it. As always Norway and Switzerland’s arrangements ring true. It would be better all round for everybody if much more of Europe, including the UK, had the same system as theirs and if the Eurozone , modified a bit, perhaps by Germany leaving, were to morph in to a single country as soon as it likes.

      1. Leslie Singleton
        December 19, 2012

        Post postscript–BTW my little observations about Norway and Switzerland were written without even knowing about Hannan’s recent Telegraph article which I have just read and which I consider to be nothing short of brilliant. I honestly and absolutely cannot begin to imagine how anybody could go against it. It reminds me of my banking days when (in Loan Committee) if moves were made to throw a borrower out of the bank, the immediate response was that we should consider that if we did that the (by then former) customer would immediately become a hot prospect. Given the EU’s response vis a vis Norway and Switzerland (or perhaps now Switzerland and Norway per Hannan) who can doubt that, as the EU’s biggest export market, we could do at least as well?

    2. uanime5
      December 19, 2012

      Given that NAFTA is a trilateral trade bloc, while the EU isn’t and was never intended to be just a trade bloc is it any surprise that they’re different.

      1. Leslie Singleton
        December 19, 2012

        Allow me to remind you we were unequivocally told that we were joining a Common Market–we have of course been lied to (initially by Heath) throughout, or maybe you are now going to say there is a difference between a Trade Bloc and a Common Market. As to NAFTA, I confess that I did not know that Mexico has now been brought in but when I lived on the border (Detroit) it was just Canada and America and I never heard a peep against it. I have no idea what problem you think you have identified in the logic as being caused by Mexico joining. In the unlikely event that there is such a problem then please read my comments as applying to the earlier bipartite era, which ipso facto worked well, having been expanded. Does Canada or indeed Mexico humiliate itself worrying about lack of influence over American decisions. Do not make me laugh.

        1. uanime5
          December 20, 2012

          I’d have thought the European Council, Commission, Parliament, and Court would have been a big clue that the Common market wasn’t a trade bloc.

          Regarding Mexico I suspect they’d like some control over US immigration. Thought NAFTA does have some provisions for immigration.

  4. Peter van Leeuwen
    December 19, 2012

    Is it not understandable that a continent would want to withdraw some euro trade from a country which has been not so much non-euro as decidedly anti-euro? There is, after all, a political aspect to the euro and its survival.

    All these changes will take place very gradually. I see from the latest EU summit that the EU will only integrate at the slowest pace possible in the environment of powerful financial markets and increasing globalization. Therefore there would be time for Britain to take initiatives to re-emerge as an industrial giant. The UK has already moved up in the competitiveness ranking of the Global Economic Forum 2012-2013. The Netherlands owes much to intensifying trade and investment with China. Apparently, being an EU-member doesn’t make that impossible. The UK doesn’t have to wait for first “unshackling” itself from the EU

    1. Backofanenvelope
      December 19, 2012

      The City of London trades in all currencies. That is its biggest advantage. The idea that trade would move to Paris or Frankfurt was often made whe the Euro was launched.

    2. Christopher Ekstrom
      December 19, 2012

      It’s clear now what Gordon Brown meant by the “era of boom & bust” being over: no more booms, just one infinite bust. The City will not survive another political cycle without action. If the poets of the EU are so repulsed by Anglo-Saxon capitalism they are coming to love Chinese capitalism!

      1. Peter van Leeuwen
        December 19, 2012

        @Christopher Ekstrom: Even better, we will try to forge and preserve a European kind of “capitalism”, some mixture of current Rhinelandic, Scandinavian and French socio-economic models. If Germany and Scandinavia already manage to survive in global competition with such large social provisions, it might be possible for the whole eurozone or even EU.

        1. Christopher Ekstrom
          December 20, 2012

          Heartwarming! (etc). The “prisoners” voting in this dystopia will be the entire continent. But of course England should fully engage in order to wield our “influence” in this monstrous Leviathan. Freeborn Englishmen: Do you believe any of your leaders advocating the euro & continued implementation of EU Diktats/Directives BELIEVE the lies they are pedaling? Any honest man woke from that pipe dream long ago: they are traitors! Bought & paid for foreign agents. Only the BBC is full of (foolish people) who still believe that rubbish.

          1. Peter van Leeuwen
            December 20, 2012

            @Christopher Ekstrom: we obviously don’t just disagree Christopher, we must be living on different planets!

        2. David Price
          December 20, 2012

          @PvL: Have you advised the German citizens of the growing enormity of their commitments to fund an EU wide social provision at the same level as their own?

          What was their reaction?

    3. Jose
      December 19, 2012

      Peter, Peter as we’re all in the EU and there is a supposed single market, then the ‘continent’ should try working within the rules rather than attempting to bend them when it doesn’t like the outcome.

      Regarding your second point, couldn’t agree more!

      1. Peter van Leeuwen
        December 19, 2012

        @Jose: you are right in principle, of course, but what if the rules are changed by a third party, with a mandate for setting rules:

        An ECB policy paper, released in the summer of 2011, requires clearing houses to be based in the eurozone if they handle more than 5 per cent of the market in a euro-denominated financial product.

        About that there is a ECJ courtcase (UK versus ECB) refered to in the blog.
        The ECB argues that, in the interests of financial stability, it is necessary to locate financial market infrastructure in the eurozone so that crises are not handled by multiple central banks with conflicting interests.

        1. Denis Cooper
          December 20, 2012

          Yes, Peter, we know and understand: having failed to beat the City through fair and open competition now the idea is to use the law to that end, and probably your court will agree with that.

          1. Peter van Leeuwen
            December 20, 2012

            @Denis Cooper: Indeed Denis: our court, i.e. yours and mine. The ECJ is for the EU, not the eurozone, even though you will argue that it is an “activistic” court. Currencies aren’t normal commodities, e.g. you couldn’t decide to start producing (printing) euros in the UK without permission of the independent ECB. The ECB has to weigh all kinds of risks in the face of overly powerful financial markets.

        2. Jose
          December 20, 2012

          I think that’s what Mr Redwood is referring to in his blog, the court case.

          But isn’t the eurozone membership within the EU any longer? They created the ECB and they created the rules, obviously at odds with the single market and now they wish to change the status quo to suit themselves.

          This is yet another example of the goal posts being moved and a complete disregard for international agreements.

          1. Peter van Leeuwen
            December 20, 2012

            @Jose: please see my reaction to Denis Cooper above.

    4. uanime5
      December 19, 2012

      While the UK can re-emerge as an industrial giant there would have to be major changes in the way companies are run so the managers focused on long term sustainability, rather than short-term profits to justify large salaries.

      Preventing hedge funds buying up companies, firing their staff, running up debts, and selling the company for whatever they can get would also help.

      1. yulwaymartyn
        December 19, 2012

        agreed. makes complete sense.

        1. Edward
          December 19, 2012

          I agree with you on this uanime5, my working life in manufacturing was always spoilt by “short term ism” from banks and other stakeholders, especially the taxman.
          Buiding a good company takes more than 2 or 3 years
          It would be helpful if companies who made good profits in one year did not have to pay corporation tax if these profits were retained in the business for future investment.

      2. Peter van Leeuwen
        December 19, 2012

        @uanime5: That kind of protection against certain hedgefunds actions and objectives, should be made all across the EU.

        1. Richard1
          December 20, 2012

          This line of argument is populist nonsense. There are good decisions and bad decisions made by managements and by investors. There is no evidence from history in the UK, Europe or elsewhere that having politicians and bureaucrats intervening and regulating decisions – deciding what is ‘long term’ and what is ‘short term’ – is anything other than destructive. Look at the EU’s absurd and useless attempts to ban short-selling. The best way for capital to be allocated is by markets operating freely.

          1. Peter van Leeuwen
            December 20, 2012

            @Richard1: it may be the best way for capital, but not for the workers in a company that becomes a short-term prey of hedgefunds.

    5. Leslie Singleton
      December 19, 2012

      I have just seen your earlier, derogatory, comment about Daniel Hannan which I cannot begin to understand because his writing overflows with facts and figures which to me means that if you cannot (and I’ll bet you cannot) refute his numbers it is hard to justify your view that he is OTT.

      1. Peter van Leeuwen
        December 20, 2012

        @Leslie Singleton, on OTT: it is not that difficult to produce “facts” and “figures” to support any view also those of DH. Well known is the DH graph showing the declining EU GDP as proportion of global GDP, which conveniently leaves out the population proportions (EU went from 25% to 7% of world population). In order to emphasize EU bureaucracy, Member nationals who next to their regular jobs in their home countries are invited for a number of meetings in Brussels, were equated with EU FTEs in order to “prove” that there are over 100,000 EU civil servants a figure which is than compared with the British army (??? sic.) instead of the half million civil servants in the UK.
        Populist politicians like Geert Wilders and DH have a radical following which they attract with an outrageous tone of arguing. That tone is what I regard as OTT both in language as in sometimes even hateful imagery. They rally and hype up their followers but will not be the ones who “throw stones”, which, sadly, is not beyond some of their followers.

        1. Leslie Singleton
          December 20, 2012

          Peter van Leeuwen–You pick on certain very specific aspects of Hannan’s article that you don’t like but then ignore the rest apparently because you don’t like its “tone”. That “tone” to me was a complete demolition of all this guff about how poor old Switzerland and Norway might as well be in the EU because they have to obey its rules. Please let us get out (“become isolated” according to you as if the rest of the world didn’t exist) and then make our own bilateral agreements. Shouldn’t be too hard if by then we would be the EU’s biggest export market. Thank God for the Channel. Cameron’s comment on Switzerland to me remains in the running for the daftest comment of the year–against some stiff competition mind.

        2. Richard1
          December 20, 2012

          It is very unfair to put Dan Hannan in the same category as Geert Wilders. You might not agree with Hannan but he is highly articulate both verbally and in writing and is scrupulously polite and fair to opponents. He is in no way xenophobic or prejudiced, he is simply of the view that it is not in the interest of the UK to be in the EU.

          1. Peter van Leeuwen
            December 21, 2012

            @Richard1: It is true that both men can be real gentlemen, but I’m only putting some of their followers in the same category. Anders Breivik, in his manifesto, quoted both men extensively, reason enough for me to distance myself from the followers of both populist politicians.

  5. Kevin R. Lohse
    December 19, 2012

    Dear John. You obviously woke up in a puckish mood. I detect more than a hint of satire in your post this morning. I suggest that the complexities of global financial flows and economics make the system to all intents and purposes a chaotic one, in that the consequences of actions taken within the paradigm cannot be accurately predicted with any regularity. It then follows that a large economy, such as the US, China or the EU has an exaggerated effect on the global whole when it stutters. Surely in practice, then it follows that multiple currency zones actually buffer the global economy and can damp down adverse effects and give time for such to be discovered by government treasuries and financial centres?

  6. Pete the Bike
    December 19, 2012

    There is only one way to protect British interests and it’s fundamentally different economy from the EU and that is to not be a part of it. It’s so clear and obvious that only people with vested interests cannot see it.

  7. Alan
    December 19, 2012

    It is often controversial to argue that history might have evolved differently, and usually fruitless, but I can’t resist giving a different ‘alternative history’ of what would have happened in the financial crisis if the UK had been in the Eurozone.

    The crisis of course occurred when Gordon brown was Prime Minister. Unlike now, the UK Government’s financial expertise was then recognised in the EU, with Gordon Brown often being invited to Eurozone meetings even though we were not a member. If we had been a member (perhaps as a consequence of an enthusiastic endorsement of the policy of joining by Mr Brown when he was Chancellor instead of his obscure arguments for rejection) it is reasonable to assume that Mr Brown would have been even more influential than he actually was. Judging by what he wrote in his book he appeared to believe that the way out of the crisis was to print money and devalue the currencies of countries involved in the crisis and for them to seek loans from China and other countries, using the argument that this would improve the world’s economy so that everyone would be richer.

    So the euro would have been devalued with respect to other world currencies. Unemployment in the Eurozone would be less than it is now and the indebted banks would find it easier to repay their debts. Trade within the Eurozone (including to and from the UK) would be higher in volume than it is now, and the world would be further along the road to recovery.

    Of course savers in the Eurozone would have less money, just as savers in the UK have had their savings devalued. People would be working for lower wages and pensioners would be getting less, just as they are now in the UK. EU companies would strive even harder to improve exports to non-EU countries.

    Staying out of Schengen and the euro are wounds that the Eurosceptics have inflicted on the UK and the EU. They reduce the benefits we would otherwise have gained from EU membership, making it easier for the Eurosceptics to argue that it is not worthwhile for the UK to be a member.

    1. Graham
      December 19, 2012

      Alan,

      What’s the weather like on planet Zog?

      1. Christopher Ekstrom
        December 20, 2012

        It’s always quite WET I hear…

    2. Jon Burgess
      December 19, 2012

      That made me laugh out loud – especially putting financial expertise and Gordon Brown in the same sentence! Print more money, devalue the currency and we’d all be richer! Genius.

    3. Denis Cooper
      December 19, 2012

      “with Gordon Brown often being invited to Eurozone meetings even though we were not a member.”

      Really?

      http://www.prospectmagazine.co.uk/magazine/10549-brusselsdiary/

      “1998, before the launch of the euro, Brown (then chancellor) loftily assumed that he would be invited to meetings of the Eurogroup even if Britain had no intention of joining the single currency. It came as a shock when it turned out that he was un-invited. Despite the best efforts of his spin doctors, Brown was photographed leaving a meeting of finance ministers while counterparts stayed on for Eurogroup discussions.

      To smooth over such embarrassments a formula was invented under which Eurogroup meetings take place the evening before full meetings of finance ministers. That removes the requirement for those excluded from the single currency’s grouping to have to leave the room. However, the hastily-convened meeting of the Eurozone leaders to which Brown was invited in Paris in October could not follow such a pattern, leaving something of a protocol vacuum. Brown’s presentation to the meeting was relatively brief after which no one seemed to know what to do. The French president, Nicolas Sarkozy, thanked Brown and then asked him whether he wanted to stay or go. According to one of those present Brown looked a little uncomfortable, got up and left.”

      1. Alan
        December 20, 2012

        Thanks. I had thought that Brown attended several meetings but a Google search has brought up only one. I should have checked before posting.

    4. Peter van Leeuwen
      December 19, 2012

      @Alan: I agree with you. But after the UK has turned anti-euro instead of non-euro, at least in the perception of institutions on the continent, those have started building more of their own financial expertise and they won’t trust the UK as much. It is difficult to imagine that a George Osborne would ever be asked for advice by the eurozone.

      1. Denis Cooper
        December 20, 2012

        “after the UK has turned anti-euro”

        By its deeds the UK government is seen to be pro-euro and in favour of the UK eventually joining, notwithstanding many words to the contrary from the Prime Minister and other Tory ministers.

        1. Peter van Leeuwen
          December 20, 2012

          @Denis Cooper: if the words had been in Lithuanian language they might not have been so damaging, but comments in English are instantly read the world over.

    5. Lindsay McDougall
      December 20, 2012

      Lots more debt and dependence. Jolly hockey sticks.

  8. alan jutson
    December 19, 2012

    John

    I hate top say it, but if you think that the EU has given up on us joining a Banking Union, you are in cloud cookoo land.

    There will be other attempts made, with different methods used over the coming months and years.

    This latest veto will have been the first of many, should we wish to remain out.

    The EU are very good at getting their own way by using the slowly slowly catchy monkey routine, you only have to look at how power has been grasped so far from all membership countries.

    We have years of struggle yet to come, to remain outside on just this one point.

    The simple solution is just to quit our membership and be done with it in one simple act ..

  9. Lord Blagger
    December 19, 2012

    The City can be damaged or changed by the large amounts of EU law and regulation that already apply to it, and by the future decisions of the European Banking Authority and the equivalent bodies involved with insurance and financial services.

    =============

    Its already damaged by you.

    1. Taxes on capital. Ho hum, you want more borrowing, but since you can lend X times your capital, removing capital means less borrowing. So much for signs of intelligent life in Whitehall

    2. Capital ratios. Been reduced. Ho hum, MPs demand more lending. Ah yes, its back to lending X times your capital, where you’ve just made X smaller. Again, second probe to Whitehall – no signs still of intelligent life.

    3. Taxes. Lets have penal taxes on banks. Banks should raise more capital? Ho hum, they really don’t get the rules of the game. No one will raise money if you’re going to take it off them.

    4. Regulation. It’s a cost. Banks have a choice. Either the game is not profitable, in which case they stop paying it, or take their foot ball and jumpers and play elsewhere, or they gouge the customer. Both are being played. Are now they are evil scum for incoporating else where. Like Google going to Switzerland. What happens is the company and profits go, and there is just a service company left making very little profits. Just like Depardieu.

    5. Regulation hits in other ways. The paperwork and cost of setting up a bank is horrendous. Meters and meters of the stuff. Never read I guarantee by the regulator. I bet you could put pages of playboy into the documents and it would get past them without a mention. All costs, all barriers to entry to new participants.

    So what are the alternatives? Peer to peer has attractions. However you need to separate lending from raising capital.

    P2P capital raising has no issues, and its going to be cheaper. P2P lending is going to cripple standard lending in the UK. A huge contraction in the money supply if it takes off. For each pound lend P2P, its 10 times that off the money supply as the money gets yanked from the banking system.

    Doesn’t fix the real problem.

    Politicians lying about the accounts.

    4,700,000 million pounds hidden off the books in an accounting fraud.

    Are you going to pay the state pension or are you going to default on it? The question politicians won’t / can’t answer. Also the reason for those gates on Downing Street.

    Reply State pensions will continue to be paid out of future tax revenue, as the wish of the UK electors reflected in the votes of their MPs. Under current policy they will continue to rise by inflation or by more than inflation.

  10. formula57
    December 19, 2012

    Given, as you say, “The Banking Authority will need to win a vote not just of the banking union members, but also of the non banking union members…” then surely there is no extra risk to the UK when the present non-Euro countries join the Euro, rather the opposite, no?

    The ranks of the non banking union members may by then comprise only the UK, giving it a veto in effect since only it would cast the required non banking union members’ vote.

    1. Denis Cooper
      December 20, 2012

      Correct, when the UK was the only one left standing then it would effectively have a veto, at least until the double majority system was abolished on the grounds that it was absurd to allow the UK a veto.

  11. Wilko
    December 19, 2012

    Complex banking rules are crazy.

    Ancient Roman laws were simple & comprehensive enough to be carved in stone at the senate. Citizens understand & accept commonsense. In contrast, EU regulation needs multi-lingual Encyclopaedia Britannica capacity to regulate aspects of vegetables.

    Good laws are simple. People obey rules whose strength exists in relevance, wide acceptance, & fairness. Law breakers attract punishment.

    The UK still has an ancient law, so ruthless that it punishes with broken bones, & in rare cases, death. This law is rigorously enforced. If there were a hope in hell of changing it, hordes of banner-waving protesters would march to the Court of Human Rights or yell from cliff tops demanding its demise. They don’t.

    Children treat its discipline with respect. They better understand its ups and downs at school; even Sir Isaac Newton took years to get on top of it: the Law of Gravity. It has universal acceptance. It is so effective that the most wayward on-edge character accepts its balanced rule. Break the Law of Gravity & it breaks you.

    Nobody claims unfairness. Lawbreakers in Belgium are treated equally dispassionately to those in Brisbane, Bermuda or Bombay.

    Good laws are simple, effective & widely respected. Crazy rules are not. EU entanglement in complication creates offence, chaos & lawlessness.

  12. A Different Simon
    December 19, 2012

    I don’t agree with a lot of the measures being proposed by Europe for regulation of banking .

    In particular the remuneration of individuals is no business of the Govt unless they are public employees .

    This is not restricted to banking , there is a belief in Europe that setting of salaries is a function of Govt . Fundamental differences like this mean we have to get out .

    The EU seem to be trying to court approval from the cheap seats rather than genuinely acting against causes of problems .

    That said , three years down the line and the UK has done nothing about the derivatives time bomb and the only medicine it has prescribed ; over the top capital requirements and tightening of credit have almost killed the patient .

    Still nobody jailed so no real deterrent to financial wrong doing (may as well make it a civil issue like in Italy) , economic policy completely skewed to prop up the housing bubble and failed insolvent banks at the expense of the real economy .

    Look at Osborne’s proposal that AIM shares be eligible for an ISA . As it happens I agree with it but without radical reform he is just throwing lambs to the slaughter .
    This is essentially like Mr Brown announcing we were going to offload our gold – naive .

    If Osborne had any experience of buying and selling shares himself he would understand that what AIM needs is chemotherapy , not steroids .

  13. Electro-Kevin
    December 19, 2012

    We have to look beyond 2015 unfortunately.

    What are Labour going to do when they get back in power ?

  14. Lindsay McDougall
    December 19, 2012

    It’s the same old story. We are not allowed to prevent further European integration and our power to be exempt from the process is limited. However, negotiating a new relationship with the EU, while necessary, is not sufficient. We cannot be neutral about the formation of a 17 Member State federal Union, dominated by Germany, with common fiscal, monetary, defence and foreign policies (let alone a 25 Member State federation).

    It should be central to our foreign policy, and we should use our best endeavours, to make sure that this Union is limited in size. We should be offering Euro zone countries inducements to leave the Euro, to include converting their Euro debts to reinstated local currencies and free access to UK markets. This should be combined with ending right of entry to the UK for the Euro zone labour force.

    1. Peter van Leeuwen
      December 19, 2012

      @Lindsay McDougall: your policy would put you into direct conflict with the eurozone, if not the entire EU. It would be instrumental in uniting the EU (or EZ) against you. Why pick a fight with a party at least 5 x your size? It would certainly backfire.

      1. Lindsay McDougall
        December 20, 2012

        The inducements would be offered to individual Member States one by one. They can always say ‘no’, so what’s your problem?

      2. Christopher Ekstrom
        December 20, 2012

        Message to Herr Ribbentrop: that sort of intimidation doesn’t work around here. Nor does the euro one wield that sort of power. You are building a feet of clay paradise. Perhaps Greece, Spain & Italy should be attended to first?

        1. uanime5
          December 20, 2012

          Given that neither Greece, Spain, or Italy wish to leave the euro it’s clear who isn’t basing their claims on anything solid.

  15. Stephen Southworth
    December 19, 2012

    We need to encourage every other non-Euro state, including Denmark, to sign up and then we’ll have an effective veto. I’ve suddenly gone all pro-Euro. Lets get campaigning 🙂

    1. Denis Cooper
      December 20, 2012

      Only until it was decided that it was absurd for the UK to have an effective veto, and the double majority system was abolished.

    2. Denis Cooper
      December 20, 2012

      And in any case under Article 140 TFEU starting on page 108 here:

      http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0047:0200:EN:PDF

      the UK now has very little say over which other additional countries are allowed to join the euro; as a non-euro EU member state our formal role in those decisions does not extend beyond “discussion in the European Council”.

      “2. After consulting the European Parliament and after discussion in the European Council, the Council shall, on a proposal from the Commission, decide which Member States with a derogation fulfil the necessary conditions on the basis of the criteria set out in paragraph 1, and abrogate the derogations of the Member States concerned.

      The Council shall act having received a recommendation of a qualified majority of those among its members representing Member States whose currency is the euro. These members shall act within six months of the Council receiving the Commission’s proposal.

      The qualified majority of the said members, as referred to in the second subparagraph, shall be defined in accordance with Article 238(3)(a).

      3. If it is decided, in accordance with the procedure set out in paragraph 2, to abrogate a derogation, the Council shall, acting with the unanimity of the Member States whose currency is the euro and the Member State concerned, on a proposal from the Commission and after consulting the European Central Bank, irrevocably fix the rate at which the euro shall be substituted for the currency of the Member State concerned, and take the other measures necessary for the introduction of the euro as the single currency in the Member State concerned.”

      As the non-euro member states will also get damaged by another stupid decision to admit a country which should not be allowed to join the euro, as with Greece, clearly this is another case where the decision should require approval by both the euro and non-euro member states, not just by the euro states.

  16. Robert Taggart
    December 19, 2012

    A United States of Europe in the making ? – Just as Churchill wanted.
    But, as Churchill also said – “We are with Europe but not of it” – well, not fully, fortunately !

  17. uanime5
    December 19, 2012

    I suspect the main objection from the City to the banking union is because it will limit banker bonuses to twice their annual salary, so those working in the City will no longer be able to justify multi-million pound bonuses.

    So far the climate of antagonism to banking and finance, the rash of new laws, the higher taxes and the demands for much larger amounts of cash and capital have led to a sharp decline in City employment. It has led to a big fall in tax receipts from highly paid people, and to various activities moving to new locations where the tax and regulatory system is more benign.
    Didn’t you claim that most of the highly paid people left because of the 50% tax rate. Could it be that the 50% tax rate wasn’t the main reason for the fall in the top tax rate revenues?

    The German motor industry is looked after by the EU.
    In what way is it looked after? It’s subject to employment laws, health and safety, and industry standards just like every other manufacturing industry. Given that many German laws give more rights to the employees than the EU law it seems that the EU isn’t doing anything to help German industries.

    Also despite how profitable fracking is meant to be the Chancellor is going to have to give the fracking companies tax breaks. I’d hate to think what he’d give them it wasn’t profitable:
    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9755702/George-Osborne-to-unveil-fracking-tax-breaks-in-Budget.html

  18. Mark B
    December 19, 2012

    John Redwood MP says,
    “The UK needs a new relationship with the EU, which will include having much more power and sway over our own businesses.”

    And

    “…UK needs a new relationship with the EU that leaves us free to trade with them but not governed by them.”

    There is only one way this can happen. Invoke ‘Article 50’ of the Lisbon Treaty. It is the ‘only’ way that the EU can be brought to the negotiating table to discus a ‘new relationship’ with the UK.

    Ask yourself this, “how is it a landlocked country like Switzerland that is not in the EU or the EEA, with a small population, a good standard of living and a world renowned financial sector survive?”

    We can join the EEA/EFTA and still have access to the ‘common market’. We can negotiate trade deals. And ‘really’ veto EU laws we do not like.

    Or we can just continue as before, and see Canary Wharf and the City go the same way as the fishing industry in say Grimsby.

    Its YOUR choice.

    We the people have been removed from the decision making process.

    1. JimF
      December 19, 2012

      Ask yourself this, “how is it a landlocked country like Switzerland that is not in the EU or the EEA, with a small population, a good standard of living and a world renowned financial sector survive?”

      The main lessons from Switzerland are to protect and grow innovative SME s (recent R and D boost in tax reliefs and capital allowances in the UK useful here), keep personal and corporate tax rates low enough to attract intelligent folk into the Country (we’re going the wrong way), support your farmers, regulate to limit real estate bubbles, create a work ethic, give the people direct democracy, think local first.

  19. Jon
    December 19, 2012

    Would agree with all of that. It does perplex me the EU calling us offshore when in finance thats really what Luxembourg, Liechtenstein, Switzerland and Monaco are. The UK maybe surrounded by water but its not offshore financially.

    I think with Libor fines announced questions now need to be asked about the FSA. This only came about because the US decided to investigate. Had that not happened the FSA would not have acted as it didn’t act on the many tip offs over the years. There are big problems with regulation and we should start more to question them atleast through the select committees if not an inquiry.

  20. Alan Wheatley
    December 19, 2012

    The concluding statement, that “the UK needs a new relationship with the EU”, is correct.

    The preceding analysis gives ample evidence for believing that such a relationship can never be achieved while the UK remains a member of the EU.

  21. JimF
    December 19, 2012

    Sorry, but you can’t have this both ways.
    On the one hand our banks are undesirable lepers, whom the Europeans are lucky to have no liability for, and on the other hand the City is the tremendous growth engine which shouldn’t be subject to outside regulation for fear of prejudicing its commercial success. Which is it to be?

    From a more objective British viewpoint; yes, we are good traders (on a par with the US and better than most Europeans) but every trader should be liable for his own losses, not supported out of their mess. We are good designers, (better than the US or Europeans) but we should be doing the utmost to ensure innovation earns us our fair share without being plagiarised. We have an industrial heritage, and we should be working to encourage our designers to develop and make products here to increase the national wealth rather than taxing and regulating manufacturers out of existence.
    We are however very badly organised, and try to support the feckless at the expense of the strong. These are our main characteristic downfalls. There is also no consistency in government policy towards industry (just look at capital allowances and corporation tax rates over the past 10 years for prrof).

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