Slip, sliding away from us

This first  is true but the media generally won’t notice that as a nation we have lost.  The Europeans, led by the French, have hi-jacked the whole financial expertise of London and made it subject to bureaucratic diktats by people who know nothing but politics.

Once gone it’s almost impossible to retrieve.

And then that mild man Mervyn King laid into Alastair Darling scornfully!

Christina Speight

TELEGRAPH 18.6.09

UK 'powerless' to stop EU regulation

A senior French official has confirmed Gordon Brown is almost powerless to stop the creation of a European regulatory machinery at today's EU summit, opening the way for a transfer of control over the City from London to Brussels.

 

By Ambrose Evans-Pritchard

"There will be a pincer movement on Britain," said a key aide to President Nicolas Sarkozy, speaking at a pre-summit briefing.

Paris believes the push for tighter regulation by the Obama administration leaves Britain in a weak position as it tries to fight off the assault on the City.

 

"If the Americans make strong commitments towards regulation and on derivatives and other sophisticated products, I believe they are going further than the Europeans. That will provide a boost to the most determined among the Europeans," said the official.

"It will be a reminder to the British that they cannot be quite isolated within Europe and at the same time refuse to accept for the City the kind of rules being imposed on Wall Street. "

Europe's key proposal is for three new bodies to oversee banking, insurance and securities. Each would rank as EU "authorities" and have binding powers to dictate decisions over sweeping areas of regulation.

Britain cannot veto the proposals because EU single market laws are passed by qualified majority voting (QMV). While a few countries have reservations – Germany views the plan as "too ambitious" – London will struggle to put together a blocking minority.

It would be a serious political matter if the EU proceeded against vehement objections from the British Government. Any outcome depends on whether Mr Brown is willing to risk a showdown with Europe.

Chancellor Alistair Darling said Britain will not agree to any measures that erode "fiscal sovereignty", an area that is still covered by the national veto.

EU OBSERVER 18.6.09

Financial regulation

     (part of a longer article on the whole council meeting today and tomorrow)

Economic issues will also take centre-stage at the two-day gathering, with EU leaders set to agree that there should be a "reliable and credible exit strategy" from their current spending, with several eurozone countries experiencing soaring budget deficits, well above the ceiling set by the single currency rules.

They are also set to agree on a new body to watch over the bloc's macro-economic stability, and three agencies to oversee national regulators in the areas of banking, insurance and securities.

But there is expected to be disagreement over who head the new body - the European Central Bank has been proposed - and whether the EU agencies should have binding powers over national regulators.

Both ideas are fiercely opposed by London, which would be content to leave the as-yet-general draft conclusions as they are. But Belgium and France are keen to go into the details, meaning the talks could drag on.

CITY AM 18.6.09

King crushes Darling at Mansion House

EDITOR’S LETTER

ALLISTER HEATH

ON the face of it, last night’s Mansion House dinner was a typical, formal City occasion, with the black tie-clad great and good of the business community turning up in their usual numbers. But there was little of the good-humour and wry amusement that usually accompanies such occasions; many of last year’s guests hadn’t been invited this year because their firms or their jobs didn’t exist any more. The mood at the gathering was sombre, even if most of the guests now believe (rightly, in my view) that the worst of the recession is behind them. But they also realise that with the end of the fire-fighting comes the rebuilding and the regulatory onslaught – banker-baiting is not as popular a pastime as it was three months ago, but these are hardly comfortable times to be a banker, insurer or merchant. 

Alistair Darling’s speech didn’t say very much we didn’t already know, with one key exception: he will next week be setting out “a new tax code for how the banks can meet their obligations”. This could be massive.

But it was Mervyn King’s speech that stood out. In breadth and quality, it easily overshadowed Darling’s rather pathetic effort, even if not all of his arguments were convincing. He launched a devastating attack on Darling, demanding the government “produce a clear plan to show how prospective deficits will be reduced during the next Parliament”. 

He rightly argued that “price stability does not guarantee stability of the economy as a whole” but I wasn’t convinced by his argument that interest rates need to continue to be used solely to target inflation, rather than to tame credit growth. The Bank’s greatest failure was to allow the growth in the money supply to surge out of control; and that should have been tamed by higher interest rates. It is a diversion to blame the private banks. 

King pointed out that the size of our banking system was, as a proportion of GDP, five times that of America’s; and that risks associated with proprietary trading are harder to control in limited liability companies. His conclusion: we need instruments to prevent the size, leverage, fragility and risk of the financial system from becoming too great. This puts him closer to the Tory position and far away from Darling’s. 

It is worth analysing King’s core argument in detail as it will be taken seriously by the next government. He argues that it makes no sense to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. So he is not arguing for a Glass-Steagall separation – but for a different sort of change. Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments (this would be hard to introduce), or banks which pose greater risks to the economy in the case of failure should face higher capital requirements (a likely outcome), or we must develop resolution powers so that large, complex financial institutions can be wound down in an orderly manner (also likely, King wants banks themselves to produce their own plans or “wills”). 

There will be much change ahead. Let us hope that it is calmly thought-through – or else the City will never recover, and London’s prosperity will be destroyed irreparably.