London’s financial center heaved a sigh of relief on Thursday after a landmark deal on Europe’s incipient banking union removed an immediate threat to ‘the City’s’ global position.
The text thrashed out by finance ministers overnight makes the European Central Bank the euro zone’s top banking regulator, but includes key concessions that guarantee the UK’s influence in pan-European banking policy and protect London’s status as a global financial center.
It was agreed after a lengthy late-night debate and months of intensive lobbying by the UK, with prominent figures, including London Mayor Boris Johnson, coming out to bat for an industry that employs 600,000 in the City financial district alone and contributes 9.4 percent to the UK’s ‘gross value added,’ a measure of an industry’s contribution to the economy less production costs.
“The safeguards we have secured protect Britain’s interests and the integrity of the European single market,” UK Chancellor George Osborne said after the deal was clinched.
One key concession is a change to the voting structure of the European Banking Authority, which was set up two years ago to coordinate the supervision of banks by regulators from across the European Union so that countries not taking part in the banking union cannot be steamrollered by the others.
The second is a clause preventing the ECB from discriminating against any EU member state “as a venue for the provision of banking or financial services in any currency.”
Banque de France governor and ECB governing council member Christian Noyer had effectively threatened to do just that earlier this month, warning that London’s status as the EU’s biggest financial center would be at risk if the UK did not join Europe’s banking union.
“The UK has negotiated a very strong position,” said Arjun Singh-Muchelle, director for European Affairs at the British Bankers’ Association.
“We don’t see banking union as being a threat to the City. If anything we think it will help by bringing stability in the euro zone.”
A paper from the UK’s House of Lords European Union Committee published earlier this week warned that London would inevitably face a “degree of marginalization” from opting out of banking union and called on the UK authorities to do everything necessary to protect London’s position.
“We are pleased that they have come to a decision about the European Banking Union but the devil is in the detail,” Lyndon Harrison, chairman of the House of Lords’ Sub-Committee on Economic and Financial Affairs, told Reuters on Thursday.
“My view would be, ‘well done so far, but let’s make absolutely sure we’ve got it right’,” he added, stressing that the UK government should ensure that clauses to avoid the ECB’s governing council dictating wider policy were “watertight.”
Tom Huertas, a partner with accountancy firm Ernst and Young and former alternate chair of the EBA, said the changes to the EBA voting structure were positive for opt-out countries.
“If confirmed by the European Parliament the solution would help assure that non-euro zone countries such as the UK continue to have a real voice in determining the rules to be written by the European Banking Authority,” he said.
The Confederation of British Industry, a business lobbying organization representing 240,000 UK companies, described the deal as a “positive development” that would achieve greater financial stability across Europe.
“A single market in financial services is critical and this agreement has gone some way to allaying fears of it becoming fractured,” said the CBI’s Director for Competitive Markets, Matthew Fell.
Andrew Gowers, spokesman for the Association for Financial Markets in Europe, said Thursday night’s agreement was a “big step forward” which would enhance rather than distort the single market for financial services.
“We think the safeguards [for non-participating countries] are adequate,” said Gowers. “We wanted to see a fair and balanced way of reaching decisions, particularly on the European Banking Authority … We think this does that.”
Gowers said the deal reached over night appeared to have secured fairness, “provided that everyone operates in good faith.”
“There’s always a danger one or other of the member states will try to score points off London,” he said.
Alexandria Carr, barrister for the London law firm Mayer, also said the UK and its allies appeared to have secured “important safeguards” to ensure the European Banking Authority remained representative of all 27 countries in the EU.
“This will help ensure that the UK is not isolated, but time will tell whether this division marks the genesis of a two-speed EU with the participating countries moving towards an ever closer union,” she said.
Meanwhile Andrew Morris, managing director at Signature, a unit of wealth manager Rowan Dartington, said the overnight news was a “great headline and one that markets should have reacted positively to.”
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