The Euro crisis, the UK and the City of London


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cityoflondonWhile Cypriot bank deposit holders are in pain, Greece is still recovering, Spanish banks are struggling to survive and the whole Eurozone banking system is at stake, British chancellor George Osborne has tried up til the last minute to avoid the EU cap on banks bonuses reached some days ago in Brussels. As predicted, he did not succeed.
“I cannot support the proposal on the table,” he told during the last Eurogroup meeting held in Brussels. According to him, this measure would fall desperately/well short in preventing hazardous trading by banks and would only cause a rise in the basic salary of bank managers.
A few days ago in Brussels, the European Parliament and the Council reached an agreement on such a cap setting the first limit to bank bonuses in history, a decision that represents an unprecedented switch in the global finance, said MEP Sharon Bowles, chairwoman of the Parliament’s Economic and Monetary Affairs Committee.“Today’s agreement on a bankers’ bonus cap will usher in a much needed culture change, not just for the City of London, but for the rest of Europe too,”, she added.

The City of London appears to be the main objective of such new regulation which will be applied by all Member States as early as 2014. The City itself threatened last month, on the eve of the Eurogroup meeting, to sue such a decision at the European Court of Justice as it would violate the national subsidiarity in setting salaries, in this case the million euro pay of the bank managers.

Although such a threat sounds ridiculous itself, this is not the first time that the City of London  has risen its voice to the EU, and through the UK. At the last European Council meetings, David Cameron has often defended the interests of the London financial bulk, for example standing firmly against the adoption of a financial transaction tax (FTT) at European level (finally approved via the “strengthened co-operation” procedure). A position considered questionable in a period of deep recession when there is a need for funds in all EU Member States. Later on, Mr Cameron opposed a slight rise in the EU Multiannual Financial Program (MFF) 2014-2020 in the light of the budget cuts made by most national governments.

Another battle that London is fighting in Brussels on behalf of the City is the one against the European Banking Union. This proposal aims at assuring more stability to the whole European banking system which was shaken by the crisis and which fell apart in some Member States, notably Greece and Spain. The proposal of the European Commission would set some standards such as capital requirements and a supervisionary mechanism within the ECB that would have prevented the banking collapse experienced in these years. Again, the UK opposed such a proposal because in its view it could have harmed the national interest.

Last but not least, Mr Osborne put the entire capital requirement directive (Crd IV) at risk just to protect the bank bonuses although the agreement foresees that these bonuses cannot only be more than double the basic salary, all but peanuts.

Therefore one could wonder how far the City of London is ready to go to defend its interests and how much the UK will be keen on being its ambassador in Brussels.


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