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While the Conservative Party may be divided over the UK’s membership of the EU, the financial sector, and the City of London in particular, has made considerable gains out of the fuss kicked up by the UK government these past few years. This is not only because the government has made its interests paramount, screaming for concessions, but also because the EU has been all too willing to oblige. No wonder the British financial lobby and practically all financial corporations – save a few extremist hedge fund tycoons – are strong supporters of the EU.
Yet the agreement David Cameron eventually secured from European leaders was hardly necessary to secure the loyalty of the City ahead of the referendum. ‘If there was a referendum tomorrow on whether we should leave the single market, I think you would get unanimous rejection of that in the City,’ said Gerry Grimstone, then head of CityUK, a heavyweight of the financial lobby group, in June last year – well before the concessions secured from Brussels were made clear.
The City sees the EU and the single market as major assets. Broadly speaking, the financial lobby even won the battle over post-financial crisis regulation. As a result, we now see it defending its gains.
Still, other EU governments and the European Commission understood the message when Cameron put the EU referendum on the table in late 2013, and they acted swiftly and obligingly to please the UK’s bloated and powerful financial sector. It has secured four key victories.
First, in 2014 president Jean-Claude Juncker picked the British ex-lobbyist Jonathan Hill for a new post as chief responsible for financial regulation in the Commission – a ‘first move to strike a bargain that will keep Britain inside the EU,’ said the Financial Times. Hill’s appointment was applauded loudly in the City as a sign of even better days to come.
Second, Hill quickly introduced a broad new initiative, the Capital Markets Union, a sweeping agenda for deregulation intended mainly to expand the trade in securities, the very financial products that played a key role in causing the 2008 financial crisis. Their dream scenario here is to see companies seeking capital on financial markets by issuing complicated financial instruments themselves, rather than through loans from banks. This will increase the power of financial markets over industry, a further step towards financialisation.
Third, Hill has launched a process to identify ‘unnecessary’ and ‘burdensome’ EU regulation, in order to weed out whatever may annoy the world of finance. This could lead to the cancellation of Brussels’ already feeble attempts to reign in the worst excesses of risky behaviour in the markets since the financial crisis.
Fourth, the agreement Cameron made with his peers in the European Council provides new lines of defence for the City. For instance, it enables the UK government to elevate quarrels over even small financial sector-related initiatives to a political crisis to be dealt with by heads of government. Safeguards have also been added to ensure that the eurozone does not trample on the interests of the City. Most notable in this regard, the agreement makes it possible for the UK to be exempted from decisions on banking regulation if, for instance, the EU were to decide to split banks or impose rules that would bar commercial banks from being involved in too much speculative investment.
Ultimately, the threat from Cameron when he asked for a ‘reformed’ EU in return for the UK’s continued membership was in the case of the City and the financial sector very effective. It has opened a new era of financial services deregulation. The challenge of rolling back the power of finance has become even more difficult.
Kenneth Haar is a researcher with Corporate Europe Observatory, a lobby watchdog based in Brussels. The group is not taking a position on the referendum.