Lord Myners said Britain should become more, not less, involved in efforts to create a banking union designed to supervise banks and provide a backstop, or risk getting lumbered with rules that could damage the City. "The danger for the UK is increasing marginalisation. As the European Union divides into those inside and outside the eurozone, there will be profound consequences for Britain," he said.
Concerns are growing in the Square Mile and Whitehall that some eurozone members are trying to grab a significant slice of the City’s euro-denominated trade by suggesting that the ECB can properly regulate trade in the single currency when it is done within the eurozone’s boundaries. Those concerns were heightened by French central bank governor Christian Noyer’s comment that he could see "no rationale" for London as the euro’s financial centre. Currently, over 40 per cent of global euro FX trade goes through London.
"There is a concerted push by people who believe in a quite straightforward way that access to a lender of last resort should naturally be focused within the euro core and I don’t think there’s much we can do about this. The best strategy for the UK is for us to be seen to be as helpful as possible. The Treasury should consider permanently basing a Junior Minister in Brussels to develop closer relations with the Commission and our European Partners."
Myners said he was seeing increasing annoyance with Britain from European policymakers. What London now needed was an old-fashioned charm offensive.
"Being seen to do the right thing can be enormously successful. What did David Cameron´s walkout (of an EU summit) last December achieve? Nothing, other than alienating others."
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| City Minister Paul Myners |
The British Government has said the EU’s single market rules will prevent the eurozone dictating where euro trading can take place. However, the final outcome may also depend on how a future European banking regulator interprets its mandate. That regulator is the first leg of a nascent banking union – an initiative Britain supports for the eurozone, but has ruled out joining itself. Chancellor George Osborne should appoint independent experts to assess the case for British membership of the banking union, said Myners. But he added there was virtually no chance that Britain would sign up to the supervisory body.
"In the end, regrettably, the decision on where Britain stands in Europe will not be taken based on a careful calculation of the pros and cons, but a response to naked domestic politics."
Financial services account for 11 per cent of British exports. However, Myners played down any doomsday scenario for the City, whatever happens.
"The sheer energy, ingenuity and talent in London and its network of institutions make it very difficult to move the centre of euro trading to Frankfurt or Paris."
"But will London be as dominant in Europe in 20 or 30 years? Probably not. We are going to see the development of greater depth in Frankfurt and Paris in the same way that London is going to be less dominant vis-à-vis Mumbai or Shanghai."
Lord Myners was speaking ahead of an RBS Insight event with clients.
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The statements and opinions expressed in this article are solely the views of Lord Myners speaking at an RBS Insight event on 4 December 2012 and do not necessarily represent the views of the Royal Bank of Scotland.
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