Cameron in pledge to City over banking union
Downing Street has vowed to defend the City of London from any fallout from a proposed European banking union, amid a growing UK clamour for a referendum on the country’s future membership of the bloc.
David Cameron took Britain’s premiership in 2010 trying to freeze Europe as a political issue. But the rapid escalation of the eurozone crisis looks set to transform UK relations with the rest of the EU.
The prospect of Britain – Europe’s biggest financial centre – sitting outside a banking union covering most other EU states has brought the country’s uneasy relationship with the rest of Europe into sharp focus.
Proposals by José Manuel Barroso, the European Commission president, for a banking union covering all 27 EU states were rebuffed by Downing Street after a cabinet meeting on Tuesday.
“It’s a eurozone decision,” said a spokeswoman for Mr Cameron. “If progress was made on that, we would need to ensure British interests are secured and the single market is protected.”
The issue threatens to set up a re-run of Mr Cameron’s rejection of a European fiscal treaty at an EU summit last December. He fears the proposed banking union poses a similar threat to Britain’s financial sector – even though Britain will not join it.
Mr Cameron is expected to raise his concerns on the margins of a Group of 20 summit in Mexico next week and at an EU summit later this month, although crucial decisions on a banking union may not be taken until the end of the year.
British officials see this as the start of the debate, not least because of German doubts about the concept of exposing its taxpayers to failing southern European banks, and no formal proposals are on the table.
Mr Cameron will make it clear he supports in principle a eurozone banking union to provide a “financial backstop for the single currency”, including common mechanisms for saving failing banks.
But he fears that the new arrangements envisaged by Mr Barroso could lead to the 17 eurozone members – and any others that joined the banking union – ganging up and imposing banking rules on Britain.
The Treasury fears that the rules of the EU single market could be rigged in favour of countries using the euro. Indeed, it claims that in some cases this is already happening.
Mr Cameron wants explicit recognition that there will be two distinct and separate levels of integration within the single market, although British ministers have yet to decide what explicit legal protection they need.
However, London would prefer that a banking union be confined to the 17 eurozone members and that it should be overseen by the European Central Bank – explicitly tying the project to the euro – rather than falling under the European Commission which oversees the whole single market.
The eurozone crisis is bringing into sharp focus Britain’s awkward relationship with Europe, accentuating its position on the fringes of a single currency area that is being propelled towards much closer fiscal and political union.
The banking union proposal has led to renewed calls for a British referendum on this new relationship, although none of the UK’s three main parties has said when it should take place – or what the question should be.
“It’s far too early. Things are changing by the day,” said one strategist in Mr Cameron’s Conservative party. However, even eurosceptic Tory MPs admit they would struggle at the moment to win a straight in-out poll.
The Conservative-Liberal Democrat coalition government is committed to holding a referendum only if new powers are transferred from London to Brussels. But, as one Tory MP noted: “If one part of Europe becomes more powerful, you become less powerful.”
George Osborne, the Tory chancellor, has hinted at a referendum after the 2015 election – as has the Labour opposition – as both sides attempt to fend off the rise of the eurosceptic UK Independence Party.