City of London at centre of Europe controversy

Less than two years since the formation of the Coalition the national government is facing its first real crisis that has throwing the future of the Coalition into doubt and caused a deep rift with Europe. David Cameron, by taking an uncompromising position during negotiations with our European partners found Britain out numbered 26 to 1 at this weekend’s summit.

At the center of the controversy was the City of London. Cameron insisted that he was looking for “safeguards” to protect the financial sector. A proposed Financial Transaction Tax (FTT) would have levied a tax on all purchases or sale of financial products including stocks and bonds. The argument goes that because the UK’s economy is  distorted towards banking and finance rather than making things and doing stuff, this would disadvantage the UK.

However, as the BBC point out, things may not be quite that simple because “Germany’s Deutsche Bank is the largest single banking employer in the City of London. French, Spanish and Italian banks also have a significant presence here.”

This is because the EU “guarantees four fundamental freedoms for all countries and companies within the EU: the free movement of goods, labour, services and capital. Few other countries or industries have benefited as much as Britain’s financial services sector from these four freedoms.”

Cameron’s restrictive immigration policies and arms length relationship with Europe have frequently been criticised by business leaders, although the wider question is if Cameron is going to resist any regulation of the financial industry how vulnerable does this leave the economy to future disasters?

In the years since the global financial crash there has been a popular “anti-banker” pressure to regulate the sector to protect the world from the effects of future crashes. As Liberal Conspiracy pointed out ” the common perception of Europe’s other heads of government is that it is precisely the deregulated City of London (and its close allies on Wall Street) that got us into the current mess in the first place.”

Larry Elliot says that “British governments for the past three decades have had an aversion to the idea of picking winners, with the one exception of the City of London. That “winner” proved to be the biggest loser of the lot, yet David Cameron decided that defending the interests of this tarnished special interest group should be Britain’s priority at last week’s summit.”

Mr Cameron’s inability to win concessions may well be one consequence of  the frosty relationship between the Tories and other right-wing governments in Europe, resulting in the Conservatives leaving their European grouping in 2009. No wonder he was given short shrift by other leaders as many doubted that he came in good faith.

While the deal itself may have real problems, as Angela Merkel’s restrictions on borrowing could be a real barrier to job creation and investment, it’s time to ask whether the special status given to the City of London is good for Britain as a  whole, or even good for the City iself in the long-run.

Powerful financial institutions will not  benefit from an economy that has been crippled by austerity measures, with record unemployment and cut off from international markets. The desire to leave these institutions unregulated may, paradoxically, see them facing more regulations on the international stage. That would be a good thing.

The FTT bears a striking similarity to the Tobin Tax, a tax designed to slow down the financial sector and inject some caution into the casino. Europe can do without arbitrary and artificially induced crisis. European societies, the UK included, need to reign in these institutions, disparities in pay, and an ongoing default towards privatisation and casualised working practices.

While Markel’s proposals are hardly designed to create some sort of socialist utopia Cameron’s position serves neither the interests of the rich nor the poor. An attitude where the City of London’s interests are seen as identical to the interests of the people of London is dangerously skewed.

Certainly we need to ensure the City of London either becomes more accountable or is abolished altogether as the social harm it can do is one of the most pressing threats to the economy today.