Chancellor says safeguards for City of London sought by David Cameron last year are more necessary than ever
George Osborne has warned that the deepening euro crisis, and likelihood of greater euro-area integration as a consequence, means that safeguards sought by David Cameron are needed “more than ever”.
Cameron tabled a series of safeguards on protecting the interests of the City of London at the Brussels summit in December, and then deployed a veto when they were rejected by his European partners. The veto prevented the union going ahead with a fiscal compact, co-ordinating budget policies using the EU treaty.
Osborne’s remarks on Europe at the end of a Mansion House speech that mainly focused on his new plans for injecting credit into the economy suggest Britain is increasingly intent on a renegotiation of its position if the euro area integrates its fiscal, banking and monetary unions. This is something the UK Treasury broadly supports as necessary for the euro area to survive.
He also went further in suggesting it may be a positive for the Greeks to quit the euro since such an event might make it easier for the euro area to integrate.
In a key passage he said: “British taxpayers will not stand behind eurozone banks, and British voters want the British authorities to be in charge of supervising our own banks, especially in a crisis.”
Referring to greater euro area integration he said: “Of course all these kinds of changes do pose significant challenges for us – without the right safeguards, further integration within the eurozone could significantly alter the structures and dynamics of the European Union.
“Under new voting rules, the eurozone will have as a bloc an automatic majority for most decisions.
“That’s why it’s entirely reasonable for us to seek safeguards that protect the interests of Britain and other non-eurozone countries in a changing EU.
“We want to remain full and active members of the EU single market, which has huge benefits for our economy.
“Indeed we want to deepen and enhance the single market.
“But the rules that govern that single market must continue to be determined by all 27 members of the EU, and not just by the 17 members of the eurozone.
“In other words, the argument for safeguards that we were making last year is becoming more relevant than ever.”
Since Britain failed to secure those safeguards at the December EU summit, Osborne’s remarks imply that the UK government intends to return to the negotiating table seek to secure them at the point when treaty change is proposed to bring about greater fiscal union. The safeguards mainly ensure the City of London is not subject to EU decisions, and maintain a requirement for unanimity before a financial transactions tax could be imposed.
Osborne also developed his thinking on the shape of a eurozone solution saying it “doesn’t have to be a full-blown United States of the Eurozone but if it is to be successful it is likely to include most of the mechanisms that make other currencies work in countries such as the UK and the US”.
These included more support from stronger economies to help weaker economies adjust; more pooling of resources, whether through common eurobonds or some other mechanism; a shared backstop for the banking system to strengthen banks and protect depositors; and as a consequence, much closer collective oversight of fiscal and financial policy.
He described a banking union as a “union that stands behind the stability of eurozone banks and their deposits in return for common financial supervision. This is a natural consequence of a single currency. We have seen all too clearly how bank stability and sovereign stability are so closely linked within the eurozone.
“Indeed, that is why the Lisbon treaty explicitly provided for common supervision through the ECB in the future.”