The European Union’s top financial services official warned the U.K. it won’t be allowed to “pick and mix” its relationship with the EU and must accept rules governing the City of London in exchange for access to the single market.
Michel Barnier, the EU commissioner responsible for proposing financial laws, stepped into the U.K.’s debate over its relationship with the bloc, saying that a more nationalized approach to financial regulation is “the wrong cause to fight for.”
“By definition, there can’t be two single markets: one for financial services and one for the rest of the economy; one for the City, and one for the rest of the EU,” Barnier told a conference of industry representatives and policy makers today in London. “Repatriating full policy responsibility for financial services would mean leaving the single market as a whole and de facto the EU.”
U.K. Prime Minister David Cameron has promised to seek a new settlement with the EU amid a rising tide of opposition that saw the U.K. Independence Party, which advocates a divorce from the bloc, gain seats in local elections in May. While Cameron has said he plans a referendum on EU membership by the end of 2017, this has failed to quell calls from members of his Conservative Party for Britain’s European destiny to be put to the people sooner.
At the end of 2011, Cameron split with other EU leaders when he refused to support a treaty to underpin euro area nations’ fiscal policies unless he was given guarantees that the U.K. couldn’t be overruled on financial laws. Leaders sidestepped the move by going ahead with the fiscal treaty in a different legal form.
Barnier played down the risk that the U.K. would fall victim in EU negotiations to euro area nations acting in concert.
“It is not and has never been true that euro zone member states always have coinciding views, or vote as a caucus,” Barnier said, according to a copy of his prepared remarks. “Indeed, some are closer to the U.K. in outlook than to many of their euro zone counterparts.”
The U.K. has clashed with the EU on financial rule changes ranging from banker bonus curbs to short selling restrictions, with the nation often finding itself on the defensive.
Britain’s Chancellor of the Exchequer George Osborne has said that plans being discussed by 11 other EU nations for a common financial-transaction tax are “unlawfully extraterritorial” and “poorly designed.”
The country started a legal challenge over the draft measures in April. The U.K. is suing the European Central Bank over policies that it says push clearing of some derivatives away from London and into the euro area, and has started a court challenge against an EU law that hands the Paris-based European Securities and Markets Authority banning powers over short-selling.
Barnier acknowledged that moves by euro area nations to create a banking union, with centralized oversight of lenders, will need to be worked through carefully to avoid threats to the single market.
“The interaction between the single market and the euro zone is complex,” he said, citing the U.K. swap clearing dispute with the ECB as an example.
Barnier, a former French foreign minister, said he would continue to push for financial regulation to be included within the scope of trade talks with the U.S., a move resisted by U.S. authorities.
“The U.K. and the commission both strongly believe that financial services should be part of the mandate” for the talks, which began this week, he said.
Barnier, who is approaching the last year of his European Commission mandate, said that he would present a draft law in October that would force banks to partly separate their retail and trading activities.
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