Euro Area Stalls Deal to Shield London Banks From EU Rules

  • Diplomats only make progress on technical and legal points
  • EU's Tusk to tour capitals next week in run-up to summit

Envoys from euro-area governments balked at a draft European Union proposal to ringfence Britain’s financial industry, putting extra pressure on Prime Minister David Cameron before he meets German Chancellor Angela Merkel in Hamburg on Friday.

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France led several euro-zone nations in objecting to pledges at a meeting in Brussels on Thursday, according to four people familiar with the talks. The EU plan would give the U.K. and other countries outside the single currency bloc freedom to set their own regulatory standards for financial institutions. Discontent from eastern European countries over proposed limits on welfare payments to foreign workers in the U.K. will be another hurdle for leaders to overcome when they meet on Feb. 18.

Cameron needs approval from every other nation in the EU in order to secure a deal at the two-day summit in Brussels. That would pave the way for him to hold a referendum on staying in the bloc as early as June 23 and campaign against a Brexit -- a U.K. exit from the EU.

“There are some concerns about the single rulebook and the financial sector,” Dutch Finance Minister Jeroen Dijsselbloem said in Brussels on Friday before a meeting of his EU counterparts. “The financial sector is a very strong element of our joint internal market and we must make sure that we don’t lose that. That’s in the interest, I would say, to The City and to the rest of Europe.”

Membership Terms

As if to underscore the delicate nature of the negotiations, EU President Donald Tusk will spend Monday and Tuesday shuttling between Paris, Berlin, Bucharest, Athens and Prague as he tries to persuade leaders to back the deal. For his part, Cameron will address the European Parliament’s political group leaders on Tuesday. He’ll need their support to pass some of the legislation changing the U.K’s EU membership terms.

While diplomats on Thursday made progress on technical and legal clarifications of the text published earlier this month, the main political items are still not settled, a separate EU official said on the condition of anonymity because the talks are private. Progress was made only on the clarification of technical and legal points, the official said.

“We believe in the place of the United Kingdom and what it represents, including its financial system -- it’s place is in Europe, in the European Union,” French Finance Minister Michel Sapin told reporters on Friday. “We don’t want any harm to come to this single market and financial market. There can be different legislation, but they have to have the same effect across the European Union.”

The question of whether the deal should include a commitment to enshrine the changes in the EU treaty at a later date -- something that would give Cameron a guarantee to sell to the British people -- is also in dispute, two of the people said. While a deal isn’t out of reach, there’s still much to be done for the summit, they said.

‘Global Powerhouse’

Tusk took advantage of Thursday’s meeting of euro-area finance ministers in Brussels to discuss the U.K. negotiations with Eurogroup President Dijsselbloem, European Central Bank Executive Board member Benoit Coeure and European Commission President Jean-Claude Juncker.

European businesses are weighing the possible impacts the results of the negotiations will have on trade, with the world’s largest sovereign wealth fund taking a sanguine stance, saying the risk of a British exit from the EU wouldn’t diminish its interest in buying property in the U.K.

Karsten Kallevig, CEO of real estate for Norway’s $810 billion sovereign wealth fund, said Thursday that irrespective of the outcome of the talks, London will remain a “global powerhouse” for a long time.

Even as some Eastern European nations have claimed the EU proposal would discriminate against their citizens, the Czech Republic’s envoy to the EU said those countries would probably accept the plan.

“From all the discussions we’ve had I don’t see anybody who would block the agreement,” Tomas Prouza told Bloomberg TV in an interview on Friday. “When I look to the east, when I look to the south, Europe needs to be much stronger than a year ago. We need the U.K. to stay in, we need to be strong”

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