It is perhaps too much to expect Britain’s Conservative-led government to lead any initiatives on Europe, such is the orgy of self-destruction in the party over whether the UK should stay in the European Union. But, insofar as David Cameron manages to get some respite from the madness, he should launch a strategy to enhance the City of London as Europe’s financial centre.
Britain has in recent years been playing a defensive game in response to the barrage of misguided financial rules from Brussels. It now needs to get on the front foot and sell the City as part of the solution to Europe’s problems. The opportunity is huge both for Britain and the rest of Europe.
The chance of getting the EU to swing behind a pro-City strategy may, on the face of it, seem pie in the sky. Many people blame financiers for the financial crisis. So how could they be part of the solution? What’s more, Continental Europeans have long tended to be suspicious of financial markets.
Hence, the plan by 11 EU countries (not including the UK) to apply a tax on all financial transactions. Hence, too, the recent decision to cap bankers’ bonuses thoughout the EU (against London’s objections) and a scheme, so far not agreed, to do the same for fund managers.
The oddity about these rules is that they do nothing to address the causes of the financial crisis. Trading in financial instruments wasn’t responsible for the crisis. Nor were fund managers. And while banker compensation does bear some of the blame, the so-called solution is cock-eyed. Banks will react to bonus limits by pushing up fixed salaries – something which will make their finances more vulnerable when the next crisis hits.