Cicero Policy Briefer

Issue 18, November 2007

From Lisbon to London: UK financial services and the EU Reform Treaty

By James Allen

Following my article in October, the debate around the EU Reform Treaty has continued this month, without much real progress being made. The main focus of this discussion is still revolving about whether or not the Government should call a referendum and has consisted largely of political point-scoring and not on the actual detail of the proposals. David Cameron is arguing that the Labour manifesto of 2005 promised a referendum and that Gordon Brown is duty bound to call one. Technically speaking, the referendum was promised under former Prime Minister Tony Blair on the now defunct Constitutional Treaty. The EU Reform Treaty has clear similarities; whether it is distinct enough to make a referendum unnecessary is contentious.

The EU Reform Treaty would clearly mark some extension of competencies for the European Union - in Justice and Home Affairs, in transport and in energy for example. The Commission would be streamlined, with exponents of the Reform Treaty arguing that this will make decision making quicker and more efficient. Critics, on the other hand, cite this as further evidence that the Reform Treaty would make the Commission yet more undemocratic and, crucially, that the role of the UK in the Commission would be reduced. The upshot of institutional change to the Commission would be that each member state would effectively ‘lose’ its Commissioner for five of every fifteen years. While from a UK perspective it would be preferable to have a Commissioner rather than not have one, I am not convinced that the proposals contained in the Reform Treaty would have the cataclysmic impact on the UK Government and business that is being predicted by some of its more strident critics. The presence of Peter Mandelson in Brussels has, on the whole, been positive in the promotion of British business interests. The British economy would probably not, however, have ground to a halt should he have been absent for a period from formal meetings.

At first glance, it would appear that the City audience appears on the whole to be vaguely, although perhaps not intractably, hostile. It is difficult to assess the precise impacts that the Reform Treaty would have on the City of London and UK financial services. Firstly, there is still some way to go before the Reform Treaty’s text is finalised. Secondly, most of the energy around discussing the impact on the City appears to actually be expended on the usual, more general, debate about the impact of European regulation on financial services here in the UK. A potentially valuable opportunity to shape the proposals contained in the Lisbon Treaty is being lost in a more general debate around the merits of a referendum and in trying to identify which hypothetical provisions in the Treaty may be most catastrophic for UK financial services.

One particular area of genuine concern for the City lies in the proposed extension of Qualified Majority Voting (QMV) in the Commission. Unanimity will be retained in several key areas, including tax, social security, defence and foreign policy and in some areas relating to employment law and the EU budget. The worry in potentially extended QMV appears to be that the UK government will find it more difficult to block hostile or troublesome proposals from Europe than is currently the case. The extension of QMV in reality may result in some proposals that are unfavourable to the UK’s own particular financial services model. However, to assume that QMV spells doom for the City is, at least, dramatic. Once again, the assumption is that the UK government should be there to block, rather than shape, legislation and that changes from Brussels are necessarily to be feared.

James Allen can be contacted on +44 (0)20 7665 9540 or click here to email.

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