The new EU accord on fiscal unity reached last week at the EU Summit in Brussels was sufficient to calm investors nerves but this may not last long. Twenty – six out of the twenty-seven EU member nations were in agreement to forge closer economic ties except the United Kingdom which strongly opposed the pact on the basis that it would threaten Britain’s sovereignty.
U.K. Prime Minister David Cameron refused last week to include the U.K. in a new treaty that would create more EU integration for members using the euro, which he and his euro-sceptic cabinet members consider as a win for the U.K.
Cameron’s stance drew support from the financial industry since they see it as a positive that the U.K. keeps sovereignty, since this would give the U.K. more power over Britain’s financial regulation in general .
However, some say this could backfire in the long run because there is no guarantee that such a move results in lighter regulation for the country’s banks.
Paradoxically Cameron’s move keeps the door open to regulation by the U.K. that goes above and beyond what Brussels puts in place, such as a proposal to separate bank’s retail business from their riskier investment-banking units that has angered the financial sector here.
The U.K. now risks not even having a seat at the table the next time financial regulations are negotiated under existing EU rules.
Britain’s stance against the EU could also have an effect on European banks operating in London, which serves not just as the banking center of London, but also all of Europe. The City of London, as it is called, is home to large units of banks like Germany’s Deutsche Bank AG, which would be subject to any tough restrictions EU regulators might impose on the U.K. in the future
“We do not yet know the impact this arrangement is going to have on the U.K.’s ability to secure agreements on sensible regulation—but that is critical,” said Angela Knight, the chief executive of the British Bankers’ Association.