I have found the recent debates on this board quite stimulating with regard to Cameron's decision to force negotiation of the Euro crisis out of the EU treaty. It is clear that many intelligent posters have quite different views on the impact of this decision on the UK. Recent national polls seems to provide quite strong support for the decision, but I suspect many of these views are not driven by purely economic outcomes. So from a purely economic viewpoint, what do you believe the impact of the decision is likely to have on the UK

	Broadly positive
	Broadly negative
	On balance, no change
	Good short-term, but bad long-term
	Bad short-term, but good long-term

Click here to see results so far.

I voted 'no change'. This is not because I have a crystal ball and have assessed the up sides and the down sides for the UK but because the picture is unclear until we see how the EU and the UK are really going to react.
In life there are many decisions that are taken which, on their own, will not result in success or failure. It is what one does afterwards that determines the success or failure. Therefore the UK must, and I think will, continue towards it's declared budgetary objectives - modifying en route as circumstances demand. The deficit targets in the EZ proposals would be a very good ultimate goal and a responsible government shouldn't need Brussels breathing down their necks to do it. Surely we should be capable of achieving this ourselves, enshrined in UK legislation if necessary?

GN

And the missing and most likely option is ?

We have some immensely intelligent people on this board, with masses of experience and wisdom. There is some great discussion. Yet the poll (as it stands right now) indicates that nobody has any idea what is going on (or, perhaps more correctly, any view is countered by at least as many people with the opposite view).

Is there any hope for us, when issues are so complicated that we really don't understand? And most don't understand that they don't understand?

--kiloran

As a former practitioner, I just wanted to comment on fears that if Britain is isolated within Europe then there is a danger of our financial services business drifting away to Frankfurt.

Briefly, I very much doubt that will happen any time soon- whatever happens to Britain’s position within the EU. London simply has too many long standing advantages as a financial centre, many of which Frankfurt doesn’t have:

*We speak English, which is the language of international finance.

* London has a very extensive and long established network of legal and professional services.

* Practitioners like to live in London from a quality of life perspective.

*There is a deep pool of employee expertise.

* Many existing contracts incorporate UK law, and the UK legal system is widely trusted as reliable, impartial and experienced in resolving financial disputes.

* Whatever the rhetoric, in practice successive UK governments have been supportive of the City of London and welcoming to international finance businesses being based here.

* Our personal and corporate tax policies are still more financier friendly than those of most EU countries.

FWIW, I’ve been closely involved in running brokerage businesses both in the UK and in Germany. Frankly, once you’ve done that it becomes pretty clear why Germany is unlikely to become too much a threat to us in the financial services sector any time soon. To someone used to London or New York, the German legal system can seem somewhat weird and unpredictable, and the employees often seem to be a bit, well, naive in international financial terms. I’ll give you an example - in the UK, if as a business you do something wrong vis-a-vis shareholders or staff then, fine, they can sue you for damages. But in Germany the Courts actually stop you doing it. I’ve seen crucial decisions at German AGMs (which often go on for several days) blocked for months by the courts because microphones weren’t working in the meeting rom toilets (really!). That just wouldn’t happen in the UK. It might sound trivial, but when you’re trying to operate a fast moving financial business hiring and firing staff and taking quick strategic decisions, it’s certainly not.

And broadly speaking, the political climate in Germany and France to an extent seems more hostile to “finance” and not always appreciative of market realities. The recent fiascos over Eurozone countries banning Sovereign CDS trades and seeking to impose losses on sovereign bond holders (the latter now reversed) are examples. The proposed financial transactions tax would be even worse. If the Eurozone want to do that then fine, but they’ll simply drive more business into London. In a worldwide market where financial products are increasingly fungible and traded cross market, it seems simply ludicrous for the Eurozone to think they could impose such a tax and not lose a huge amount of the trade to more tax friendly jurisdictions. To me, it seems difficult to believe they can actually be serious about this. But maybe they are.

One can agree or disagree with Cameron’s veto on wider political grounds. But it seems pretty obvious that the Germans and French were intent on pushing through changes and regulations which would in time have severely reduced the City of London’s competitiveness. In resisting that, Cameron will have increased, rather than diminished, international confidence in London as a financial centre. Perhaps he could have achieved the same thing by more subtle means than the blunt use of a veto. I don’t know, I wasn’t there. But he certainly hasn’t done the City any harm.

A

Hi avidya, I agree with what you have written and given a choice I agree financial institutions would prefer to stay in the UK for a large number of reasons. However, back in September the UK started legal proceedings against the ECB after the ECB published a policy document in July saying that clearing houses that handled large amounts (5%) of euro denominated business be located in the eurozone. This would force LCH Clearnet to move from London to the eurozone if it wanted to carry on with it's business.

Regards
DJSlam

I’ve seen crucial decisions at German AGMs (which often go on for several days) blocked for months by the courts because microphones weren’t working in the meeting rom toilets

They actually listen to folk having a poop during meetings? Uuurrrggh.

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I really don't have too much to bring to this board do I?



Snorvey

Is there any hope for us, when issues are so complicated that we really don't understand? And most don't understand that they don't understand?


If the uncertainty you're referring to was occurring after a deep sell off in equities, in which investor panic and projections of even greater falls were widespread, my contrarian feelers would heve me looking to feed money into equities. However, that's not currently the situation we're in - equity sentiment measures remain pretty elevated and bearish levels low, markets are nearer the year's highs than the lows, and hope still remains that a solution to EZ woe is to hand. Meanwhile, meaures of credit market stress remain high, and realistic "bazookas" look to be in short supply.

My take is that this sounds like the sort of environment in which it may be prudent to adopt a more defensive position than normal, until either better value is offered through significant falls, or some of the fog clears, fully recognising that if it were to clear in an unexpectedly positive way, markets will have moved materially higher. But each to their own.

avidya:

...it seems pretty obvious that the Germans and French were intent on pushing through changes and regulations which would in time have severely reduced the City of London’s competitiveness. In resisting that, Cameron will have increased, rather than diminished, international confidence in London as a financial centre. Perhaps he could have achieved the same thing by more subtle means than the blunt use of a veto. I don’t know, I wasn’t there. But he certainly hasn’t done the City any harm.

First off, I agree with your interpretation that the French and Germans are culturally less sympathetic to market mechanisms and speculation, and that this does work in London's favour.

But that's kind of the point from the Europeans, isn't it?

I think it is fair to say that you are coming at this from a pro-market, pro-speculation perspective. The Germans appear to take the view that, although supply and demand, investment and innovation are all central to successful economies, market-focused speculation is not. The less, indeed, the better. So the long-term German attitude has been that the best thing to do is to regulate speculation out of existence (or near enough).

I highlighted this background information on Friday:

An ECB policy paper, released in the summer, requires clearing houses to be based in the eurozone if they handle more than 5 per cent of the market in a euro-denominated financial product.

Britain will ask the courts to strike down the rule on the grounds that it restricts the free movement of capital and infringes on the right to establish cross-border businesses across a multicurrency European Union.

The policy, if enforced by the ECB, would undermine London’s financial market infrastructure since it would require that clearing houses shift many of their operations to the eurozone – most likely Frankfurt or Paris.

Britain to sue ECB over threat to City - Sep 14
http://www.ft.com/cms/s/0/146a256e-dee1-11e0-9130-00144feabd...

The only realistic way to weigh up the likely impact of all this on the City is to take an honest look at how effectively the EU can control its own markets. Can measures like this one be made to work, and how much trade would they remove from London?

I suspect it would be rather a lot, but I admit that I do not know.

But it strikes me that your position here is complacent.


Rgds,


G3.

Hi DJ and G3,

Yes, the recent example of the ECB trying to push clearing of Euro denominated instruments into the Eurozone is exactly the sort of measure that has made the UK so suspicious of EU intentions in the finance sector. Bear in mind that this ECB push started well before last week’s Cameron veto. London has more clearing operations located here than any other financial centre (in fact both CME Group and Intercontinental Exchange have recently set up clearing operations in London as a bridge head into Europe). It’s important, because clearing is likely to become an ever larger business as more derivative clearing is pushed through central clearers.

The suspicion is that the ECB wants to do this partly to help levy and collect a Tobin tax.

Could the ECB/Eurozone succeed in this? Prima Facie it seems against EU competition law and ,as you’ve both pointed out, the UK is suing the ECB saying exactly that. But at the end of the day, it also depends on how the ECB would enforce it, doesn’t it? If you have one clearer operating in the Eurozone and transactions through that are subject to the Tobin tax, and there’s another outside the Eurozone where transactions in the same instruments aren’t subject to the Tobin tax, then obviously business would rapidly migrate to the clearer operating outside the Eurozone. If we’d signed up to a Treaty change which, among other measures, allowed this sort of edict to be enforced in the UK via European courts then we’d be very vulnerable. It’s arguable that not signing, in relation to this example, has strengthened our hand.

It’s these sort of detailed, seemingly arcane but actually important, issues that Britain was arguing about last week. Despite the 26/1 vote it’s not just us that are worried. For example the Irish are worried about a new Intergovenmental Treaty being used to enforce harmonized corporation tax rates, and I note that the Irish are already talking about having a number of common concerns with the UK in relation to recent developments. I’d guess that other countries will have their own concerns. My own view is that pushing through a Franco/German agenda on tax, fiscal and regulatory matters will, when we get to the detail, prove far more difficult than the 26/1 voting split last week might indicate. I think we’re unlikely to be entirely isolated!

Yes, of course France and Germany sound very cross with us but so what? They’ll arrange things to their own advantage if they can and hopefully we’re grown up enough to take a similarly robust view. This is straying into politics (sorry) but, for me, if the Eurozone really was about to evolve into a true fiscal and political union then there would be a much bigger argument to be had as to whether or not Britain should be part of that. But if it’s not a true fiscal and political union, but rather a malfunctioning single currency zone with no fiscal transfer arrangements, dominated by the self interest of Germany and France, then where’s the advantage to us of joining that? Err, politics. Sorry.

And BTW, you’re right Goel3 that I’m coming at this from a pro market perspective. I agree that Germany and France are far more suspicious of markets, and in particular wish to control and regulate what they see as “financial speculation”. That’s a much wider argument that we could occupy ourselves with at great length, though this Board isn’t the place for it. For now I’d just comment that one man’s harmful financial speculation is another man’s socially useful risk pricing. And also that the Eurozone, taken as a whole, currently has a stronger debt and balance of payments position than the UK, yet their less pro-market policies have placed them in a position where we can borrow as much as we like at 2% and they are, err, struggling.

A

Dear DJ Slam

Surely another way of looking at this is that if the UK was in the Eurozone then all of this litigation would be irrelevant?

The Prime Minister says his actions are protecting the interests of the City of London but first and foremost he should be protecting the interests of me and other the EU citizens.

Over the years I have got a little fed up being fleeced between 2% and 3% every time I do a currency exchange (and I am not talking just holiday funds here).

If we were in the Euro all this would be avoided.

Protecting jobs in the City by sticking to sterling is all well and good. With an unhindered free flow of money in one denomination so much more could be achieved with a combined EU population of 500 million . The PM seems to be showing no vision . He seems obsessed with easy pickings for the City of London and easy revenue for the Treasury.

If he were to say that whilst maintaining his position concerning Europe he was legislating to reduce foreign exchange spreads to say 0.25% he would have my respect.

I would even be happy paying an additional 0.25% Tobin tax because I could see I would be better off.

Hi kinglatfan,

Surely another way of looking at this is that if the UK was in the Eurozone then all of this litigation would be irrelevant?

I assume you mean being part of the grouping of 26? Or are you talking about the 17 countries who have the euro? If the former then as mentioned in an earlier post I think we should have gone along with the fiscal compact making it clear that this signing off would be done by our Parliament as other countries have said. I think by us using the veto we are now on the outside looking in and I think that is a mistake. I'm being critical of him not because of any ideology but because I don't trust some of the eurozone members. We still have a legal route but we could also be set up as the villains. Bottom line - I think David Cameron was outsmarted.

If you are talking about us joining the euro, well, I think I can bet the farm on that not occurring and nor should it. However, if the eurozone gets through this crisis I think we as a country need to decide whether to join up or not. I would think that the end game is political union for the eurozone and, to be honest, I'm undecided on whether we should be a member of a future 'United States of Europe'. I would base my decision on economic criteria rather than any nationalistic/historical sentiment.

If we were in the Euro all this would be avoided.

I'm assuming you don't really mean us joining the euro now? That would be a disaster, but ironically, I'm more pro-European than I've ever been before, but now is definitely not the time to join the euro.

Regards
DJSlam

Is there any hope for us, when issues are so complicated that we really don't understand? And most don't understand that they don't understand?

Well... as Don said, the known unknowns are always easier to understand and plan for than the unknown unknowns...:)

Or WTTE.

Regards,

Miner