Why the UK’s title as the financial centre of the world is under threat from EU legislation?

London is one of the main financial centres in the world for foreign exchange trading where the Euro bonus are widely used for this purpose.

The current agreements between the UK and the EU related to trade, commerce, competitiveness, banking supervision or tax regulations may require a revision to solve some loopholes between these partners. Since the in-out referendum proposal to leave the EU before 2017 is being debated, some problems between the UK and the EU have been revealed.

New regulations from the EU could affect the financial system established in the UK, but how? Opinions are divided between the Euro skeptics and the pro-European about the consequences of the UK versus EU relationship would have after the negotiation agreements.

Banking union

The financial and economic crisis has unveiled the Euro weaknesses as a single currency. Therefore, the Eurozone Central Bank set a common banking supervisor to monitor the major banks in the threshold of the single currency.

In contrast, the European Banking Authority which regulates also UK banks could marginalized the UK “by setting liquidity and capital requirements for the biggest banks in the Euro area, will favour those institutions at the cost of the UK’s,” according to a Quartz analysis made by Lily Kuo (17 May, 2013). It is also added that a negotiation that took place last year included a clause about the no-marginalization of any EU country under this union. Moreover, a voting system will be introduced for all EU members about the banking union system.

Tax regulation

The Financial Transaction Tax (FTT), the so-called Tobin Tax, has been imposed to 11 Eurozone countries to pursue a levy on financial transactions. The UK abstained in vote although they are also tackling issues of tax avoidance among some companies established in this country.

This tax could end up adding a small change in the trade between the UK and the Eurozone countries, although it could also attract some more businesses to the UK. The future of this strategy cannot be foreseen yet.

UK vs EU relationship

It is not clear whether the exit of the UK from the EU would bring a better situation, but the uncertainty could have negative consequences for the British market. Also, the Scottish referendum in 2014 would have as a main point the EU situation. If they want to belong to the EU they could have a better chance leaving the UK and apply later to become an European membership, rather than staying in the UK and later being dragged out of the EU. This is also an important aspect to consider here.

Perhaps the dilemma is not regarding the new regulation of the EU, but the deteriorating relationship between the UK and the EU. Things can improve, however extreme positions might damage both financial markets rather than gaining any benefits, and amid the economic situation, the consequences must be well analysed before talking any misstep. 

In- Out referéndums

Nowadays, there is a question about if belong to a Union or not, if belonging to a country or getting independence. Why is it all about? and Why now? 

In the UK the EU referéndum can be a double edge sword. Scotland wants to stay in the EU, so they may get a better change if the leave the UK and then apply to the EU membership. However, if they vote in 2014 to remain as apart of the UK, they may vote therefore to stay in the EU in 2017. David Cameron, Primer Minister of the UK, on the side of the Conservatives is playing with fire. 

But the same situation can be applied to Mr. Mas, President of the Generalitat of Catalonia, Spain. They would like to get autonomy because they think they would be better as an independent state. Perhapps, but have they measure the consequences? Debt, EU membership, Spain vs Catalonia relationship, and so on. It is not an easy decision that can be taken fast, but quite the opposite it is necessary clear information of the situation, the difficulty to foreseen the unknown, and of course consensus and negotiations with the Central Government. 

The economic crisis is putting everything upside down. The EU today doesn not look as successfull as it did five years ago. Some territories want to have a referendum to leave it, and others to be a new state of it. What is it that? This "cherry-picking" is not viable today, and every member, country or territory must be solidary and work together to rearrange what one day it looked as a good idea. It is also necessary to protect national identities, what I think it is all about at the end. 

Can the 2013 achieve the economic targets?

After more than four years fighting against the economic recession, it seems that 2013 can be the turning point for some countries. United Kingdom is expected to get out of the recession this new year, as forecast announces an economic growth of 1.2% of Gross Domestic Product (GDP). However, the hit European countries, in which Spain is part of, will continue into stagnation. Spanish prevision of growth in the next year is still downturn, with a minus 1.2% decrease of the GDP in 2013.

UK´s economic strategy “is focussed on reducing the deficit, restoring stability, rebalancing the economy and equipping the UK to compete in the global race”, as the Chancellor of the Exchequer, George Osborne, explained in the Autumn Statement to Parliament on 5 December 2012. On the other side, Spanish austerity measures have only contributed to increase unemployment (up to 25%) and to provoke more social unrest.

However, it it necessary to remark that neither UK nor Spain are likely to kept their forecasts of deficit reduction in the year that has just entered. The objective of Spanish deficit was 6.3% of GDP at the end of 2012, “but it could be (above that),” as the Bank of Spain governor, Luis Maria Linde, said last December 2012; although estimations yet predict Spanish deficit to drop to a 4.7% of GDP in 2013. On the other side, UK will also miss its deficit target from the 2013-2014 financial year, as the Autumn statement announced an escalation to 5.9pc of GDP, or £98bn, as Mr. Osborne indicated (hm treasury, Dec 5th, 2012). This data would indicate that the UK deficit next year could be higher than the Spanish's.

Therefore, new cutting measures will be necessary to reduce deficit and the extensive public debt. UK budget cuts are not significant, only 1.5% real cuts during 2012, if compared with Spanish ones where the most striking difference is that Spain does not include any measure to support growth as UK has setting up. For example, UK new policy includes increasing funding for UK Trade and Investments or helping smaller and medium-sized businesses access finance and support “from £25,000 to £250,000 for two years” as Mr. Osborne set out in the Annual Autumn Statement. This strategy can probably be the best solution to alleviate the financial situation; something that the European Union also instituted in its programme 2007-2013 “new funds, better rules”.