Chancellor sets out challenge of EU financial regulation threats in Pre-Budget Report

Not many clues in the UK Chancellor's Pre-Budget report today on how the Treasury is preparing to defend the City of London against new measures coming from Brussels aimed to restrict the financial services sector. Much less was there any ideas of what the rationale would be when there is, according to some, pressure in the UK economy to reduce dependence on the financial services sector.

New Internal Market Commissioner, Michel Barnier, is on record as saying that the City of London is an asset to Europe. However, there is real anxienty in the Square Mile that the European Commission proposals on market regulation will put the City in a competitive disadvantage and that the Government is not properly geared up to take the battle to Brussels. The Anglo-Saxon model has been castigated by the French, Dutch, Belgian and Germans for the financial crisis even though their banks too were horribly exposed.

The Pre-Budget Report says that the Government is "closely involved in negotiating the proposed Alternative Investment Fund Manager Directive" and that it "has been working to secure substantial improvements". Still early days I suppose but its not clear that the Government has developed a fully operational strategy yet to deal with the regulatory threats to its hedge fund and private equity industry.

The Pre-Budget Report also says that the Government is "actively engaged in EU efforts to amend the Capital Requirements Directive to provide a state-of-the-art prudential framework for credit institutions and investment firms in the EU." Current proposals will raise the amount of capital banks must hold against resecuritisations and assets held in their trading books: "The UK is strongly supportive of the adoption of these rules and will continue to ensure that EU legislation appropriately strengthens prudential standards while being consistent with international agreements."

Another priority is “Solvency II”: "contributing to the development of modern and risk-based EU-wide solvency requirements for insurers that protect Europe’s claimants, savers and pensioners. What would be good to know is what the Government's position on the tax consequences of the Directive is.

The British have a real fight on their hands to defend the interests of the City. It will also have to square its position with its claim to take a global leadership role in cracking down on "excessive risk-taking" in in financial services as well as reducing over-reliance on the financial sector in the British economy.

"For a Free Market Europe" - Syed Kamall

Syed Kamall - the Conservative MEP for London kindly sent me a copy of his new book -"For a Free Market Europe" - a collection of his articles over the last three years setting out his views on a European Union which should do more to promote free market liberalism.

Syed has been consistent champion of free market values in the European Parliament since he became an MEP in 2005. He is a leading figure in the Brussels Network - which brings together conservatives and centre-right figures in Europe who want to campaign for small-state government. This collection of short articles illuste=rates his commitment to the free-market cause.

Some highlights:

The dilemma of being a free market classical liberal in the European Parliament:
He starts from the fundamental nature of the European Union and its basic premise: Should it be a free-market coalition of sovereign states or should it try to ape the "cross-continental socialist model"?

Should pro-free-market MEP’s work within the system to change it or attack it from the outside? Should some liberalism be an adequate compromise as the “perfect” free-market is unachievable?

The are big questions. However, Syed seems to think the answer is easy. He says the EU should provide a marketplace and a framework of basic rules and minimum standards – better to be an unregulated single market than one subject to overbearing directives

Politicians can only do what they can with the tools available – therefore free-market liberal MEP’s should work from within the system to change it

He applies his free-market thinking to environment policy too: The liberalisation of trade does not cause environmental damage, he says; “Calls for higher taxes often have precious little to do with real environmental factors but a lot to do with environmental posturing or the need to raise new revenue”

“Globalisation and free trade are not only the key to enriching this planet; they may also prove to be the key to saving it.”

Whether you agree with Syed Kamall or not, his written articles over the last few years show that he is on of the most consistent and energetic campaigners of the free market in the European Parliament.

Fight is on for the 73rd Seat

Dan Hamilton writes in ConservativeHome that the Ministry of Justice in the UK has not yet directed the lectoral Commission to allocate the new seat to the UK due to it under the Lisbon Treaty rules: http://alturl.com/7vzo

Notwithstanding the conclusion he makes that this somehow shows the Labour Government has threatened British interest by not yet naming the 73rd MEP, Hamilton does make a good case for decision sooner rather than later.

It looks like the UK's 73rd seat would go to the West Midlands which would mean the Conservatives would get another MEP. Perhaps this is why there is no rush to make the nomination. If the extra seat goes to London, then Labour would get the extra MEP - Anne fairweather.

In any case, the new MEP - Tory or Labour would have to wait until 2011 (by which time a complex legal protocol will be ratified by national governments) before they are able to cast a vote as a full Member.

Barroso II - Winners and Losers

Last week William Hague said that the appointment of Baroness Ashton as High Representative was the result of a deal done by Brown with the French to allow Sarkozy to secure the prized Internal Market post for his nomination Michel Barnier.

Whether a deal was done or not, Ashton’s appointment opened the way for the French to secure the job. This has implications for the City of London which faces a raft of EU regulatory measures. The French have been critical of the anglo-saxon model which they blame for the credit crisis and are more keen than the British on regulatory solutions to problems in the banking sector.

Along with France – the other winner is Belgium. Not only did they win the Council President job with the appointment of former PM Herman von Rompuy, they have also secured the powerful Trade job. Karel de Grucht who replaced his compatriot Louis Michel as Development Commissioner when Michel left to become an MEP in June, is a free-market neo-liberal.

Another winner is Germany. Although likely to be disappointed that they didn’t keep the Industry brief, they have taken the Energy Commissioner job with Gunter Oettinger as the replacement for Gunter Verheugen. Germany has a lot of commercial energy interests so should be delighted.

The Spanish too will be happy with getting the Competition portfolio – although there were expectations that their nomination would get Economic and monetary affairs.

I would argue that Finland is another winner. Ollie Rehn who was widely respected while the Commissioner for Enlargement, gets economic and monetary issues.

I understand that Antonio Tajani is not happy with the Industry and enterprise portfolio. I think he was keen to stay at Transport. However, he should be pleased that pharmaceutical controls have been transferred to him from Health to Industry.

Neelie Kroes will be disappointed at getting the new portfolio of digital policy. The only reason Dutch PM Balkenende appointed her (she is not a member of his CDA party) is because he was assured she would get competition again.

Sweden’s Cecillia Mallstrom gets Home Affairs. She is a liberal left wiinger and this will put her in contention with the more conservative Roman Catholic Viviane Reding from Luxembourg who gets the Justice portfolio. This policy enjoys a higher profile under Lisbon and so this policy area could lead to some controversy over the next 5 years.

Johannes Hahn from Austria is the new Regions Commissioner. Austria gets little EU regional funding so this is probably a good thing. ON the other hand Romania a big beneficiary of agricultural funds gets….. Agriculture (DAacian Ciolos who studied agriculture in France and did an internship in DG AGRI).

Barossohas gone ahead with his plan to create a Commissioner for Clime Action – this goes to the Danish Connie Hedegaarde – the Danes are proud of their tough line on climate change and Connie will be a tough taskmaster.

Androulla Vassiliou – moves from health to Education and Culture despite her best efforts to stay.

EU and Industry need closer dialogue on tobacco smuggling

I understand that there is a motion for resolution doing the rounds in the European Parliament basically banning any contact between the tobacco industry and the EU institutions. If this is true, not only is it gratuitously prohibitive and an ill-thought-out interpretation of what is in the Framework Convention on Tobacco Control, it is also smacks of posturing which could result in bad governance: Particularly at a time when EU policy-makers need to work closely with the tobacco industry to crack down on the growing threat of counterfeit and contraband tobacco.

Tobacco smuggling undermines both the industry as well as EU Member States. The imperative for EU action is the €8bn revenue loss for EU governments in 2008.Tobacco smuggling cost the industry €700m last year.

The Organised Crime, Contraband and Counterfeiting Forum is about to embark on a campaign for a more joined-up approach to fight tobacco smuggling. Some MEPs have already signed up to the cause – such as Bill Newton Dunn (UK, ALDE), Edit Herzog (Hun, S&D) and Andreas Schwab (Ger, EPP). Newton-Dunn wants a European version of the FBI to counter the smuggling trade. How well would they be able to contribute to policy development on this if they were banned from speaking to the industry

OLAF too is talking about the need for greater cross-border co-operation. So far the only co-ordinated effort is being led by the WHO through the FCTC and this just calls on governments to “monitor and collect data on cross border trade in tobacco products including illicit trade”.

The EU should allocate more manpower to stop smuggling (according to the EC Customs Directorate, there are now 10,000 fewer customs officers across the EU than five years ago). MEPs and Commission officials need to be better educated about the industry and how it can help reduce the smuggling. Likewise, EU governments would do well to recognise that it is the sharp excise duties that lead to such big price differentials which has created the boom in illicit trade.

In short - both the industry and the institutions need more dialogue right now - not less

France and Germany - not Belgium and UK - are the real victors of yesterday's EU deal

Ok so I was wrong last night. I had underestimated Fredrick Reinfeldt. The Swedish Prime Minsiter managed to find a consenus and before they even finished eating their line-caught bass. Against the odds, all 27 European leaders agreed on the Council's nomination for Council President and High Representative. I had predicted a majority vote and to be fair there was every reason to think that unanimity would be impossible. After it became clear that Tony Blair could not muster the necessary support, more names were added to the mix. There were calls for the two posts to strike a balance between North and South, East and West, Male and Female, Left and Right. An almost impossible task.

I also predicted that Former French Minister, Elizabeth Guigou would get the Foreign Affairs job. She didn't - it went to Baroness Ashton, the current Trade Commissioner and former Leader of the House of Lords in the UK. Cathy Ashton has won respect for her command of the brief in the 12 months she has been in the Trade job since she stepped in to replace Lord Mandelson. She was well liked by President Barroso who was instrumental in her successful nomination (she will be Vice President of the Commission as well as representing the Council on foreign policy).

I predicted that Van Rompuy - the unassuming Belgian premier would get the President job - so one out of three aint bad. Mr Van Rompuy is the ultimate consensus candidate. He won't stop the traffic but he will be a stabilising force and will be more than able to broker agreements between member states on european legislation.

Mr Van Rompuy was championed by Sarkozy and Merckel who were keen to prevent a high-profile President (such as Tony Blair) who would steal some of their lime-light. The new Franco-German alliance was successful in getting their Stop-Blair candidate through but I think equally so in allowing the British to think they have done well out of getting the second prize. The High Representative job is potentially very powerful but the British originally wanted an influential economic or industrial post. However, the French have a clear run at the Internal Market position - a role long coveted by Sarkozy and the Germans may go for Trade or stay with industry. Between them they will have removed the anglo-saxon domination of European economic policy of recent years.

The Ultimate Behind Closed Doors Deal

Its happening in Brussels over dinner tonight - there will be no unanimity but will be decided on majority support (qualified majority at that). Shame the rest of us dont get a say in the matter.

Im still sticking by my prediction: Von Rompuy as President and Guigot as Foreign Affairs (or could Catherine Ashton get it).