At present there are 28 members of the EU of which 19 are members of the Eurozone and nine (including the UK) are not. Of those nine, all but two (UK and Denmark) are committed by treaty eventually to join with perhaps 4 more joining by 2020. Furthermore, every new member joining the EU must commit to joining the euro. Given that the EU is becoming more and more dominated by euro members, the question of the status of non-Eurozone members is a key concern for the UK. Will it be sustainable for there to be any non-Eurozone members over the medium term, or will the rules of the EU become more and more geared to Eurozone needs with the needs of non-euro members like the UK become somewhere between an irrelevance and an irritation?
One area this issue has become especially pointed in recent years is financial services regulation. Whereas before the financial crisis the UK was the leader and driver of such regulation, in the past few years it has become increasingly isolated and over-ruled, even reduced in four cases to challenge EU financial measures at the ECJ. Three of those cases are already lost. The fourth had its provisional judgement on Wednesday.
This concerned the rules on “clearing” – ie on the process whereby transactions are completed and money actually moves around. The ECB had said that in order for it to be able to provide adequate support for the financial system in the euro area, all clearing houses (institutions that do clearing) should have access to short-term emergency lending from the ECB. And it said it would only provide such emergency lending to clearing houses based inside the euro area. If that had been allowed to pass it would have meant none of the London clearing houses would have been able to clear in euros any more – which would have cost London a significant and valuable chunk of business. So the UK objected.
For now (and the ECB could yet appeal or get around the judgement in other ways) the ECJ has ruled in the UK’s favour – specifically by saying the ECB does not (yet) have the power to say where clearing must be done. This is an important victory for the UK and for the cause of making non-euro membership sustainable in the EU. But it is by no means a final one. The ECB is unlikely to be sidetracked for long. It wants full visibility on the clearing of transactions in the currency it manages and it is likely to get that eventually, one way or another.
A bigger issue for the UK is that, even if it is a winner this time, having so little influence at EU level even in respect of the industry in which you are the acknowledged leader in Europe (financial services) that you are repeatedly reduced to appealing decisions in court cannot be a good sign. We saw in the recent Greek crisis negotiations the mirth with which Eurozone heads mocked George Osborne’s interventions, even though an issue such as a Greek default that could affect financial sector stability was manifestly a legitimate UK concern. It isn’t over yet. But if the Eurozone wants to keep Britain in the EU, it will have some further accommodating to do.
