UK’s Euro Trade Supremacy Under Attack
The City of London should be deposed as the euro's main financial center so the single currency club can "control" most financial business in the euro zone, France's central bank governor has said.
Christian Noyer of the Banque de France said there was "no rationale" for allowing the euro area's financial hub to be "offshore", in a blunt assessment that will fan UK concerns over EU rules being rigged against it.
"Most of the euro business should be done inside the euro area. It's linked to the capacity of the central bank to provide liquidity and ensure oversight of its own currency," Mr Noyer told the Financial Times while touring Asia to promote Paris as a renminbi trading center.
"We're not against some business being done in London, but the bulk of the business should be under our control. That's the consequence of the choice by the UK to remain outside the euro area."
Mr Noyer is an influential voice on the European Central Bank governing council and his comments will revive Britain's worst fears of a plot to shift the center of gravity for financial services from the City to the continent.
The intervention comes at the start of a potentially fraught week of EU diplomacy, where London will again demand financial services safeguards against the political clout of a more integrated euro zone.
EU ministers meet in Brussels on Tuesday to broker a deal on giving the ECB sweeping powers to supervise banks, in the first leg of a banking union that will not include Britain.
Some senior diplomats think a breakthrough is possible. But big differences remain, including over the ECB's remit over German savings banks. Mr Noyer argues it is small lenders that have posed the biggest problems in the euro zone. "The banking union should cover all banks, otherwise it's useless," he said.
George Osborne, the UK chancellor, backs the principle of a banking union for the euro zone but he will insist on voting reforms to stop the new bloc imposing its rules on those outside.
His demand for a minimum number of "outs" to back any decision at the European Banking Authority, an agency that sets technical standards across the EU, are strongly resisted by a French-led group that regard it as an effective UK veto.
In a sign of the challenges ahead, Anders Borg, the Swedish minister of finance, is also warning that the current package is unacceptable because it is unfair to non-euro zone countries, whether they want to join or remain outside the banking union.
Since the creation of the single currency, the City has served as its main financial hub. More than 40 per cent of worldwide euro foreign-exchange is handled in London, a bigger share than the euro zone combined.
As a result, London is acutely sensitive to any alleged discrimination across the EU single market. Britain last year sued the ECB over its "location policy" for clearing houses, which if enforced would require critical parts of London's financial infrastructure to decamp to the euro area.
France strongly supports the policy on grounds of financial stability. The ECB argues such essential business should be done in the euro area so that liquidity support can be guaranteed when needed and crises are not handled by multiple central banks with conflicting interests.