Andrea Leadsom is the Member of Parliament for South Northamptonshire. Follow Andrea on Twitter.
After the bruising debate on the EU budget last week, all eyes now turn to today's debate on European Banking Union. Make no mistake, this matters. Though it may not seem as exciting, or as easy to comprehend, as the Budget, European Banking Union will have a much more profound effect on the UK. Financial Services are a vital and essential part of the UK economy. We must use the development of Banking Union not merely to safeguard but also to advance this sector.
The government may be nervous about an amendment proposed by Bill Cash MP, Chairman of the European Scrutiny Committee, but in it Bill raises two very important points that the government should welcome. First that safeguards need to be in place, and second, that the current proposals are probably illegal unless accompanied by treaty change. This gives the UK the chance not only to secure safeguards, but also to go further and secure real advancement for UK interests in the financial services sector.
The current proposals for banking union involve the creation of a Single Supervisory Mechanism (SSM) within the European Central Bank (ECB) which would take over many supervisory tasks from national banking supervisors (all eurozone countries, plus those non-eurozone Member States that chose to join–the UK will not be one of them). Through the SSM, eurozone countries would have an automatic majority in the European Banking Authority (EBA) and could therefore dominate decision making, which would then also apply to the UK. The government will be rightly opposed to this unless adequate safeguards are achieved, and the first part of the amendment deals with this issue.
The second part of Bill’s amendment is that the proposal to establish the SSM within the ECB is probably illegal within the current treaties and it will require treaty change to achieve it. Current treaties allow the ECB to carry out specific supervisory tasks concerning "prudential supervision" of financial institutions. However, these can only be used if the ECB's statute itself remains unchanged. The ECB statute makes clear that the final decisions within the ECB rests with the ECB Governing Council, not the SSM.
This could possibly be addressed by giving the SSM the power to "draft" proposals for rubber-stamping by the Governing Council. However, many countries will demand real separation between supervision and monetary policy. And real separation is unlikely to be possible without treaty change.
But the real opportunity for the UK here is not in just securing watertight safeguards, but in demanding advancement for UK financial services. This sector is worth 10% of our annual tax take; it employs over a million people across the UK. The UK accounts for over 40% of EU wholesale financial transactions. This is our most important sector and we must not just defend it, but also seek EU support for its further expansion into developing markets.
I want to see the government press for three things: first, legal safeguards for the single market (to prevent Eurozone members putting up protectionist barriers to UK financial services); second, an emergency brake for the UK in financial services (where legislation that potentially harms this key UK industry could be halted and referred to the European Council to be decided by unanimity); and thirdly, that the EU should seek opportunities for the advancement of financial services, for example through a binding commitment to negotiate a free-trade agreement in services with China and other fast growing developing markets.
Banking Union may not be sexy, but it is important. The government should rightly give serious consideration to the amendment tabled by Bill Cash MP. He is assiduous in his analysis of EU developments, and has proposed a sensible amendment to this motion.