As part of the Government’s aversion to “ever closer union ”, prime minister David Cameron wants a firm commitment that Britain’s financial services sector – perhaps the single biggest driver of the UK’s economic prosperity over the last 20 years – is not harmed by Brussels’ attempts to shore up the shaky Eurozone. George Osborne has lobbied for the City of London to be protected from any rules or regulations  that could put British-based banks at a disadvantage to their 19 Eurozone counterparts, damaging the integrity of the single market. Britain currently has an opt-out from the EU’s banking union project, which was devised after the financial crisis to break the toxic link between sovereigns and lenders  that bought the euro to its knees after 2009.
Banking union seeks to harmonise the process of resolving failed European banks and subjects financial institutions to a single supervisor in the form of the European Central Bank. Cumulatively, the laws are known as the “single rulebook” in EU jargon.
In the UK however, the Bank of England has sole responsibility for maintaining financial stability. Along with bodies such as the Prudential Regulation Authority, the BoE decides on how much capital banks need to hold against their assets, what maximum level of loans people can take out as mortgages, or if bankers’ bonuses should be capped or not. It is this flexibility to act outside the “single rulebook” that the Chancellor so cherishes and wants enshrined in Britain’s new settlement with Europe. As the Eurozone moves towards “completing monetary union”, Mr Osborne does not want the EU’s regulatory regime to begin impinging on the activities of the City. Right now, there is a caucus of majority Eurozone states – 19 euro-ins against the nine euro nine euro-outs – that could, in theory, railroad British interests to serve the cause of EU integration.
Why does the EU care so much about the City?
“Core” EU member states – such as France, Belgium, Germany and the Netherlands – are wary of letting Britain stand in the way of their attempts to protect themselves against another financial crisis.
Much of the questions around future bank regulation remain pie-in-the-sky thinking when all is well in the world, but quickly become hot political potatoes when the global economy finds itself in the midst of another downturn.
In the event of a global recession, there are concerns the EU would seek to relax its lending rules for banks in a bid to stimulate economic activity, giving European lenders an uncompetitive advantage against their UK peers.
Conversely, both Paris and Berlin are uncomfortable with the City forging ahead under a “lighter-touch” regulatory system that disadvantages the continent and, given cross-border links, could eventually call into question financial stability in the EU.