In theory, this is a transformative phase we are now entering for Europe. We have a new role for a President and a new High Representative. We have a big chance to redefine European influence globally in the face of major challenges like climate change.
In practice, the financial crisis that we have experienced and the ensuing recession pulls in the opposite direction, as do a lot of our national politics – these forces risk making us more politically insular. And we have to resist that because it is going to make recovery and building on that recovery a darn sight harder to achieve.
Europe’s big external agenda rests to a large extent on our internal economic strategy. In my view, protracted institutional reform has diverted some attention from economic modernisation and reform. Since 2000 and in recent years we have rather lost our way in pursuing that agenda. During the intervening years, the need for reform and economic modernisation has become so much more urgent.
It is critical to us in the UK that we do not take our eye off this ball any longer.
Britain’s economic recovery depends on Europe’s economic recovery, whether it is European demand which represents our biggest market, or the European response to the financial crisis. And growth plans in this country are inextricably linked to similar plans in Europe.
Crisis measures now giving way to regulatory responses. This is a critical phase for business, and especially for financial services. The key here is to distinguish between the need for new proportionate regulation in financial markets on one hand and the wider regulatory agenda, where the somewhat more disciplined approach of the EU to better regulation needs to be maintained, but strengthened in the life of this Commission. Because business burdens, especially on job creation, will be critical to the rate of recovery in Europe.
Some, as we have seen, in the European Parliament will interpret the banking crisis as a clarion call for more business regulation in general. We need to push back against this intelligently. We have to lead that debate and bring it to a set of reasonable conclusions.
Of course, the City is sensitive about its regulatory burden and I understand the caution being expressed. We do not need regulatory grandstanding – we need regulatory coherence, joined up between jurisdictions. We do not need multiple, cumulative layers of regulation that amount to overkill.
Our own FSA has a duty to take a step back and introduce a sense of proportion. This is not to deny there is a need for more financial oversight and the regulation of risk. There is no point in defining the industry’s competitiveness by the lightness of its regulatory burden if that lack of governance means the system blows up and needs taxpayer rescue once a decade.
There is a compelling case for moving the basic level of the design of financial markets regulation – although not its implementation or supervision - to the level of the Single Market.
We in the government think the balance struck on de Larosiere, where the EU collectively defines, and Member States implement and supervise, is the right one. This makes prudential sense – this is the level at which markets and banking operate. And in my view Michel Barnier gets this and that forward looking common sense will guide his actions.
A coherent EU position also gives us much greater weight in shaping a new global regime through the G20 process. It also makes commercial sense. Don’t see how the UK can detach itself from a single European regulatory regime. If it wants to be the main capital and financial markets centre for the single market and if we want to be the main route or centre for investment into the single market, it doesn’t make sense to detach ourselves from a single coherent European system.
However, agree that some of the initial attempts at this were badly flawed. Parts of the Alternative Invesment Fund Managers Directive read more like a long standing grudge against the hedge fund industry than a serious attempt to address systemic risk.
Most other member states understand on principle the fact that the UK has more skin in this game than the rest of the EU put together, and we expect that to be respected. Will need to work hard with the European Parliament to get a constructive outcome.
On the wider regulatory agenda, we in Britain have got to avoid two mistakes. Don’t play into the hands of eurosceptics by equating Brussels solely with regulation. All markets are regulated. At base what we should work for is a single regulatory system in Europe, rather than 27 separate ones.
What matters is keeping the burden right, especially for small firms. Business needs to engage firmly in Brussels alongside government to shape the regulatory debate.
We have to provide leadership and engage with the EU on growth plans. We set out as a government some ideas for this last year, which I believe have coloured European Commission thinking.
In 2005 during the UK Presidency, when Britain called the Hampton Court summit there were no competing views. That agenda became the agenda for the European Commission – people do listen to us when we are thinking European, rather than bashing Europe.
Liberalisation of EU services market. 2010 marks deadline for implementation of liberalisation of key service trade. We want the Commission to focus on a clear plan to review implementation. And to focus on remaining obstacles in key areas like professional and business services like accountancy and legal services.
A genuine EU digital transition plan. We think the EU should commit to clear targets on universal broadband access across the whole EU. We need to make sure that the incentives are right to get digital infrastructure into every part of the EU.
When the EU budget is reviewed during the course of this year, we have to bring our views on the redistribution of that budget, so that more is allocated to low carbon, to research, to innovation.
New rules on growth capital – as you know the UK has created the IIF and the Growth Fund to address this problem. We should think creatively about making better use of the European Investment Fund – which is a fund of funds - to significantly reduce the venture capital gap with US at the EU level.
While we have argued very strongly that Commission should end the temporary State Aid flexibilities in 2010, we want to see revised risk capital guidelines for public financing of high tech and innovative companies. We want a little flexibility to enable smart public sector intervention.
The next five years are going to be critically important. We need business and government working side by side in Brussels, not just on a defensive regulatory agenda, but to shape a whole new positive agenda for EU governance and growth. The next five years are important also in the building of our external relations.
I hope very much that the European Commission, without any delay, is ready to recover its leadership role- now that its appointment has been safely banked- and veer a little more to the creative and adventurous side.
This is the Commission’s job:
· to stand up for the long term
· to represent what is wise rather than populist
· and to give a strong lead where, inevitably, more short-term, electorally conscious national Governments may fear to lead.
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