Very little irritates the British more than the crowing of Frenchmen. This is even true, it turns out, when their Gallic neighbours are boasting about placing restraints on popular hate-figures: such as “Anglo-Saxon” bankers.
Perhaps unsurprising, then, that Nicolas Sarkozy abandoned plans to visit London on Thursday, a visit that would have been dominated by the question of France’s attitude to the City of London.
Last week, on the campaign trail ahead of local elections, the president of France described the recent appointment of Michel Barnier, the EU’s new internal markets commissioner, as symbolic of a French victory over the “excesses of Anglo-Saxon financial capitalism”. He also bragged that the UK had been the “big loser” in the Commission appointments.
Further salt in the wound came when EU governments made modest steps towards harmonising their financial regulation. Four proposed new European watchdogs – a systemic risk board, and one regulator each for insurance, banking and the securities markets – were unveiled, following the spirit of a plan drawn up by (who else?) a Frenchman: Jacques de Larosière, former governor of the Banque de France and head of the International Monetary Fund.
This little barrage of news, elided and confused, has been reported in the UK press alongside pictures of Napoleon, allusions to Waterloo and headlines about European power-grabs. The French are leading a charge, it is alleged, to run the City out of business. It is important, however, to separate Mr Sarkozy’s populist rhetoric from what is actually happening on the ground.
Just as British politicians bloviate about subsidies for French farmers, Gallic politicians – particularly those of a Gaullist persuasion – vow to fetter markets and restrain raw capitalism. A recent poll, carried out by the BBC, found that 43 per cent of French respondents believed that capitalism was fatally flawed. This is more than double the ratio for the UK.
So one can understand why Mr Sarkozy wished to make much of the appointment of Mr Barnier. The new commissioner is certainly no economic liberal. This, however, was political self-indulgence. It is no longer Mr Barnier’s job to appeal to the French electorate.
Indeed, if Mr Barnier is a success, he will not be the first commissioner to have proved himself in European office. The appointments of Karel Van Miert (a Belgian) and Pascal Lamy (a Frenchman) were greeted with suspicion, but they were liberalisers in their competition and trade portfolios. Mr Barnier must be given the time to make mistakes before he is convicted for them.
What is more, this week’s steps towards implementation of the de Larosière report are not a cause for fear. The financial crisis revealed that banks had been allowed to become undercapitalised as supervisors had raced to cut regulatory standards.
By equalising basic regulatory requirements across the continent, the de Larosière recommendations should help to prevent a recurrence of that spiral. Allowing a single body to represent the continent should also make it easier to negotiate with the US to minimise transatlantic regulatory arbitrage.
These reforms are necessary, in any case, to grind out flaws in the EU’s regulatory apparatus. Landsbanki, the Icelandic institution that collapsed in October 2008, was allowed to operate in the UK market, taking £4.5bn in British retail deposits. But prime responsibility for regulating it and insuring its depositors was not transferred to London.
So, not only was the UK regulator unfamiliar with the institution and unable to protect British depositors, but when it foundered, there were no clear lines of responsibility. As Lord Turner, chairman of the UK’s Financial Services Authority, said in March, this is an unsustainable position.
There must either be more harmonised regulation so that companies can operate across borders – “more Europe” – or there must be a shallower common market in which all banks are separately regulated and capitalised in every jurisdiction – “less Europe”. The de Larosière proposals are a good way to make a deep and safe common market a real possibility.
The City is rightly alarmed by the approach to finance taken in some EU corridors: the current draft directive on private equity and hedge funds is nonsensical. But not everything that comes out of Brussels is a French plot. Britain’s interests are not necessarily the opposite of France’s – and a strong City of London is in the interests of Frankfurt and Paris.