BRIEF: Write an analysis of the latest situation in the euro zone crisis as if for the Financial Times. This may bring in some opinion but it needs to be based on the facts (500 words). Time: 3 hours including research.
Britain is again embroiled in talks with the European Council as the UK government attempts to protect the interests of domestically based banks.
With negotiations ongoing, there are concerns among Eurozone members that this will delay a significant ECB asset review. The series of balance sheet tests is designed to shore up inadequate capital ratios and is seen as a major step towards the formation of the EBA (European Banking Authority), which will supervise the region’s banking union.
The UK has fears that it will lose political influence in Europe when the EBA’s mandate commences. Britain accounts for over 36% of EU wholesale finance transactions within the European Council, yet it has the same voting weight as Germany that represents only 13% of the market.
In December, Britain was successful in getting members of the customs union to agree to “double-majority” voting. The new system means that any rules imposed by the EBA must be voted in by the majority of EU states in addition to a second majority of non-Eurozone countries only. This will ensure that the states that have adopted single currency cannot dictate terms to the remaining 11 EU countries.
In spite of this, the UK government wishes to safeguard the double majority provision from potential repeal when the EU commission conducts another review next year. This has angered EU officials, as many had considered the talks in December to be the final barrier to the EBA’s inception.
The move is another example of a growing divergence of interests that has emerged between core members of the Eurozone and the Conservative government.
Officials in Brussels are growing increasingly weary of Britain’s blasé attitude towards EU membership. Last year, at the height of the UK’s “Brexit” debate, European commissioner Michel Barnier criticized David Cameron for attempting to “cherry-pick” EU policy. In January, German foreign minister, Guido Westerwelle wrote in the Times: “Saying ‘You either do what I want or I’ll leave!’ is not an attitude that works, either in personal relationships or in a community of nations.”
The Eurozone debt crisis has undoubtedly highlighted the need for fiscal union and greater central supervision in the banking sector. Although the UK has largely been a spectator to the events that have unfolded on the continent, the stabilizing effects of a better-integrated banking system will benefit the UK in the long run. Nevertheless, it is conceivable that the vision for a “genuine” economic and monetary union will not be realized within the next decade.
In the meantime, Mr Cameron is tasked with renegotiating Britain’s position in Europe ahead of an “in/out” referendum in 2017. With the formation of the EBA, of which the UK will not be a part, Britain is now at risk of being further marginalized by the Euro-wielding member states. Given the prime minister will face scrutiny from both the opposition and Euroskeptics within his own party, we can widely expect wrangling with Brussels to continue.