Christopher Howarth: Banking Union could lead to a permanent sidelining of Britain in the Single Market

Christopher Howarth is a senior Political Analyst at the think tank Open Europe. Prior to Open Europe he worked as a Conservative Foreign Affairs Adviser and senior researcher to a Shadow Europe Minister. Follow Open Europe on Twitter.

Next week the EU will continue discussing Banking Union - giving the European Central Bank the power to supervise eurozone banks. This plan will not include the UK but could in any event have a profound effect on the UK’s finance industry - if the eurozone gains a formal, permanent majority within the European Banking Authority (EBA). The plans of some eurozone states are clear: Christian Noyer, the head of the Bank of France and an ECB board member, for instance, has said "We're not against some [euro denominated] business being done in London, but the bulk of the business should be under our control…That's the consequence of the choice by the UK to remain outside the euro area."

One of the primary reasons for the UK’s EU membership is access to the Single Market, so any threat to it is existential to the UK’s membership. The UK has an undeniable interest in ensuring a liberalised single market prevails and that we are not disadvantaged by others’ protectionism. We could have some access to the Single Market from outside the EU but if you want to point to the reason why we are in the EU, foremost must be to ensure we can fight our corner on the regulation of this market. Nick Clegg has a point when he argues that outside the EU we could -

“Become the next Norway or Switzerland?... the best of both worlds: Access to Europe’s markets... Without an assault on their sovereignty... But with absolutely no say over Europe’s rules: No political representation; no national voting rights; no voice at all. They work by fax democracy: You find your instructions on the machine in the morning, and you follow them. They have no meaningful sovereignty in the EU.”

And herein lies the rub – what happens if we lose the argument for the Single Market within the EU? What if eurozone centralisation leads to a schism within the single market - with regulation  passed by the eurozone’s permanent majority, and the UK in a permanent excluded minority? What happens then to the Deputy Prime Minister's argument? For this, banking union is an important test case.

This threat is real enough. If the UK allows the eurozone to go ahead with Banking Union without getting a fair deal on voting weights in the EBA, the UK will be faced with a permanent eurozone majority voting the same way within the EBA. In this area the UK would lose all its "influence" over the setting of financial technical standards. This could be a sign of things to come – we could still end up finding “our instructions on the machine in the morning".

Let’s hope not, but our politicians need to realise that being "at the table" and quietly going along with EU plans is not a guarantee that we will continue to have influence. If indeed we do have "influence" and "friends", this is an occasion when it should be used. And yes we should be prepared to not stay "at the table" if we do not receive a fair deal. The alternative is remaining a member of the EU but with decreasing "influence" on the one area which is undeniably a UK interest. And if we have no influence within the EU, we have one less reason to remain inside. So let’s, as Nick Clegg wishes, be “a strong UK, influential in Europe” - and achieve a fair deal on voting weights within the EBA.