5 Oct 2012
- Three key pieces of the European agenda are going to create profound political problems for the UK over the next few years. How the UK resolves - or does not resolve - these ‘Eurodilemmas’ will have far reaching consequences for the UK’s relationship with the Eurozone and its influence in shaping the European single market. For investors in the UK this matters.
- The first is the negotiation of the EU budget for the 2014-2020 period. Although the sums of money involved are not huge, discussion of an EU budget increase and a possible threat to the UK rebate will be a lightning rod for the debate about the EU. For the UK, domestic politics makes supporting a bigger EU budget very difficult, but there is a danger that taking a perceived extreme position will leave the UK further isolated.
- The second is the suggestion there should be a further European treaty to set out new arrangements for managing the Eurozone. The Commission and the Germans look set on a new treaty, though other member states, including France, are less enthusiastic.
- For the UK, a new treaty would intensify the political debate on the EU, while potentially putting in place arrangements that would place the country firmly on the margins of much of the substantive business of the EU. As it approaches the discussions about the treaty, the UK is likely to find the other member states, whatever their views, less patient and willing to accommodate its concerns.
- The third is the development of the Eurozone banking union which, although it is likely to be a protracted process, could ultimately weaken the UK’s ability to shape financial services regulation in the EU and may ultimately change financial firms’ logic for locating in the City of London rather than the Eurozone.
The views expressed in this note can be attributed to the named author(s) only.