Cameron dilemma: euro 'banking union' could force Tobin tax
PM knows the eurozone needs to form a 'banking union' to escape crisis, but he fears the consequences for the City
CHANCELLOR George Osborne gave the game away this morning when he signalled Prime Minister David Cameron will be pushing German Chancellor Angela Merkel today to go for a 'banking union' to end the eurozone crisis. But Osborne was sure to make clear that Britain will be demanding safeguards for the City.
In an interview on the BBC's Today programme, the Chancellor hinted that Cameron's greatest fear is that the 17 eurozone countries will agree a banking union, and then gang up on Britain and force London to swallow a 'Tobin tax' on all transactions to raise billions of euros to bail out the single currency.
Merkel and the new French president Francois Hollande both support the transaction tax, a levy on all financial deals, and that could be the price they will demand from Cameron for agreeing to the idea of a banking union, which, in effect, would mean Germany and France underwriting the Spanish and Greek banks.
Osborne told the BBC's Evan Davis: "There is no way that Britain is going to be part of the banking union. We are not part of the eurozone... I think Britain will require, if there is a full blown banking union, certain safeguards. If you cast your mind back to the European council in December where David Cameron vetoed the fiscal compact, he was asking for safeguards on banking and financial services. We were ahead of the game there."
Osborne claimed the veto was wielded because of concerns that the City of London might end up with "a banking union on [its] doorstep"
without "safeguards" to ensure that the new single market in financial services did not force new financial regulations on the ten EU member states that are outside the single currency.
So it leaves Cameron in the unlikely role today of being the champion of closer integration in Europe in order to make the euro work.
Osborne brushed off Davis's suggestion that this a pretty odd position for a Tory eurosceptic to be in. The Chancellor said Tories who argued against Britain joining the euro over a decade ago could take some satisfaction that they have been proved right.
The Daily Mail's Alex Brummer suggests this morning that Cameron is on "mission impossible" with his talks to persuade Merkel to bail out Spain and Greece, but he will have a sweetener.
Cameron had talks on the trans-Atlantic link with US President Barack Obama on Tuesday night and agreed a new strategy for getting the world out of the global economic doldrums. It has raised expectations that the Bank of England this afternoon will announce a fresh injection of quantitative easing along with the US Federal Bank and other European capitals in a coordinated CPR job on world economies.
However, the Cameron-Osborne strategy for a closer economic union among the 17 members of the eurozone also raises a further question which Cameron and Osborne are likely to find more difficult to answer the growing calls for a referendum in the UK on whether Britain should stay in or leave the EU.
Davis put it to Osborne that the calls will become irresistible if most of the states in the EU create a 'United States of Europe'. Tory MPs who see UKIP gaining support from grass roots Tory voters want Cameron and Osborne to concede a referendum if the EU is changed so radically to deal with the euro crisis. Osborne insisted that the coalition has already promised a referendum if there is a transfer of power to the EU because he knows that won't happen.
But for the Conservatives that is not enough. They see the EU changing dramatically from the original common market in the coming months as a result of the euro crisis, and their demands for a vote on Britain's relationship could become unstoppable.
Just on cue, Dr David Owen, the former leader of the SDP, surfaces from the political grave to lead the calls for a referendum in today's Times. Today's talks with Merkel could be just what the doctor ordered.