London reaction muted with focus still on Libor scandal
BRITISH REACTION:BRITISH PRIME minister David Cameron will face demands from Conservative MPs – even though they are furious with bankers over the Libor interest rate manipulation scandal – to guarantee that a euro zone banking union will not cripple the City of London.
Reaction was relatively muted, however, given that most attention was focused on the Libor scandal. MPs and City figures also pointed out that much of the detail in the euro zone’s plans still remained to be finalised.
The outcome of the Brussels talks was welcomed “as an important step forward” by Mr Cameron, who left the negotiations shortly after midnight on Friday morning because he was not directly involved.
“For a long time we’ve been saying more action needs to be taken for short-term financial stability, more to recapitalise banks, to use firewalls to drive down bond spreads and interest rates, to create greater stability,” the prime minister said.
Last year, Mr Cameron refused to take part in negotiations on the EU fiscal treaty because he was not guaranteed safeguards for the City, although many in the industry believe his action has done little, if anything, to protect them.
Conservative MP Mark Fields, whose constituency includes the City, said it was clear that euro zone states would try to ensure that the majority of financial services were based inside their jurisdictions. “If that is at London’s expense, then so be it,” he said.
Acknowledging that it had been a “terrible week” for the City, Mr Fields said the industry was still reeling from the disclosure that Barclays traders manipulated Libor, a key international interest rate benchmark.
Labour’s Douglas Alexander said the euro zone was “not out of the woods yet” and pointed out that the euro had rallied on a number of occasions following past summits only to fall back into crisis as markets considered decisions in details.
“The agreement appears to have bought a little time, whether the step forward last night is a big enough step only time will actually tell,” Mr Alexander added. “I think what we’ve seen from the initial market reaction is that the leaders exceeded what were very, very low expectations.”
He said he believed the euro zone plan was a pathway that had been set without clarity on the timing or scale of integration that would be required to save the single currency. However, the Labour MP said “the route of travel is a bit clearer after the discussions” among euro zone leaders.