With France, along with Germany, leading the way of European recovery, President Nicolas Sarkozy has both the power and the prestige to launch a reinvigorated campaign against what he calls the “freewheeling Anglo-Saxon” model of finance. With his countryman Jean-Claude Trichet heading the European Central Bank and UMP-ally Michel Barnier soon to be installed as the union’s internal market commissioner, Sarkozy appears to have everything in place to make the world see “the victory of the European model, which has nothing to do with the excesses of financial capitalism.” No wonder that people are worried in the City of London.
London was quick to respond. Mayor Boris Johnson traveled to Brussels to lecture the European Parliament but his entourage of rabble-rousers and cameramen did little to persuade them. Nor was Chancellor of the Exchequer Alistair Darling’s argument that “London is New York’s only rival as a truly global financial center,” and therefore Europe should strengthen, not weaken it, well received.
Earlier, in conference with his colleagues from across the continent, Darling compromised on the creation of a European financial regulator. French finance minister Christine Lagarde praised the deal which according to Darling leaves considerable responsibility with national authorities. That is not how his counterparts sold the agreement at home.
Nevertheless, there is some truth in Darling’s statement. A European Systemic Risk Board is to be put in place to spot irregularities in the financial system that threaten to harm it. But it will have no power to leap upon banks to put any questionable practices to a halt. Rather it is supposed to issue recommendations and warnings alone.
Sarkozy has more weapons in store to bombard Paris to the world’s next financial capital however. A European Alternative Investment Directive seeks to install a framework for all alternative fund managers which in London is rather perceived as an attempt to shackle another sector of “freewheeling Anglo-Saxon” capitalism. If that were true, Paris in fact stands to gain very little: hedge funds taking a pre-emptive decision to leave London headed straight for Switzerland, not Paris or Frankfurt.
There is more reason for Londoners to be hopeful. As Ambrose Evans-Pritchard notes in the Telegraph, Barnier is actually “deeply averse to trampling on British sensitivities.” Moreover, his director-general, Jonathan Faull, is British. “Given the circumstances, the Barnier-Faull team is the best that Britain could hope for.” Whether that will stop Sarkozy remains to be seen.