“I went to Brussels with one objective: to protect Britain’s national interest. And that is what I did.”
David Cameron, December 12 2011

The background

David Cameron remains adamant he achieved his aim of protecting Britain’s financial services industry by refusing to sign up to an EU-wide treaty on closer fiscal union between the eurozone countries last week.

Labour and Lib Dem opponents say he created a huge diplomatic row for nothing, and there is no more protection for City banks than before the Brussels showdown.

And there were ominous rumblings from the European Commission this week, with finance commissioner Olli Rehn warning: “If this move was intended to prevent bankers and financial corporations in the City from being regulated, that is not going to happen.”

The analysis

What actually happened in Brussels?

Let’s remember that Mr Cameron didn’t actually veto an attack on the City.

Greater regulation of financial services wasn’t even on the table. In fact, what was up for discussion wasn’t a treaty at all, and most of the proposals for greater fiscal union between the nations who use the single currency wouldn’t directly affect Britain anyway.

Mr Cameron has made it clear that his strategy was to use the threat of refusing to sign up to an EU-wide treaty change as leverage to try to extract some assurances about the future of the Square Mile.

The gamble was that the eurozone countries would think unanimity between all 27 countries was so important for getting their proposals made law that they would offer some kind of incentive in return – a bluff that ultimately failed.

So was there a threat to the City?

It may be politically naive, however, to say that there was no risk of the “fiscal compact” between the eurozone countries affecting the financial services sector where the City of London currently reigns supreme.

Mr Cameron was being asked to help hasten a closer financial union between a bloc of countries dominated by France and Germany, who have both said they want to see measures that could affect the Britain’s financial sector disproportionately.

The leaders of those countries, Nicolas Sarkozy and Angela Merkel, have made it clear that they support a version of the so-called Robin Hood Tax – a levy on

transactions of currencies, bonds and shares in Europe’s trading centres.

London is by far the biggest and so (rightly or wrongly) banks based in the City would be hardest hit, with a knock-on effect for the rest of the economy. Mr Cameron and the chancellor, George Osborne, are implacably opposed to the idea.

Other critics say there is already a stream of financial regulation emanating from Brussels that could hurt the UK banking sector, and there are fears that closer co-operation between the eurozone club could exacerbate that.

Is the City in the clear now?

An EU-wide Robin Hood Tax – which John Major called a “heat-seeking missile” pointed at the heart of the Square Mile (surely it should have been an arrow?) – does now appear to have stalled on the launchpad.

EU members have a veto over new legislation that affects tax, so Britain can continue to refuse to sign up to the proposed tax on financial transactions with impunity (that would still have been the case if Mr Cameron had signed on the dotted line in the early hours of Friday).

Will the rest of Europe push ahead with a financial transaction tax (FTT) anyway? And what effect will that have on the British economy?

The British Bankers’ Association says an FTT across the rest of Europe is “not an eventuality we would expect” as there wouldn’t be much point in missing out on the biggest source of revenue in Europe.

But the European Commission has indeed mooted the idea of collecting the tax everywhere else except Britain.

EU tax chief Algirdas Šemeta said that the FTT will be “designed in such a way that it doesn’t matter where transactions are taking place”.

So a German or French bank trading in London would still be taxed, and it appears that British financial institutions will have to cough up if they do deal with a buyer or seller in the eurozone.

Not surprisingly, Mr Šemeta concluded that “London will lose out” even if the UK government refuses to implement the tax directly.

And he’s not the only one who’s worried. FactCheck contacted several major city banks and law firms and all declined to offer a prediction on whether the financial sector would emerge as a winner or loser, citing continued uncertainty about the situation.

What about other regulation?

As far as other forthcoming EU legislation deemed by some to be hostile to London, like a recent ban on short-selling, they will go ahead with or without Britain’s involvement in the fiscal compact.

Unless they involve tax, regulations will continue be made law by under the Qualified Majority Vote system, where Britain gets 8.4 per cent of the vote.

As Cambridge law professor Eilis Ferran told FactCheck: “We are in no different a position to where we were last week.”

The verdict

Does all this mean that Mr Cameron really scored nul points last week? After all, he has created an enormous amount of ill-will and hasn’t won any safeguards for Britain’s banking sector.

The legal and diplomatic complexities of the situation make it impossible to say for sure now.

The ongoing row over whether the 26 countries can use EU-wide institutions like the European Court of Justice without Britain’s approval remains a burning question.

If Mr Cameron really has succeeded in delaying the creation of the fiscal compact, there’s an outside chance that Britain could yet win some kind of concession from the eurozone countries as negotiations continue.

If not, it’s difficult to see how Britain’s interests have been served in any way by this episode. We will have no more power to head off hostile regulatory laws than before, and indeed by staying out of the club of 26, there will be less opportunity to steer its activities away from things that favour the eurozone agenda over the wider single market.

All Mr Cameron will have done is make powerful enemies and run the risk of Britain being routinely outvoted as we attempts to negotiate on regulatory threats to the City.

By Patrick Worrall