Cross-posted from the Treasure Islands blog:
Some of the more thoughtful articles about the UK's recent Euro snub have lamented the fact that the UK has not only lost influence in Europe, but it no longer has the relationship with Washington to fall back on in reserve. An FT op-ed on Sunday by Jonathan Powell, Tony Blair's influential former chief of staff, notes:
"Britain will now be excluded from all decision-making on the key economic policies of Europe. . . . this catastrophic decision is all the more serious because we do not even have a “special relationship” on which to fall back."
The previous transatlantic ties, the article notes - Churchill's close links with F.D.Roosevelt; Margaret Thatcher's love-in with Ronald Reagan; and the close friendship between Tony Blair and Bill Clinton – are just not there. There is no Cameron-Obama warmth, and Cameron's latest ploy in defence of the City of London will have cooled things further. The United States has always valued Britain as a voice in Europe, and now that voice is diminished. So, as the FT continues
"We have kicked away both props of our traditional foreign policy – Europe and the transatlantic relationship. I have no idea how the government thinks we are going to make our way in the world without either, and neither does it."
Members of the coalition government said:
David Cameron went into last week's talks with "no intelligence, no friends and no flexibility" . . . [another] described Cameron's negotiating strategy as "unbelievably cackhanded",.
I agree with these articles, most of the way. But there is one thing that everyone overlooks here. In a sense, the special relationship is not dead at all.There is a special relationship that is in rude, exuberant health.
It is the Special Financial Relationship between Wall Street and the City of London.
In essence, London offers itself as an offshore escape route for Wall Street, a source of loopholes to get around U.S. financial regulation (see my last blog, for yet another shocking, appalling example of that.) The relationship began in the mid 1950s just as the British Empire crumbled (read Treasure Islands to know more about this) when the City of London discovered that it could rebuild itself by hosting offshore "Eurodollar" trading. What happened was that banks wishing to trade in this market were 'deemed' to be offshore by the Bank of England, and therefore outside the purview of regulation.
This market was, in effect, regulated nowhere. It grew explosively, and created the platform for Wall Street to grow far faster than the rest of the economy, eventually rebounding back into the United States to capture the political process there and bring the economy to its knees in an orgy of libertarian excess. The market spread widely, and had similar effects in other countries too. For over 50 years now, the Special Financial Relationship between the City and Wall Street has been going from strength to strength.
This relationship is pure poison, for both countries.
It is a purely financial relationship whose cross-border nature means it is extremely hard to tax or to regulate. It is thus directly at odds with democracy, and fosters giant inequality, in each country. Bring Britain's spider's web of Overseas Territories and Crown Dependencies into the equation - which include some of the world's biggest tax havens and are umbilically connected to the City of London - then the size of the threat begins to become apparent. A giant zone of transatlantic impunity for some of the world's wealthiest citizens and corporations.
If citizens of the U.S. want to know why Wall Street has become so powerful and difficult to reform, the London escape route is, alongside libertarian ideology, probably the biggest single explanation. "Don't tax or regulate us too much or we'll go offshore!" is probably the most powerful financial lobbying tool there is.
If citizens of the UK want to know why their economy is so unbalanced and has caused so much damage to the rest of the country (much more on this soon), then in my view the biggest single reason is Britain's willingness to prostitute itself to all comers with its pernicious 'light touch' regulation.
The New York Times is also running an excellent op-ed on the whole British-European mess, entitled "The British Euro Farce." It's another searing article, with judgements on the Eurosceptics such as:
Their nostalgia for British greatness is often no more than the trumpeting of a bunch of insular snobs who seem to have a hard time restraining their inner-fascist (those last two words are explained earlier in the article)
And the author, NY Times columnist Roger Cohen, notes the same as the FT op-ed:
The mid-Atlantic, as America pivots to Asia, could prove a lonely place for Britain, whose economy is heavily dependent on the euro zone.
Indeed. To his credit, his description of Britain as a "giant offshore hedge fund" gets closer to acknowledging the nature of the relationship between Britain and the U.S.. As The Independent put it, Britain is closer to becoming "Like the Cayman Islands, minus the weather."