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Politicians invariably behave even more oddly than usual when there is an election looming, and it is useful to bear this simple thought in mind when looking at the raft of proposals emerging from all corners of the European continent for regulation of the financial-services industry.
Even the daftest ideas are getting an airing. So it is important not to overreact to everything that comes out, but to strip away the rhetoric and focus on the substance.
That said, some of the substance can be quite alarming on its own — witness the pitch made in Nîmes yesterday by President Sarkozy of France for a much more robust approach across the board to the financial sector. Luckily for London, the French stance is some way ahead of anything yet proposed by the European Commission.
There is probably much more to come. At a conference yesterday organised by the CBI and the Association of British Insurers, one speaker noted that, worldwide, there were no fewer than 70 consultations under way on how markets should be reformed and regulated in future.
A few weeks ago, Lord Turner, chairman of the Financial Services Authority, remarked that for regulation to function effectively, there either had to be more Europe or less Europe — meaning that if issues were not to slip through the cracks, responsibilities had to be much more clearly defined — by giving local regulators more power or by delegating more efficiently to a Europe-wide authority.
Already the answer seems to be coming through. With the report from former IMF chief and French finance minister Jacques de Larosière as a blueprint, the European Commission is working up proposals for some transnational supervisory system for banks. Whether this is a Europe-wide regulator or a European forum to co-ordinate the activities of national regulators is still unclear, but either way it seems obvious that the regulatory weather is more likely to be made in Brussels than in London.
This is an international financial crisis that has been no respecter of national borders and national sensibilities. It follows that the correct regulatory response needs also to be international — or at the very least have an international dimension.
One reason the UK response seems somewhat unco-ordinated is that there is clearly a debate going on about who in Britain is going to take the lead role in overseeing the system as a whole — macro-supervision, in the jargon — whether it will be the Bank of England or the Financial Services Authority.
That debate continues but, as long as it drags on, neither side is in a position to pick up the ball and run with it. Neither is in a position to help shape the debate going forward and take its place alongside the other regulators of Europe, who already know where they stand domestically. There is no one to work on bringing them round to the British point of view.
Confronted with this thought, many in the City instinctively turn to America and hope that they might co-ordinate policy with the Obama administration rather than engage with Brussels. But this time that would be a mistake.
The US authorities are still trying to keep their financial ship afloat, and all efforts are directed to that end. Washington insiders admit that no one there has had any time to think about what might happen in future, or about how regulation might change. If we wait for the Americans to be ready, it will be too late to shape attitudes in Europe.
This seems to be the big issue. The City Corporation has a permanent listening-post lobby in Brussels, Sir James Sassoon as adviser to the Conservative Party is in Brussels today and the Financial Services Authority is also on the case. But there is widespread concern that the current Government and the Treasury, which has responsibility for the financial-services industry, are not properly engaged. They clearly have a lot on their plate, and a lot of conflicting demands on their time, but the fear nevertheless is that they are not paying sufficient attention to the European regulatory agenda.
The Treasury — in private meetings in the City — says it is on the case and will intervene in due course when it considers the time is ripe. Perhaps it will, but the risk is that if they fail to influence the debate and the evolution of ideas at this early stage, Whitehall will be caught by surprise at what emerges fully formed.
We would then be forced to fight what would, in all likelihood, turn out to be an ineffective rearguard action to protect our financial services industry.
Engagement now is what is needed, but in spite of Government statements that it wants the financial sector to thrive in the future, it does not seem to be a Government priority.
