Translated from Gegenstandpunkt: Politische Vierteljahreszeitschrift 2-2013, Gegenstandpunkt Verlag, Munich

Crisis and competition in Europe
Great Britain — the nation fights for its credit, and for benefits from its EU membership

This is the most serious financial crisis that [Great Britain] has ever seen” (Sir Mervyn King, 6 Oct 2012), so the governor of the Bank of England has been saying since the crisis broke out nearly six years ago. The Prime Minister explains the reason for the crisis to the common folks: it started across the Atlantic with the property crash but “we were hit particularly hard by the banking crisis because of the significant size of our financial sector” (David Cameron, House of Commons, 13 May 2011). The nation whose capital city accommodates the greatest concentration of international banks and other financial speculators — this nation is a victim infected by the American financial markets? The matter is slightly different from what the national view would pretend. Along with the USA, Britain is the prominent cause of the global financial crisis. No wonder the country is also among those most affected by the crisis — and therefore one of the principal actors in the crisis competition of states.

The government programme to safeguard the British financial market, which lives on marketing assets and debts denominated in euros and dollars, and to rescue the national credit, inevitably leads to an escalation of the conflicts between the UK as an EU member, and the states of the eurozone. And the political champions of the UK as a leading, sovereign European power increasingly confront one another with the fundamental question of whether the national benefit of EU membership outweighs the adverse effects brought about by the leading euro powers on their British partner that remains outside the European common currency.

London’s contribution as international financial centre to the worldwide accumulation of fictitious capital

The City of London is the international financial centre of global capitalism.[1] In contrast to the other two financial centres, New York and Tokyo, whose activities range from loan capital to stock market trading and which are based to a much greater extent on the domestic economy, the City achieves its growth both as provider of services to, and as beneficiary of, the global financial business in general and the euro credit business in particular. What grows here is primarily not the credit denominated in the domestic currency but monetary wealth in foreign currency, notably in the world monies dollar and euro.[2] The City of London offers profitable investment for monetary assets created in the remotest corners of the earth; and it serves the global demand for credit of companies from all over the world as well as sovereign states. The business product produced here is the financial wealth of the world, whose growth is both foundation and driver of the City’s flourishing growth.

The state sets a new course for the British site for capital

London has been a centre of financing global business since England became the first homeland of the modern capitalistic mode of production. However, its current status as international centre of finance is largely the result of a large-scale reform of the British business site in the 1980s. The reforms originated in a competition in Europe and on the world markets that Great Britain had partly lost, partly declared lost. As a result of the recession and the defeats in competition which Great Britain had suffered with its traditional industrial sectors, the Thatcher government decided to stop subsidising obsolete industries from the national budget, and to wind up the domestic companies in mining, steel, shipbuilding, and car manufacturing. But only to take up competition with ever greater resolve, of course. The government did everything in its power to offset de-industrialisation by setting up new industries. It courted foreign multinationals by offering them particularly favourable conditions for business, i.e., with above-average profitability, so that they would invest on the island.[3] The government thus brought about not only a renaissance of car manufacturing but also a boom in the information, telecommunications, aerospace, pharmaceutical, and biotechnology industries.[4]

In addition, the British government saw a fundamental need for reform in the finance capital sector of the national economy. It held the diminishing competitiveness of the banks in the City of London, along with the insufficient exportability of domestic industrial enterprises, responsible for the continuing decline of the pound sterling as world money. In the battle for the business with money and credit, the City was losing market share to the financial centres of the global economic powers, the US and Japan. Its role as leading European financial centre was even threatened to be displaced by the rising financial centre of export champion Germany.[5] The Thatcher government was resolved to bring lost credit business back home to London, and to end the decline of its currency in the competition of world monies. To achieve this, it set out to use an accomplishment of global capitalism: the on-going de-nationalisation of the world market and money market. Competing for their share of global profit making, the states had largely liberalised the business of finance capitalists and increasingly removed barriers to the international credit business and the global currency trade. The internationalisation of finance capital was now to become Great Britain’s new source of enrichment. The fact that ‘lots of foreign money’ — mainly Uncle Sam’s dollars — were romping around the City[6] was used by the British government as a favourable condition for its plan to use state aid to make the growing international credit business the driver of British growth. The government was resolved to use the American currency to open up new liberties to the financial business at the financial centre of London: finance capital was to follow solely its own profit speculations and to pursue its enrichment in the internationally recognised money, dissociated from the guarantee the dollar receives from the US Federal Reserve and the underlying monetary power of the American state, and hence dissociated from the ensuing constraints and restrictions. Under British sovereignty, and supervised by the Bank of England, the commercial banks and the investors were to do more financial business — and more lucrative business — primarily with the dollar but also with the other freely tradable currencies, than in other centres of global capitalism. The Thatcher-government project for the City to attract global finance capital at the expense of New York, Tokyo, and Frankfurt was a gamble on international finance capital’s interest in a location that was not subject to the jurisdiction of the US Federal Reserve system or other nations with world money. The project sponged off the American dollar and the other globally traded currencies as accepted world monies, and consequently on the interest of the American global economic power and the leading European capitalistic powers in their national currencies being used profitably even outside their monetary sovereignty.

Powerful arguments for the suitability of the British capital city as a financial hub

The government fought a competitive battle for international finance capital to choose Britain as its home base. For this purpose, it did not merely rely on particular conditions that represent an exclusive advantage of the business location — i.e. London’s geographic position in the time zone between New York and Tokyo; the use made of English as a universal business language, owing to Britain’s past empire and successful US imperialism; and the Anglo-Saxon legal system as the internationally established law of contracts. The government offered especially a financial centre on the territory of a nation that provided a guarantee for reliable conditions for international business and state power. Firm constituents of its reason of state are its membership in the European Union — the world’s largest single market — as well as a “special relationship” that connects the nation with the USA (the global economic and world order power), plus its solid anchoring in NATO, in which Great Britain enjoys the status of leading European military power. This attests to the imperialistic respectability of the state power that is guardian of the financial centre and grants and guarantees the business-generating liberties that were meant to attract international finance capital — a crucial condition for business and for the planned success of the City.

With its legislative power, the Thatcher government set the stage for the City capturing global financial business at the expense of New York and Tokyo. It created a new legal system that was beneficial to capital markets and that opened up business opportunities that international money capital, comparing them with other financial centres, simply couldn’t refuse. It abolished all foreign exchange controls (1979) and passed the Financial Services Act (1986). In essence, these reform activities liberalised trading at the London Stock Exchange, opened it up to direct foreign investment, and removed previous restrictions on a new segment of the speculation of finance capitalists, the emerging derivatives business.[7] It did away with the established legal organisation of stock market trading. This had been granted by the state to ensure a most profitable business on the part of brokers and jobbers and also to protect London’s traditional financial institutions from foreign competition.[8] Now, however, the government considered this the critical obstacle, making stock trading and City credit dearer and impeding the competition whose promotion was meant to stimulate the growth of financial business. As a result, these obsolete business rules for the financial centre were radically scrapped. Since that time, all governments — whether conservative or New Labour — have committed themselves to this reason of state which centres on the service the state provides for finance capital by means of a legal system that is particularly beneficial to finance capital — including a complete annexe of so-called ‘tax havens’ under extended British sovereignty. The British state could thus be relied on: its role in global competition, its firm membership in Western alliances, and the political ‘reliability’ of its governments guaranteed the economic and political assurances that for the global community of speculators is as important as the commercial freedom they need to decide where to perform their risky business. The City of London thus could function as a particularly safe ‘offshore’ financial market, managed by a leading capitalist nation.

Managing dollar assets from all over the world

During the decades prior to the global financial crisis of 2007–8, the British state was successful with its plan to make international finance capital the national source of enrichment. The rise of the City began with the eurodollar business. It took the “flood of dollars” resulting from the costs of war and the military in the late 1960s, from the global oil business, and from global capital exports of American corporations as an opportunity to centralise the dollars in London, and to transform them into liquidity for the financial market. The US was largely instrumental in the City’s success: by controls on capital movement that curbed capital export and restricted American bank credit to foreigners, i.e. by all the measures adopted by the US to restrict the increasing dollar claims against it, thus avoiding a situation where it had to deplete its gold reserves; furthermore by the Fed-decreed cap on interest on dollar deposits; in addition, by the control regime that the American world power imposed on dollar assets deposited by hostile states in American banks — all this spurred the interest of dollar owners around the world in an offshore financial centre where they could have full disposal over their monetary assets and/or where they could hold them out of the reach of the American state.[9] The British state provided such protection, and through the Bank of England it made sure that “regulatory costs” were low. The banks in the Square Mile offered lucrative interest rates for dollar deposits, attracting dollar assets from all over the world, thus establishing themselves as the centre for all kinds of financial business with this global currency. They established themselves as the global holder of dollar debt in order to become the universal dollar creditor. In this manner they became prime institutions for money deposits as well as for credit demand. They attracted surplus dollars from oil sheiks and German exporters along with dollar reserves from central banks; they served outstanding dollar accounts of American multinationals; they lent money to companies that needed dollars for international business, and to states that needed foreign currency in the form of the dollar. In the wake of these activities, the banks attracted other currency and credit business to London. And they used the business needs of creditors and debtors from all over the world as a foundation of their business with fictitious capital — the creation of and trade with securities. The City became the marketing agency of international investments made by finance capitalists, and of credit business of all sorts and denominations; it thus became the largest capital market outside the USA.[10]

Centralising the euro-credit business

No sooner was the common European currency established than London also took hold of the euro credit business. From the beginning, the City served as the most important global market place for trading the new world-money, for marketing euro-denominated public debt and corporate credit of all sorts, and in particular for trading derivatives that were based on these activities.[11] The fact that the financial centre was part of the single internal market with its free movement of capital but outside the eurozone was considered by European and global finance capital not as a disadvantage but instead a favourable condition. For it guaranteed that the City was exempt from all the restrictions that the members of the currency union came up with in managing their euro credit — most recently a financial transaction tax and central banking supervision. Here, too, it was the combination of freedom and security offered by London that acted as the decisive advantage of the business location. From a finance capitalist’s point of view, this combination was at least as attractive as the sheer unrivalled size of London compared with the financial eurozone centres in Frankfurt, Paris, Milan, or Madrid.[12]

The size of the credit business and its centralisation as product and driver of the growth of finance capital

For it is size, this vital condition of competition, that the City, in the wake of its decade-long boom, had successfully built up. The business activities of finance capital, liberated as a result of the reforms, not only prompted an explosion of business in the City known as the Big Bang and ranking among Maggy Thatcher’s great achievements. It also laid the foundation for continuous, exorbitant growth at the financial centre of London. The comprehensive deregulation of stock market transactions in Britain and the increased turnover in the trade of all kinds of securities led to the centralisation of international finance capital in London.[13] It promoted a new size of capital of the banks active in the City, both foreign and domestic. In the 1980s, big British full-service banks developed that were now active in the entire range of finance capitalistic enrichment, banks that arose from a multitude of small (in international comparison) clearing banks in London and Scotland that had until the 1970s had carried on a domestic credit business with private customers and small enterprises. Acquisitions and mergers in the domestic and international market resulted in four ‘global players’: HSBC, Barclays, Lloyds Banking Group, and the Royal Bank of Scotland, the latter of which after taking over big Dutch ABN Amro bank briefly became the largest bank in the world — until its abrupt bankruptcy in the financial crisis.[14]

And capital’s size as a product of centralisation acts as a powerful lever for the acceleration of its growth. This is a capitalistic law that basically applies to any business, but in the sphere of finance capital it is of particular significance. There, the capital of a company is only the foundation, the safeguard — its relative size prescribed by law — for the real business that is done with other people’s money, borrowed or just deposited. The amount of this money exceeds the amount of equity by a multiple; the business volume can grow in relation to the equity of a financial institution by the same magnitude. Attracting deposits is easy for a bank whose sheer size provides security for free access to the monetary assets deposited. Size creates trust in the bank’s ability to pay at any time; and this is what counts for an enterprise that is liable for assets it has loaned out and whose capitalistic fate it no longer controls. Larger and more diversified loans guarantee a credit institution’s capacity to be liquid at all times, i.e. to turn debts into money and to service liabilities whenever required. On the other hand, the power of the bank increases with the mass of immediately available credit — not only to meet loan applications but to manage ever larger ‘exposures’ that would threaten the existence of smaller financial houses and are thus prohibited.

A fundamental qualitative step forward comes with such an increase in power if large enough: the leading agents of a modern credit system not only serve other people’s need for money but are the all-important control centres, the enablers, arrangers, and therefore the initiators and true masters of capitalistic business in general. In this capacity, they propose business opportunities to the entire community of money owners and investors prepared to take various degrees of speculative risk; they design and create debt obligations that are then called ‘investments’. In accordance with their offers to moneyed investors, they create and give credit not only to industry, trade, and national budgets, but readily divert other people’s money as well as self-produced financial means into more ingenious “risks” that comprise all types of speculative businesses. By centralising finance capital and multiplying its business volume, the credit trade opens up a completely new universe of money-making: investment banking, increasingly emancipated from the mundane business of lending to the ‘real economy’. Investment banking starts by taking companies public, finances mergers and acquisitions, and mobilises credit in the billions to market debts of entire countries, continues with insuring and re-insuring stock and domestic and foreign currency transactions, and doesn’t finish by a long shot with speculation derived from ‘securities’ created there in the derivatives trade. A lot of money is made with creating and marketing a great diversity of ‘innovative financial products’.[15]

In this field, the City set standards: along with Wall Street, the investment banks in London led in the method of ‘deriving’ ever more novel species of fictitious capital — “derivatives” of all sorts — and to concoct ever more novel speculative business areas. In this way, the financial sector gathered here with its innovative products fuelled its own autonomous accumulation.[16] Finance capital’s capacity to expand its own business increased with its growth — a ‘virtuous circle’ which admirers of the City noted, aptly but devoid of comprehension, when raving about the ‘critical mass’ concentrated in the City that, once attained, quasi-automatically guaranteed its own successful growth and competitive success.[17]

British financial power, based on the international financial boom that the City drives forward

British governments since Margaret Thatcher embraced this logic of finance-capitalistic accumulation — and successfully let it loose. They thus conquered for Britain the role in world market competition they intended for it: the City of London increasingly acted as trading place, broker, and producer of global finance capital, and as such increased the wealth of the nation. Business experts estimate the contribution of the finance-based ‘service sector’ in the 15 boom years before the financial crisis to have amounted to one third of British GDP; exporting financial services led to an increasing surplus.[18] This may look like a mere quantitative contribution to the national accounts but in fact was of qualitative significance: the state itself profited from the thus fuelled “longest boom in British economic history”, not only in the form of rising tax receipts and fees. The national currency, pound sterling, was given value by the mass of transactions that were done in London and from London, and not least by its banks. Bank transactions with dollar and euro did not replace business with sterling but let it grow along with them. Sterling accounted for no less than a third of the aggregated business volume of the City so that the state improved its creditworthiness not only with the help of finance capitalistic growth at its national business location in the form of foreign currency but also with the growth of its own national credit. The long period of declining exchange rates, an indicator of the defeat of British industry in competition and of the decline of this trading nation, was now over. Pound Sterling held its ground in competition with the other world moneys: dollar, euro and yen;[19] it was vouchsafed by that capitalistic authority that determines the value and the validity of a national credit as representative of monetary wealth through its business activities: international finance capital. This increased the financial clout and the debt capacity of the nation — a strength that not least enabled British imperialism “to live beyond its means”, to afford a massive military budget and a military active worldwide.

So much about the service of finance capital that the British state secured for itself by radically promoting its accumulation.

The financial centre of London as activist and victim of global over-accumulation, and its rescue at the hands of the state and its American and European competitors and partners

As the possessor of a global financial centre, as generator and manager of the credit industry located in London, Great Britain pushed the finance business to ever new heights. The crisis revealed to which heights, when banks stopped lending money to one another and cancelled the speculative equation of debt and capital. The collapse of the pyramid of capital investments and credit debts, founded one atop another, is indicative of the magnitude of accumulation they amassed that now turned out to be over-accumulation. A huge amount of irrecoverable receivables was matched by a similar amount of non-serviceable debt — not just on the books of London banks but worldwide. For years, the City proved to be a productive international financial centre, now it played a pivotal role as the generaliser of the financial crisis. Just as London banks marketed credit globally, they now brought about its global devaluation in the crisis. If payment had to be made across the board but could not be made, then those affected consist of all who invested their assets in London, obtained their finances there, and speculated in dollar, euro and sterling, not least the banks, enterprises and states of the eurozone. The financial centre of London played a key role in the national rescue operations for eurozone banks, which grew into a sovereign debt crisis, and in the bankruptcy that several euro-countries were threatened by. It is the banks in London, after all, that on a large scale marketed government bonds of the eurozone since the foundation of the currency union, and financed the ballooning debt of states that are now bankrupt. The City was instrumental in the accumulation of euro debts; now it became the executor of the over-accumulation of euro credit that it drove forward. The financial market in London played a crucial role in assessing the creditworthiness of entire states; it separated good debtors from bad debtors in the eurozone; it denied credit to Ireland, Portugal and Greece while granting it to Germany without restrictions. It lies in the nature of the matter at hand that the active agent of the crisis was itself hit by the effects of what it produced. The perpetrator then also became the victim! The critical devaluation impacted first and foremost the City itself, and that includes especially the British banks.

The banks in London had therefore to be rescued by the state that had based its own growth on the financial sector. Now the state — the staunch supporter of laissez faire for finance capital, the political power that had laid the groundwork of deregulated free enterprise with all the might of the law — was called upon as guarantor, now that the activities of finance capital, in all their liberty, had put the survival of their financial centre at risk. The state had to grant material safeguards to maintain the value of the bank assets that were being devalued, and to guarantee and provide the means for the liquidity of the banking sector that it could not provide for itself.

This the British government did. The sovereign power created masses of credit to credit the ailing banks. In the face of a bank run and a looming failure of further financial institutions that might have led to the collapse of the entire financial system, it nationalised bankrupt Northern Rock and Royal Bank of Scotland, thus making the ‘taxpayer’ the largest shareholder of failing bank capital. It compelled Lloyds TSB to take over illiquid bank and insurance company Halifax Bank of Scotland (HBOS), the state itself acquiring a large shareholding in it. On the government’s order, the Bank of England created ever more new pound sterling to be able to indefinitely purchase non-marketable bank securities as well as the newly-created government bonds. Using ‘quantitative easing’ — a modern code phrase for large-scale money creation by the central bank — the BoE guaranteed the state’s debt.[20]

Hence the government, in order to combat the financial crisis, had to resort to the sovereign power to create liquidity as an ultimate guarantee — and it was able to do that, both formally and materially. Because firstly, the British state is the autonomous political master of the pound sterling, in contrast to the euro nations that use a common currency under the authority of the ECB. It can therefore create and manage its national debt freely, according to its own political needs. It is not subject to the constraints and restricting conditions of the joint euro sovereign debt management to which the euro countries have committed themselves, or rather have been obliged by the euro creditor nations, above all Germany. The British state therefore does not need to resort to the controversial, hence uncertain, credit guarantees that the ECB has given to mobilise the national debt needed to rescue the banks; it does not need to obtain credit, bowing to the restrictive rules of the euro bail-out fund and its associated conditions and consequences. And because, secondly, pound sterling possesses the quality of a recognised world money, the government has the financial clout to borrow money in the form of its own currency from the markets, and to use its central bank for this purpose as a matter of course. The UK has formally retained its liberty to do so by not joining the euro club, and has substantiated this liberty with the strengthening of the pound sterling as a result of finance capital using it to make money with it. The government was now determined to use this liberty in its rescue measures, inflating the national debt and straining its national currency, thus assuming responsibility for the losses of finance capital. The government openly distanced itself from the euro states, boasting that it had the liberty and capacity to create money, which it presented as the British competitive advantage in the battle to win trust in its crisis management.

This was not quite the whole truth! The British state overextended itself with its money creation — which was a result not just of the sheer magnitude of devalued finance-capitalistic wealth that the City banks had amassed in assets and debts: the assets to be rescued, half of which represent foreign money, were in the form of foreign currency. This required the Bank of England to procure huge amounts of foreign currency, mostly dollars but also euros. This was in principle possible by providing its own newly created currency; the state, after all, had the pound sterling at its disposal, an accepted world money; the great volume of business done in foreign currency was, after all, proof of the confidence the international world of finance put in the state and its currency. But this volume, which necessitated a corresponding size of state debt in order to maintain the capital quality of this business, made it a precarious matter. The use made by the financial investors of the pound, which gives the currency its value and testifies to its quality as world money, bore no relation to the mass of devalued dollar and euro assets that the state had to rescue by creating new pound sterling. Thus the rescue of the international financial centre, an undertaking for which the state resorted to the power of its currency, jeopardised sterling’s actual recognition as world money by the private world of business.

For the time being, the British government was spared the “test of the markets”, to what extent they would continue their speculation or at what point they would speculate against sterling. The states concerned — because the threatened assets of the financial centre were held in their currencies, and their debts were placed there — were themselves interested in the British state operating as a guarantor of the financial centre and thus also of their credit business done abroad, and in it remaining operational. As a matter of precaution, they therefore took action to guarantee the international creditworthiness of the British state against the mistrust of finance capitalists.

America, the global financial power leading the battle against the collapse of the international financial system and seeking to rescue its Wall Street, had its own interest in having the City rescued by the British state, with which it fiercely competes for the credit of the world and for the predominant financial centre. The USA didn’t rely on the financial speculators to evaluate Great Britain’s sovereign creditworthiness, but used its own political credit to shore up the pound sterling. It ensured continued dollar liquidity in the City, thus vouching for the credibility of Britain’s guarantee for the financial centre of London. In the autumn of 2008, the Federal Reserve set up a currency swap agreement with the BoE, granting an exchange of pound sterling into dollars anytime, with a view to preventing the collapse of financial transactions in the City with the liquidity thereby borrowed.[21] The eurozone for its part shored up its banks and likewise rescued its banks with an agreement with the Fed to secure its dollar assets; thus the crisis-stricken euro states made a substantial contribution to the securing of the City of London, a large part of which was made up of branches of European financial institutions and where a large volume of the euro-credit business was done by British banks.[22]

In this manner, the political rivals that were themselves affected by the crisis supported British credit directly and indirectly, and thus they also supported the British government’s efforts to rescue ‘its’ financial centre and to maintain the value of its national credit. Despite the massive creation of sovereign debt, pound sterling stood its ground in the competition of currencies; however — as well-versed experts in financial accounting noted — less so for a positive reason: finance capital, seeking security and mistrusting the dollar or fleeing from the euro, went into pound sterling as a “safe haven”, or better, as the “least ugly currency” (Financial Times, 02 Dec 2011).

The dual frontline of national crisis management: Securing European credit, and revitalising growth in the domestic business site

This did not end the crisis in the London financial centre, though. According to the stricter criteria that finance capital applied in its search for safe investments in the crisis with respect to the creditworthiness of sovereigns, the state was suffering from a serious debt overload. Given the still precarious situation of international finance capital, and the City along with it, pound sterling was anything but a ‘safe haven’. What was lacking in particular were national growth and reliable national growth prospects, on which finance capitalists base their assessment of sovereign debts. The near-collapse of the banking business, the devaluation of previous assets as a result of the rescue of the banks, the contraction of credit, and the banks’ reluctance to grant loans, all this deprived manufacturing and trading enterprises of the essential means of growth. The business of these enterprises slumped too.[23] This led to a general decline in the ability to pay. Shrinking salaries and incomes in the financial sector, wage reductions and redundancies across all sectors, loans made more difficult to take out, also for the mass of consumers and homeowners, resulting in diminishing demand — all these were the elements of a ‘double-dip recession’, a general economic recession now in its sixth year.

This is why the British government struggled for a comprehensive revitalisation of national growth.

Battling for the financial centre — and competing with the eurozone

This concerned first and foremost its basic foundation, the business done in the City. The state, its national credit, its liberty to take on debt and its entire national capitalism hinged on the international world of banks and speculators doing their business in the financial centre reliably and successfully. It was essential that London accommodate a powerful and efficient finance capital, and it needed to continuously attract international finance capital. To achieve this, London primarily depended on euro capital, and on the euro states as its political guardians. Consequently, the British government ran into a contradictory relationship with these states.

Euro credit was anything but a safe bet to restore London as the centre of profitable business, as far as the capacity of finance is concerned. Financial business was still done in euros, and again on a large scale, and the ECB ensured that banks remain liquid and it purchased the sovereign debt of even those eurozone states with low creditworthiness. But the experts in the field had explicit doubts as to how far, and if at all, the financial business thus kept going, the assets thus retained in value, would spur on a reliable accumulation of finance capital and a general economic growth, and provide a renewed, solid foundation for a sovereign debt economy. The devaluation of accumulated assets had only been halted, not overcome. What maintained the value of the overflowing sovereign debt of some euro states was the European central bank rather than the interested calculations of investors. The money created for this secured liabilities but did not generate any business, let alone an upswing. And above all: the risk of a break-up of the entire currency union with unforeseeable — but foreseeably devastating — consequences for the world of finance had not at all been averted.

All this was outside the responsibility of the British government, which officially and rather ostentatiously declares its lack of competence as a plus, and as a practical confirmation of its wise decision not to have given up its pound for the euro. According to the motto “This is not our crisis” it insisted that, being outside the eurozone, Great Britain was under no obligation to prop up or rescue the euro; it declined any joint liability for euro-credit risks, and it flatly refused to take part in a European debt and banking regime:

“We have shown not only that we can stay out of that integration, but that we can also get out of things — such as bail-out funds — that we don’t like. At Friday’s summit we ensured that the key parts of banking union would be done by the European Central Bank for eurozone members and not for us. We won’t stand behind Greek or Portuguese banks, and our banks will be regulated by the Bank of England, not the ECB.” (David Cameron, The Sunday Telegraph, 30 June 2012)

Such a bold declaration of independence from the eurozone did not, however, change at all Great Britain’s dependence on the value and the functionality of finance capital that existed in euros and operated with euros. And, therefore, it was not the last word from London. The government was aware that its financial centre depended on the successful rehabilitation of the credit system and on the consolidation of national accounts in the eurozone. For this reason, it had a fundamental interest in the euro being rescued, and in this light, the euro crisis was indeed “also our crisis”. So London retreated from its refusal to join in the efforts to manage the financial burdens of the crisis. It saw itself called upon, and of course entitled, to intervene effectively in the crisis policy and the euro-makers’ debates about appropriate measures, even if, or because, Great Britain was not itself a currency union member. In its interest in a solid consolidation of financial business done in euros, the government advocated a reliable, that is far-reaching management of the euro credit system at the hands of its guardians, and urged a common financial regime in the eurozone. It demanded from its members joint assumption of full liability for the national euro debts. It demanded from Germany what this state emphatically rejected, namely to bear liability for the candidates for bankruptcy by using eurobonds; it demanded from the bankrupt states what they resisted doing, namely subordinating themselves to tight financial supervision; and it demanded from them all what the UK would never accept for itself:

“I have been pleading for one year now that the eurozone should follow the inexorable logic of the monetary union and speed up financial integration… The solution in the eurozone does not necessarily mean that the countries should immediately unite to the ‘United States of the Eurozone’; but most mechanisms according to which other currencies function should in one way or the other contain an effective solution: a bigger support of the weaker national economies by the stronger ones to help them with the adaptation; the creation of pools of resources, be it in the form of common eurobonds or other instruments; a common security net of the banking system in the form of a banking union — and, as a result from this, a much closer common fiscal and financial surveillance … Even though Great Britain does not belong to the eurozone it is very interested in the outcome of this process. The government knows that the well-being of our biggest export market lies in our own interest. An inadequate result would mean enormous risks for us. Therefore we will not stand in the way of a further political integration of the euro countries if necessary for the solution.” (George Osborne, Chancellor of the Exchequer, Frankfurter Allgemeine Zeitung [FAZ], 16 June 2012 )

So the government in London understood that the future of its national financial business fundamentally depends on the capitalist capacity of the euro credit business, and that the latter depends on political interventions of the euro states that would provide a new, secure foundation for this. And for this very reason, the vaunted independence of its country from the euro and from the euro regime constitutes also and above all a risk, and even more than that. After all, the freedom as well as the willingness of the agents of the credit business to commit themselves to one financial centre or another depends on the conditions that the organisers, guardians and beneficiaries of the credit system define to guarantee the power of the euro. The recognition the financial centre of London received from eurozone finance capital was therefore at risk with everything the euro states under German leadership planned to do collectively, wrangled over, agreed on and finally undertook in order to revitalise the profit-making capacity of finance capital — in this respect complying with Britain’s request. And here the British interest in attracting as much European finance capital as possible clashed substantially with the competitive interests of the leading euro crisis politicians. For one thing is certain: the British government feared, not without reason, that the euro powers would agree on conditions for their currency zone that would attack the City’s euro finance business, restrict it or make it unattractive:

“It could happen that, in order to protect financial stability the euro area takes decisions potentially harmful for other EU countries. On the other hand, a country like Great Britain with its big financial sector might want to decide on measures to protect the taxpayer and financial stability. However it is hindered in doing so by rules set up for the Euro area… The rules that apply to the common market must be set up by all 27 members of the Union together, even in the future.” (George Osborne, FAZ, 16 June 2012 )

The status of euro-outsider offers no protection and no advantage if it is tied to lack of political competence for the rules which euro financial business will have to follow in the future. For the rules that the euro powers decided on without Great Britain did not just potentially harm British interests; they were targeted at harming the outsider. With their decisions and measures to sustain the profit-making capacity of the euro-area banks, and with the prospect of a binding political regime over credit management that would endure beyond the crisis, these powers pursued the objective of using the services of finance capital more reliably than in the past — and this comprised anchoring the financial business with euros in the euro area, thus subjecting it to their political control and their economic calculations. In their design for a sustainable and stable financial regime over the euro, their explicit aim was not least to take away financial business previously located in London, which in the future was to take place under their sovereignty and thus to their enrichment.[24] Germany had not, after all, bailed out Commerzbank nor France BNP Paribas with billions from the national budget only to see them take their financial business to London, or stay there. The decision to introduce the financial transaction tax; the plans to force euro clearing out of the City and into the eurozone; the battle to “dry out tax havens” — all these were a direct attack on the heart of the British national economy.

Conversely, the British government left no doubt about its determination not to allow Brussels to take away business from the financial centre of London.[25] So due to the internationalisation of their financial source of economic wealth, both sides escalated the political crisis competition for the national attraction of financial business — Great Britain being in a weaker position, as it had no say over the conditions of the euro rescue.[26]

Battling for budget consolidation and growth — and an internal EU market conducive to this

It was all the more important for the British government in the competitive battle for its credit to create the trust of finance capitalists in the growth potential of its national site and the suitability of its financial sovereignty for business. Like other states, it started working on a contradictory programme where its power is in full control, i.e. internally: to consolidate the national debt economy that had got out of hand in the wake of the state’s bank rescue; and, on the other hand, to gear up the national business location and to resuscitate national growth that had collapsed on a large scale.

The British government pursued the first part of this programme — budget consolidation through a radical austerity policy — in line with the economic policy principles of a nation. These distinguish between productive and unproductive costs, those that are useful and necessary for a profitable capitalistic undertaking, and those that prove to be merely a burden for the state and that therefore have to be cut: Costs that accumulate to support the people — even more so in a crisis — can always be reduced and the national budget can always be slashed; this is inherent to the logic of a proper welfare state. This is all the more an undeniable imperative for a state that had manoeuvred itself into a sovereign debt crisis on account of its failing banks. Therefore, draconian cuts had to be made in the right places: in the ‘explosion of welfare transfers’ that came with the swelling number of the unemployed and the poor. The government fought this explosion by progressively cutting back welfare ‘entitlements’.

The other part of its restoration programme, the promotion of national growth, required completely different efforts on the part of the state. A business location that had fallen behind in international competition and capitalistic business that was no longer profitable and therefore lying idle had again to be made competitive and capable of generating growth. The national consensus among those responsible for the nation was that Great Britain needed this and had to face up to international competition in new and different ways. All parties wanted to end ‘de-industrialisation’, which blocked the desired growth of the real economy, and wanted to have a ‘forward-looking’, i.e. globally competitive, ‘reindustrialisation’ in the British Isles. The government took for granted that building up ‘industries of the future’ required generating a great amount of new state credit; at the same time, it complained about a lack of funds, pointing at the grim budget and the necessity to consolidate it. All the deliberations and budget reservations revolved around the issue that in the middle of a crisis, growing sovereign debt is not a means to stimulate capitalistic business and will not be justified by its success. The prospect of a successful use of state credit — itself at risk — was precarious. It was questionable whether additional state debt could ever be justified by future growth, or whether the state would not accumulate ever more non-productive debts. In this situation, the government was all the more intent on creating the condition for industrial competition that was not only free of cost for the state, but also coincided with the austerity programme for budget consolidation: It cut benefits and jobs, thereby exacerbating the need to accept any job at any price, thus systematically making the working class cheaper. Impoverishing the people was meant to make the use of labour more profitable, increase the competitiveness of British companies in their fight for market share, and thus “create” new growth.[27]

Great Britain needed the European internal market for its plan to open up new business success for the national economy with governmental promotion of the business location, and for this reason the government directed its efforts at it.[28] In this respect, having access to the EU single market was Britain’s “core interest”. With its domestic measures, the government planned not only to make the British business location more attractive to direct foreign investment, which in the past decade increasingly preferred the southern and eastern European EU members. First and foremost, it intended to put the domestic and international businesses manufacturing on the island in a position where they could compete on the European internal market with a cheaper workforce, and capture market share there at the expense of their European rivals. Being an export nation, Britain wanted to make productive use of its EU membership. It wanted to use the freedom of competition that the common market opened up for the member states as a safe, supranational sphere of growth for British business that had been made competitive again. With this freedom in mind, the Prime Minister spoke out in favour of expanding the EU and reducing the barriers to ‘commonality’ where he saw a chance to open up new business opportunities for Britain:

“My first (principle) is competitiveness. At the core of the European Union must be, as it is now, the single market. Britain is at the heart of that Single Market, and must remain so. But when the Single Market remains incomplete in services, energy and in digital — the very sectors that are the engines of a modern economy — it is only half the success it could be. … I want completing the single market to be our driving mission… We believe in a flexible union… to advance our shared interests by using our collective power to open markets. And to build a strong economic base across the whole of Europe.” (David Cameron, Speech on the European Union, 23 January 2013)

On the other hand, the Cameron government insisted that the rules and conditions that applied to competition on this market and regulate it should not or no longer apply to the UK since they unacceptably constrained the state in its organisation of national business. In the face of the crisis, and in order to manage it successfully, the government more than ever considered the community rules an annoying obstacle. And this concerned above all, but not only, the EU regulations regarding labour as a production factor in the single internal market. The government became increasingly irritated by the general minimum standards for working hours and employment conditions in Europe, as they unduly interfered with the national organisation of domestic conditions of exploitation. It therefore demanded to be granted more liberties in its labour and welfare policies, i.e. the special right to treat its working class entirely according to its own calculations for competition. This made reducing European obligations necessary, which was strongly championed by those in charge in London. Calling for the advancement of the integration of the euro states from the perspective of the national interest whilst reserving the right to decide for themselves how far the obligations reach for the nation and can be accepted has always been a customary feature of European competitors and not peculiar to Great Britain, the notorious critic of the concession of sovereign rights to Brussels.

For London, the issue at stake was explicitly greater: it was about Great Britain’s position on and in the EU in a general sense. Cameron expressed Britain’s dual claim on Europe as a matter of the highest principle: Advancing the common European market as a market freely available for Great Britain by using Britain’s EU membership as a lever, and at the same time securing or recapturing all national liberties with regard to competition for the business location according to its own needs — this was a conditio sine qua non of British sovereignty:

“My third principle is that power must be able to flow back to Member States, not just away from them. … In Britain we have already launched our balance of competences review — to give us an informed and objective analysis of where the EU helps and where it hampers. Let us not be misled by the fallacy that a deep and workable single market requires everything to be harmonised, to hanker after some unattainable and infinitely level playing field. … For example, it is neither right nor necessary to claim that the integrity of the single market, or full membership of the European Union requires the working hours of British hospital doctors to be set in Brussels irrespective of the views of British parliamentarians and practitioners. In the same way we need to examine [whether the balance is right in so] many areas where the European Union has legislated including the environment, social affairs and crime.” (David Cameron, Speech in London on the UK’s relationship with the EU, January 23, 2013)

Great Britain wanted both: more of the internal market and more sovereignty — and for this the Cameron government called for a fundamental reform of the European Union as well as British membership in it. Thus the domestic political battle about the competitiveness of the national site for capital led directly to a political competition for the organisation of a ‘common Europe’.

The escalating row between the eurozone and the UK about the political reform of the EU, and who defines it

In this struggle, Great Britain encountered two powers, France and Germany, that acted in the same fundamental way, fighting an embittered battle like never before about EU leadership and how every single step forward has to be shaped — from budgetary discipline and the euro bail-out fund to the banking union — but agreeing on one issue: Europe’s future had to bring in a new regime of cooperation and control that did not allow for any special rights for a country that did not want to be involved in the euro, but wanted to “parasitically” benefit from Europe.

Up to now, the opt-out rule — the exemption from certain rules for member states — had been a formula for compromise that the EU used for its progress, despite the resistance of member states, without cancelling the fundamental relation of a union of members with equal rights. This proviso was the preferred contractual mode for Great Britain to deal with the unpopular contradiction of the European project, namely to benefit from the progress of European integration only at the price of ceding sovereignty to the supra-national EU institutions. British governments agreed willy-nilly with the integration steps of the Union and with the ceding of sovereign rights to Brussels, while securing extensive exit clauses and special rights for the UK: in the social union, in justice and home affairs, and of course in the currency union. Conversely, this outsider was also granted these rights willy-nilly by the other Europeans since they wanted to have the UK on board as a powerful and economically potent partner the European union needed for its success in the world.

With the crisis in the eurozone and the consolidation measures enforced by Germany and France, the previous position of the UK in the European Union became untenable. The euro powers denied Britain participation in the common cause the way they had accepted it in the past, thus defining its role as a marginal power in Europe. This became apparent at the European summit in 2011. The UK was confronted with the position that it could no longer participate in making European decisions from which it could later opt out, rather that the European governments would decide on their progress despite British objections, bypassing valid Union treaties. The British government tried to secure for itself a new opt-out rule — its budget autonomy — in the negotiations over the EU fiscal pact, and made its acceptance of the fiscal pact as a new European law conditional on the guarantee that in the future the interests of the British location of capital would be taken into account — but this attempt failed due to European resistance. The other European states simply ignored the British veto. They put in force the new supra-national budget regime outside the EU legal system, thus pointedly and effectively locking out British participation.[29]

The leading European powers Germany and France took — and still take today — an uncompromising stance towards British reservations regarding the rescue of the euro and the fiscal union. This revealed the excluding nature of the stage at which the development of Europe had arrived. At its core, the rescue of the European money was about the meaning and the future of the common European project — and the rule-making actors of the eurozone would not allow any other EU members to have a say in that. They established a new European divide by formally excluding all non-euro states from the relevant sections of the institutionalised European decision-making process. Only ten years ago, the Blair government defined Great Britain as the third European leading power, intending to “lodge Britain at its rightful place in the heart of Europe”. It now found itself confronted with a kind of re-foundation of Europe, which raised up the alternatives of “submission or exclusion” not only for bankrupt eurozone states, but also for a veritable European power.

The British government rejected both alternatives. It demanded the EU change in line with British interests:

“For those of us outside the eurozone, far from there being too little Europe, there is too much of it. Too much cost; too much bureaucracy; too much meddling in issues that belong to nation states or civic society or individuals. Whole swathes of legislation covering social issues, working time and home affairs should, in my view, be scrapped…. It is vital for our country — for the strength of our economy, for the health of our democracy and for the influence of our nation — that we get our relationship with Europe right.” (David Cameron, The Sunday Telegraph, 30 June 2012)

While the leading EU powers pressed ahead with their supra-national union by ceding EU member sovereignty to Brussels, the British government held its ground with calls for the “repatriation of sovereign rights”. It insisted on a readjustment of its membership and made it known that it would, in the future, fight any concession of national rights to Brussels as decidedly as it would fight for the returning of such rights that the Westminster Parliament had carelessly transferred to Brussels.[30] Only in that case could the government imagine being a permanent member of a European Union. Cameron, in his keynote speech on Europe, made that emphatically clear towards his European partners. He demanded a “renegotiation of European treaties and a review of membership conditions for my country”. He threatened that “without a more flexible, more adaptable, more open EU, Britain will drift towards exit”; and he announced that the British people would decide British EU membership in 2017 in an “in or out referendum”. (The Guardian, 23 January 2013)

The rejection of British interests followed promptly: “Europe has to be taken as it is. Europe is not negotiable” (Francois Hollande, 24 January 2013). The German Foreign Minister ruled out any “cherry-picking” and a “European Union à la carte”. When the British, however, used the rejection of their request for an EU review as an occasion to threaten an exit from Europe, the German Chancellor felt compelled to tell them that they would not only hurt Europe but, most of all, themselves:

“I want to have a strong UK in the EU … I think it is good also for the UK to be part of Europe. If you have a world of seven billion, and if you are alone in that world, I don’t think that is good for the UK. So I will do everything to keep the UK in the EU as a good partner, and that is why I’m going to London and I will ask the inhabitants of the wonderful island to reflect that they will not be happy if they are alone in this world.” (Angela Merkel, The Guardian, 7 November 2012)

That was also a threat — in the form of wooing the British people, who were asked to reflect on how small and alone they are in a world in which they can only be happy side by side with Merkel & Co.

The three leading European powers — Germany and France on the one side, Great Britain on the other — are fighting a battle for the conditions of EU membership that touches on the issue of membership itself and raises a fundamental question: Are the British still prepared to take part in this Europe in which Germany and France set the relevant conditions, and/or are the other Europeans prepared to accept new conditions in order to retain Great Britain in Europe? And this is ultimately nothing but the question of who in the common Europe is the one that calls the shots.

The escalating domestic political strife between government and anti-Europeans

Cameron’s objective “to work for a different, more flexible and less onerous position for Britain within the EU” is meeting with resistance from a growing number of Eurosceptics in the ranks of the ruling Conservative Party,[31] not to mention the representatives of the United Kingdom Independent Party whose programmatic goal for the only true correction of “our relationship with Europe” has always been EU exit. This fundamental opposition to European membership ignores every element of collective power gain inherent to participation in a supra-national union of states. In the European Union, it sees nothing but a restriction of sovereignty – thus a risk for the supreme good, the right to be British. From this point of view, the ‘Continent’ is nothing but an attack on the population of the British isles. The eurozone wants to abolish ‘our’ pound sterling; Brussels dictates our doctors’ working hours; the internal market allows masses of Eastern Europeans to enter the United Kingdom where they are taking away ‘our’ jobs. This is an opposition without practical calculations that sees nothing but a loss of sovereignty in EU membership; this is mirrored in the Conservative-Liberal government’s argument as to why Great Britain cannot really do without Europe:

“As a trading nation Britain needs unfettered access to European markets and a say in how the rules of that market are written. The single market is at the heart of the case for staying in the EU. But it also makes sense to co-operate with our neighbours to maximise our influence in the world and project our values of freedom and democracy. … Leaving would not be in our country’s best interests.” (David Cameron, The Sunday Telegraph, 30 June 2012)

This attempt to steer a heated nationalism towards calculating national advantages and disadvantages of Britain’s EU membership has simply flopped.[32] The Eurosceptics want an “exit” from Europe and call for a referendum on that matter. They claim as their success the Prime Minister’s announcement that the people should have a vote on EU membership after re-negotiating the EU treaty, but no later than 2017. The government may well pursue a dual calculation with the referendum, i.e. to urge the European partners to grant concessions or else the popular vote would threaten an “out” — and to win popular support with presentable successes in negotiations so that the people would vote “in”, once and for all putting an end to the perpetual national debate about EU membership. The Eurosceptics, for their part, see the referendum as a historic opportunity for their United Kingdom to finally regain its national self-determination. They count on the widespread anti-European sentiment among the people that has been well nourished by all parties.[33] The anti-Europeans count on the willingness of British citizens to allow their own national rulers to impose the toughest living and working conditions on them — but if told that the salaries of the “bureaucrats in Brussels” are higher than their Prime Minister’s, they would definitely cancel the membership of their UK in the European club, the sooner the better.


“London is undeniably the most important financial centre in Europe, and it is doubtlessly, next to New York and Tokyo, one of the global financial centres. Judged by the criterion of size, thus by market capitalization, London is only in third place globally, far behind New York and still clearly behind Tokyo. But while the other two financial centres get their significance from their strong domestic economies and primarily serve their domestic markets, London dominates in the international financial services industry. So in March 2004, 287 foreign banks had branches in London — more than any other financial market. London is the largest international insurance market with a gross premium income of 25 billion pounds in 2003. Also about half of the trading in foreign shares happens in London. Three-quarters of European hedge funds choose London as headquarters, and investment banking is found, besides New York, almost exclusively on the Thames.” (Frach, Lotte, Finanzaufsicht in Deutschland und Großbritannien, Wiesbaden 2008, p. 37)

Over the past century, not only the number of international banks but also the size and the range of the credit business has increased: “London is the largest currency market in the world. Its average daily turnover ($500 billion) is greater than that of New York and Tokyo combined. More US dollars are traded in London than New York and more euros than in all of the other European capitals put together. There are more foreign banks — over 500 — in London than anywhere else in the world (New York, which is second, has just over half that number). For many of these banks, London isn’t just their European HQ but the hub of their global operations outside their home market. More eurobonds are traded in London than anywhere else. … London is the world’s largest centre of fund management. More money is managed in London than in the next top ten European centres added together. It’s where half of Europe’s institutional equity capital (worth $5.5 trillion) is managed. … London is home to the world’s largest insurance and reinsurance market (Lloyd’s of London) and, closely related, the world’s largest shipping market, the Baltic Exchange. London is also home to some of the world’s top commodity markets … London Metal Exchange (LME).” (Stoakes, Christopher, All you need to know about the City, London 2010, p. 57)

[2] Of the total of almost 7800 billion pounds sterling in assets projected to the end of 2012 in the London banking centre, 4100 billion are denominated in foreign currencies. This still does not include derivative positions of up to 4600 billion pounds; the share of foreign currency business on the British financial market is even significantly higher, since their contract currency is mainly euros and dollars; about 80 percent of derivative transactions are denominated in foreign currency. (Bank of England, Bankstats)

[3] The other half of the use of state force to modernize the business site — the smashing of union power and production of a cheap and flexible working class — is not discussed here. It can be read about in a previous issue of this journal, entitled Great Britain — the pioneer of modern social reforms / A model lesson on the magic formula for how to use wages and the social welfare budget as weapons in global competition (GegenStandpunkt 1-05).

[4] Through foreign capital investments, Great Britain is again the fourth largest European car production site: the US companies General Motors and Ford as well as the Japanese multinationals have factories on the island, the German automobile company BMW (Mini and Rolls-Royce Motor Cars) and Volkswagen (Bentley) and the Indian Tata Group (Jaguar and Land Rover) have taken over formerly British manufacturers. British companies in other industries have grown into “global players”; among others Vodafone (telecommunications), BAE Systems and Rolls-Royce (defence and aerospace), GlaxoSmithKline and AstraZeneca (pharmaceuticals), BP and Shell (oil).

[5] Until the end of the 60s, the extent of the pound sterling in the foreign exchange reserves of all countries amounted to 20 percent. In the 70s, the absolute amount decreased significantly and the relative share subsequently levelled off between one to three percent; the importance of the pound sterling for the business world dwindled. In 1976, the nation suffered a balance of payments crisis and depended on an enormous IMF assistance loan to maintain its solvency. Up to the 80s, the pound sterling lost significantly in value against the dollar and the Deutschmark. During this time, the British economy also brought about double-digit inflation, which far exceeded that of its relevant competitors.

[6]One of the most striking trends in this period (between 1962 and 1979) was … a sharp increase in holdings of foreign currency assets by both domestically and foreign-owned banks operating in the United Kingdom. Indeed, by 1979, UK monetary and financial institutions held £172 billion of foreign currency assets — over half of their total assets.” (Evolution of the UK banking system, in Quarterly Bulletin Q4, 2010, p 322)


“By 1986, London trading volumes were a thirteenth of New York’s and a fifth of the size of Tokyo; Frankfurt and Paris were rising as serous European alternatives; and London appeared fusty and old. It was time for change. Margaret Thatcher’s Government and her Minister for Trade and Industry, Cecil Parkinson (a guest speaker at the Financial Services Club), introduced the Financial Services Act of 1986. This had a dramatic and profound effect upon City life. The aim of the Act had many implications but, for the City, it was driven by four key principles:1) Internationalisation, allowing overseas firms to compete in the London markets; 2) Deregulation of the fixed commission rule, so that stockbrokers had to become far more competitive; 3) Proprietary transactions allowed, eradicating the separation of the broker and market maker and encouraging trading off your own book of business; and 4) The opening of ownership of Stock Exchange members to outsiders, encouraging a wave of acquisitions and mergers. In particular, the Act created competition between brokers — before Big Bang, commissions were fixed and so brokers did not compete on commission rates — and not only allowed brokers and jobbers to merge, but also abolished any oversight of the law courts on derivative contracts that might be considered speculative or contrary to the Gaming Act of 1845, e.g. ‘betting’. This remains the most rapid and complete regulatory reform of any market, and the most striking example to date of a regulatory event engineered to benefit the local financial industry.” (

[8] There are historical peculiarities to the stock market business in the City: “Brokers were intermediaries who merely carried out customer orders and were not permitted to acquire shares themselves. Stockjobbers, on the other hand, were permitted to hold securities as wholesalers. However, stockjobbers were only allowed to conclude transactions with other stockjobbers or with brokers, but not with the general public. With the rise of institutional investors in the financial centre of London, criticism of single capacity trading accelerated: the jobbing firms were insufficiently endowed with capital and securities holdings and could not meet the demand of institutional investors for large blocks of shares. Numerous mergers among jobbing firms followed, which allowed an oligopoly to emerge, which prevented an effective competition. The brokers with their minimum margins, which were viewed as excessive in comparison with other stock exchanges, ensured discontent with the London financial centre. Single capacity trading therefore no longer met the needs of the financial market actors and was increasingly seen as a monopolistic practice of the London stock exchange … Against the resistance of the stock exchange traders, the separation between jobbers and brokers was repealed, fixed commission rates abolished and membership in the LSE (London Stock Exchange) opened to domestic and foreign financial institutions.” (Frach, ibid. p. 40f)

[9] “US policy in the late 1960s was heavily concerned with financing military spending, particularly by printing dollars to finance the Vietnam War . … The US balance of payments deficit had grown from $1.9 billion in 1965 to $10.6 billion in 1971. … During the time when the US balance of payments worsened in the 1960s, it instituted a series of capital controls, which led to the holding of dollars in banks outside the US. In 1964, the US passed the Interest Equalisation Tax to discourage foreign borrowers from raising money in the US market. The Foreign Credit Restraint Program of 1965, limited American bank loans to foreign borrowers. Finally, the Foreign Investment Program of 1968 restricted US corporations from using domestic dollars to fund foreign investments. These measures encouraged the establishment of an off-shore dollar market which became known as the Euro-market. … The surpluses of oil producing states (such as OPEC) and short-term deposits of multinational corporations, fuelled the development of the Euro-market industry. [In the 1970s] the Euro-market grew at over 25% per annum through the 1970s, and between 1971 and 1984, the Euro-currency market grew from $85 billion to $2,200 billion. In 1988, the Euro-markets comprised of $4 trillion, which exceeded the domestic deposit market of the United States by $1 trillion.” (Patel, Hitesh: The Historical Development of the Euro-Dollar Market, posted 06/27/2007 on Apart from the regulatory restrictions of the US on the free use of the dollar, it was the fear of foreign dollar owners which contributed to the growth of the eurodollar market: “The political factor stimulating the Eurodollar market’s early growth was a surprising one — the Cold War between the United States and the U.S.S.R. The Soviets feared the United States might confiscate dollars placed in American banks if the Cold War were to heat up. So instead, Soviet dollars were placed in European banks, which had the advantage of residing outside America’s jurisdiction. … Arab members of OPEC accumulated vast wealth as a result of the oil shocks of 1973-74 and 1979-1980 but were reluctant to place most of their money in American banks for fear of possible confiscation. Instead, these countries placed funds with Eurobanks.” (Krugman/Obstfeld, International Economics: Theory and Policy, Boston 2009, p 601f.)

[10] The liberal supervisory regime (“light touch regulation”) in the UK continued to “convince” many joint stock companies and investors, particularly from emerging economies such as Russia or the Middle Eastern oil states, to leave the financial centre of New York and to list on the stock exchange in London or run their fund management there. Especially as the U.S. government contributed its part to the change of location: with a stricter stock market legislation (Sarbanes-Oxley Act of 2002) whose rigorous and expensive conditions many international corporations could not or did not want to meet, and with its global ‘war on terror’ and the ‘bunker mentality’ at home, it discriminated against foreign capital and restricted its freedom on the U.S. market.

[11] For example, the majority of German government bonds are traded in the City: “London remains the centre of trading in government bonds. Last year, more than 3 trillion euros, or 57 percent, were transacted there.” (Frankfurter Allgemeine Zeitung/FAZ, 03 May 2013)

[12] After attracting a large part of the international financial business with dollars and euros, the British government is now struggling to get the trade with the future Chinese world money in the City: “The City of London has positioned itself as the second major centre, after Hong Kong, for the foreign trade in China’s offshore currency, the renminbi. Two Chinese banks have settled down in the City of London around the Bank of England in order to take up the foreign exchange trading in renminbi in the near future there … The British Treasury has invited ten banks and some companies to accelerate the expansion of trade with renminbi in London. Included in this circle are the Bank of China, Barclays, Citi, the China Construction Bank (CCB), Deutsche Bank, HSBC, the Industrial and Commercial Bank of China, JP Morgan, RBS and Standard Chartered Bank. Also representatives from the financial departments of large German corporations will participate … This week, the first Chinese bank, CCB, issued in London a bond denominated in renminbi, a so-called dim sum bond, to the equivalent of 100 million pounds.” (FAZ, 1 Dec 2012)

[13] “Since the Big Bang, foreign investment in member companies was approved, which led to numerous mergers of jobbing firms with financially strong, often foreign financial institutions. The Big Bang increased the attractiveness of London’s financial centre for pension funds and other institutional investors. Large securities firms from the USA and Japan increased their presence in London.” (Frach, ibid, p. 40f) Since then, more and more foreign financial institutions have become significant actors: besides the emerging four British giant banks, international banks such as Citigroup, Merrill Lynch , Bank of America, Nomura, Deutsche Bank, UBS and the U.S. investment bank Lehman Brothers (until its crash in the financial crisis), JP Morgan Chase, Goldman Sachs and Morgan Stanley dominate the financial business of the City. The domestic and foreign banks, which since the ‘Big Bang’ bought into the capital of stock market dealers (in 1986, London merchant banks acquired shares in eleven brokers and three stockjobber companies; 65 foreign financial institutions bought 90 brokers and 15 stockjobber companies), acquired thereby access to a line of finance capitalistic business that was previously closed to them, which they vamped up in the following years with additional capital, subjected it to the latest standards in electronic commerce and so prepared for their own offensive in matters of ‘market-making’ and proprietary trading. This let the trading volume explode: “A key impact was the introduction of a wave of new technologies. The London Stock Exchange rapidly moved from open outcry — where the jobbers would shout “buy, buy, buy” and “sell, sell, sell” across the trading room — to a completely automated system, with program trading. This led to algorithmic trading and now high frequency trading. Combined with the market opening two and half hours earlier and closing two hours later, this meant that trading volumes rocketed up 72% in 1986 and 56% in 1987.The Big Bang allowed London to follow Wall Street into automated trading of more and more complex instruments — the exotics as many derivatives products are termed — and, since the early 2000s, the City has been back on top of the Global Financial Centres Indices.” (


“The provision of retail banking services is highly concentrated. Of the 16 clearing banks present in 1960, fifteen are now owned by the four big UK banking groups: RBS, Barclays, HSBC and Lloyds Banking Group (LBG). These banks, along with Nationwide and Santander, together account for almost 80% of the stock of UK customer lending and deposits. … As the clearing banks have grown and consolidated over recent decades, they have also taken on a broader range of functions. The largest banks have become truly ‘universal’ banks, their activities encompassing securities underwriting and trading, fund management, derivatives trading and general insurance. This expansion coincides with a period of significant growth in securities markets and the markets for foreign exchange and derivatives.” (Evolution of the UK banking system, op cit., p 323f)


“The evolution to universal banking is reflected in an increase in the contribution of non-interest income to banks’ earnings. Today, non-interest income accounts for more than 60% of banks’ earnings, having been a minor share three decades ago.” (Evolution of the UK banking system, op cit., p 324)

[16] On January 7, 2012, the Economist published a briefing on “Britain’s financial industry” in which the dominating position of the City’s financial industry in this sphere of speculative business is noted: London’s global market share in OTC derivatives is 46%, in hedge-fund assets 19%, and in private equity funds 21%.


“Trading creates liquidity, which attracts more business (and skills) in a virtuous circle.” (The Economist, London as a financial centre, Oct 29, 2011) “In the IFCs (international financial centres), size matters: the bigger the market the more likely you will find what you want, the more varieties you will be offered, the greater your order can be, and the lower the unit cost. The biggest markets attract the most customers. It becomes self-perpetuating. Those three (New York, Tokyo and London) are unlikely to be rivalled for at least another decade or two — and then it will be by China.” (Stoakes, op cit., p 14)


“The export surplus in financial services and insurance was 2.6% of GDP in the first three quarters of 2011. Add in the exports of related services, such as law, accountancy and consulting, and the trade surplus rises above 3% of GDP. An industrial cluster that can generate foreign earnings on such a scale is enviable. No other country, not even America, comes close to matching Britain’s trade balance in finance.” (The Economist, Save the City, January 7, 2012)

[19] To illustrate the ratios of the world moneys: the share of pound sterling in global currency transactions is 12.9%, compared with 84.9% for the dollar, 39.1% for the euro and 19% for the yen (2010); its share in foreign exchange reserves held by central banks is 3.8%, compared with 0.1% for the Swiss franc, 3.4% for the yen, 25.1% for the euro and 61.9% for the dollar (2011).

[20] The national debt exploded in the space of just two years after the outbreak of the financial crisis, from 60% to over 80% of the gross domestic product. This is the price that the crash demanded from the state for its project of having cultivated a financial sector whose balance sheets are more than five times as large as the annual income of its entire national economy: “Collectively, UK banks’ balance sheets are now more than 500% of annual UK GDP, with much of this growth having occurred over the past decade. Three of the four largest banks individually have assets in excess of annual UK GDP. Relative to the size of the national economy, the UK banking system is second only to Switzerland among G20 economies, and is an order of magnitude larger than the US system.” (Evolution of the UK banking system, op cit., p 324).

[21] The “reciprocal currency arrangements” authorized at the height of the financial crisis by the U.S. Federal Reserve to foreign central banks allowed so-called swaps to combat the dollar crunch in foreign markets: “The direct purpose of the swaps was limited to addressing overseas pressures in dollar funding markets. … In principle, foreign central banks could have provided dollar funding to banks in their jurisdictions without the involvement of the Fed. They could have obtained dollars from their own foreign exchange reserves or from the open market. However, the foreign exchange reserves of many central banks at the onset of the crisis were smaller than the amounts they subsequently borrowed under the swap lines, so these reserves alone would not have been sufficient. Furthermore, if the foreign central banks had been forced to sell their own currencies to buy dollars in the open market, the transaction itself would likely have crowded out private transactions to some degree, making foreign commercial banks even less capable of securing dollar funding without government assistance … The swaps involved two transactions. At initiation, when a foreign central bank drew on its swap line, it sold a specified quantity of its currency to the Fed in exchange for dollars at the prevailing market exchange rate. At the same time, the Fed and the foreign central bank entered into an agreement that obligated the foreign central bank to buy back its currency at a future date at the same exchange rate. … At the conclusion of the swap, the foreign central bank paid the Fed an amount of interest on the dollars borrowed that was equal to the amount the central bank earned on its dollar lending operations. … By December 10, 2008, swaps outstanding had risen to more than $580 billion, accounting for over 25% of the Fed’s total assets.” (Fleming/Klagge, The Federal Reserve’s Foreign Exchange Swap Lines, in: Current Issues in Economics and Finance, 2010, 4, p. 2 ff) By the time the Bank of England in September, 2008, made use of the swap line from the Fed, it had disposal over foreign exchange reserves of $6 billion. For maintaining liquidity in the domestic markets, which are (re)financed with dollars, totally different sums were needed: the BoE had to borrow 86 billion dollars from the American Federal Reserve. At the beginning of 2010, the dollar squeeze relaxed and the swap business of transferring interest registered with the Bank of England to the American central bank was terminated. (The Bank’s Balance Sheet; in: Quarterly Bulletin Q1/2010, p 38)

[22] Already in December 2007, the European Central Bank made a corresponding swap agreement with the U.S. Federal Reserve to protect the dollar liquidity in the euro zone in the range of 320 billion dollars, which was likewise terminated in early 2010.

[23] The sale of British commodities suffered not only from tight domestic credit, but also from the contraction of solvency on the continent. The sovereign debt crisis and the austerity of the euro countries played their part in the collapse of the ‘real economy’ on the British Isles: “The world economy — especially in the Eurozone — has been much weaker than expected in the past two years. When some of our big trading partners like Ireland, Spain and Italy are suffering, they buy less from us. That hurts our growth and makes it harder to pay off our debts.” (David Cameron, Conservative Party Conference speech, 10 Oct 2012)

[24] “A more worrying threat to London’s financial district is posed by a swarm of new regulations being devised in Brussels and farther afield. Many of these rules will hobble all of European finance, not just the City; but because the City is the centre it will suffer most. Most pernicious of all is a proposed financial transactions tax, which (would raise) as much as €55 billion a year, some 60-70% of which would be collected in Britain. … The European Commission’s own impact assessment reckons that it could force 90% of some sorts of trading activity simply to move from the EU, with the loss of hundreds of thousands of jobs. … Another European threat comes from proposals that would force clearing houses that handle euro-denominated derivatives to be based within a country that uses the euro. Combined with rules forcing OTC derivatives onto exchanges and clearing houses, these rules would threaten a market that Britain dominates, to the benefit of centres such as Paris or Frankfurt.” (The Economist, Briefing: Britain’s financial industry, January 7, 2012) “Germany and ten other EU countries want to introduce the transaction tax on financial products as soon as possible. In order to prevent a shift to other trading venues that do not have this tax (which is so far the norm), the tax liability should be organised extremely broadly. In this way, all products that have a clear relation to a participating state would be taxed regardless of where they are traded. If a German stock or an option on one is traded in London, the British would have to collect this tax and transfer the tax revenue.” (Frankfurter Allgemeine Zeitung, 22 April 2013). France’s central bank head and ECB Executive Board member Noyer demanded taking away the “majority” of its euro business from the City: “If Great Britain has not joined the common currency, London should also no longer be the leading trading place for euro-finance transactions. ‘We are not against transactions being conducted in London, but the greater part of the business should be under our control,’ added the important Euro-banker in an interview with the Financial Times. This was a consequence of the British decision to remain outside the currency union.” (Süddeutsche Zeitung, 3 Dec 2012)


“The British government has filed suit against the proposed financial transaction tax in the European Court. It fears negative effects on the financial centre of London, as Chancellor of the Exchequer George Osborne reported … French Finance Minister Moscovici stressed: ‘We will not cease or slow our preparations’ … The British business association CBI supported the government in London and declared that the tax would impact participating countries and hurt growth, employment and investment in Great Britain.” (FAZ, 22 April 2013)

[26] Finance capital duly assessed Great Britain’s dependence on the progress of the euro-zone towards the Fiscal Compact and the banking union and the damage caused by them as a piece of data and classified the state as less creditworthy. The rating agencies deprived it of its AAA rating.

[27] The Conservative-Liberal government has since 2010 carried out a drastic austerity program: their “Emergency Budget” includes the increase in the value-added tax from 17.5% to 20%, lays off a half-million public-sector workers and freezes the wages of public employees, increases contributions and reduces payments in the pension plan as well as raises the retirement age to 67, imposes drastic reductions in welfare benefits for the unemployed, welfare recipients and the disabled, and reduces government spending on education, tripling tuition fees to £9,000 per year. Even the armed forces need to cut back on personnel and military equipment. The government does not allow itself to be swayed either by the protests of the unions or those of the Labour opposition, which denounces the effects of its austerity policy on growth as counterproductive. The government considers its austerity programme as “non-negotiable” — for the country’s creditworthiness before the speculative judgment of international finance capital. Finance capital indeed appreciates the resolute will of the British state to clean up its budget but no longer trusts its ability, in view of the ongoing economic crisis and stagnant tax revenues, to clear up its huge mountain of debt as planned — also one of the reasons for taking away its AAA rating for the first time.

[28] Great Britain is still, despite its shrinking manufacturing base, the sixth largest industrial and trading nation, selling around 40 percent of its exports in the European internal market.

[29] His bannishment from the affairs of the euro zone was communicated to the British Prime Minister bluntly by his French colleague: “‘We’re sick of you criticising us and telling us what to do,’ the French leader is said to have told the Prime Minister Cameron in Brussels. ‘You say you hate the euro, you didn’t want to join and now you want to interfere in our meetings.’” (DailyMail UK, October 24, 2011)

[30] In order for a government to block future transfers of sovereignty, the British government in 2011 enacted a “referendum lock.” This “lock” now provides for a mandatory popular vote “in any power shift from Westminster to Brussels.” (The Economist, 23 June 2012) The government is launching a large-scale recall of the rights Westminster has already handed over to Brussels in the past: “With the ‘Review of the Balance of Competences,’ the government in London wants to comb through (allegedly without a pre-determined conclusion) which responsibilities still belong to Brussels and which one it would like to see back again at the national level … The intended — and already announced — exit from internal and judicial policy cooperation is regarded as a special case, because the Treaty of Lisbon concedes this right to Britain. In all other areas, the like is not regulated. London must thus begin a difficult negotiation process, of which it is said that it would meet with ‘little sympathy’ in Brussels. The more meagre the results of these ‘re-negotiations’ turn out, the greater the risk that the British will turn away from the EU … In the end, there is no way around an ‘in/out referendum’ that today would still go in favor of the EU, but in a few years probably against it.” (FAZ, 06 Nov 2012)


“Last February, MPs from Cameron’s party for the first time openly opposed their leader by (unsuccessfully) demanding a referendum on the EU-withdrawal in an amendment in the House of Commons. Later, EU opponents and skeptics formed their own group within the Conservative parliamentary faction, and they soon had more than 100 MPs. And last October, after a EU exit debate in Parliament, which was forced by a petition (with 100,000 signatures), the anti-Europeans demonstrated a powerful rebellion: 81 MPs in the Conservative faction voted at that time for the demand to immediately call a referendum on the EU exit — and openly opposed their Prime Minister.” (FAZ, 04 July 2012)

[32] The warning from the Obama administration also did not convince nationalists like the Eurosceptics that the “special relationship” between the two countries would lose its value for the world power with an exit from Europe — a warning that caused the Conservative-Liberal government to consider whether the recovery of sovereignty makes up for the loss of world-political influence that a Great Britain without its special position with the USA would suffer.

[33] “A representative survey published on Sunday in the The Observer found that in a referendum a majority of Britons would vote against a continuance of their country in the European Union. According to this, 34 per cent said they would definitely vote for an exit and 22 per cent very likely. But only eleven percent would definitely support remaining in the federation, 19 percent probably. 14 percent of respondents were undecided. The proportion of exit supporters was highest with the voters of Cameron’s Conservative Party with 68 percent, followed by those of the opposition Labour Party with 44 percent and those of the Liberal Democrats participating in the government with 39 percent.” (Süddeutsche Zeitung, 19 Nov 2012) The opposition Labour Party contributes its part to the Eurosceptic electorate. To be sure, their leader is against the announced referendum because it “brings years of uncertainty and significant risks for the economy” (Ed Miliband, BBC, 23/01/2013); but he stands right by the Conservative premier when it comes to propaganda for asserting “national interests” against the bloated and incompetent bureaucracy in Brussels and the much too large payments of contributions to the EU budget: “In the vote on Cameron’s negotiating line in the Brussels budget poker, Labour leader Ed Miliband has in the last week for the first time overtaken the head of the government in the Eurosceptic lane.” (FAZ, 06 Dec 2012)

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