The UK is caught in a quandary. Free trade in financial services has been and remains key to the City of London’s continued fortunes, particularly in the insurance sector.
The European Union promises (and has to a considerable extent delivered) a free market in financial services across Europe and is a heavy-weight in global trade negotiation. But a European Union is not what most of the UK’s population thought they signed up for.
In the 1970s when the UK joined the then European Economic Community, it was billed as a free-trade area but it has become more and more a political and economic union.
Demands for a referendum on an exit, or at least a renegotiation of the UK’s terms, are growing. The Conservative Party under Prime Minister David Cameron is caught between the Eurosceptic UK Independence Party on its right and its coalition partners, the Europhile Liberal Democrats, on the left. It seems hard to see how the Conservatives can resist demands for a referendum in their next election manifesto.
The position looks bleak, the UK is disliked in Europe, despite being the 3rd largest net contributor it is seen as always taking, never giving.
The financial services industry is seen as a problem and ripe for more aggressive pan-European regulation and taxation; this could weaken the global competitive position of the UK’s dominant financial services sector and fuel further Europhobia with the UK electorate.