Britain should be in from the start if Germany and France go ahead with European monetary union, Lord Alexander, chairman of NatWest Group, said yesterday.
Speaking in Frankfurt, Lord Alexander made the strongest call yet from the head of a clearing bank for UK participation in EMU, but said, however that he was not optimistic. "While I am sure that the UK will be able to meet the convergence criteria, I have doubts that the current timetable will leave room for the political processes of consent."
Lord Alexander warned that if Britain stayed out of a monetary union, "our trade in money and bond markets could be threatened if the European entral bank develops central trading from Frankfurt".
Graham Bishop, an expert on European monetary union at Salomon Brothers investment bank, said the fear was well-founded. "The dangers are that multinationals will centralise Treasury operations in the single currency and do that with institutions which can offer that service."
British banks could offer that facility to clients, he said, but would be less competitive by virtue of having to operate in two books.
Lord Alexander also expressed the worry that British banks could find themselves handicapped in the single market if the UK stayed outside EMU. "I would indeed be concerned if in any sense the banking single market began through practice or design to become restricted to the same area as a narrow EMU zone."
In private, top City bankers are worried about the possibility that members of EMU would make life exceedingly uncomfortable for the City, particularly through influencing financial services directives.
Lord Alexander also spelt out another fear in the City, that British banks could lose out to German and French rivals as retail banking moves from a national to a European scale. "With EMU, the retail banks which are currently national in their markets will become regional." This could lead to the emergence of "super regionals" focusing on economies of scale.Reuse content