Jeremy Warner: Tories must engage in Europe to defend the City

Outlook: The supposed government-in-waiting seems not properly to recognise the dangers

A bunker mentality has engulfed Downing Street which has sidelined virtually all serious government. While Westminster burns, all manner of mischief is being hatched in Brussels, some of it with serious long-term consequences for the City and the UK economy.

No one seems to care. Everyone in Government is too busy contemplating their own navels to worry about the bucketful of regulation which is about to be emptied all over us.

The situation seems little better with the Tories, who perhaps make more natural defenders of the City as a financial centre than Labour. By abandoning the dominant centre-right alliance in the European Parliament – a promise made by David Cameron to win the Eurosceptic vote in the leadership race – the Conservatives have condemned themselves to the fringes of European politics, where they will be aligned with some truly batty causes and be incapable of influencing any of the really important matters affecting Britain.

Good, some will say. UKIP's success in the European elections confirms the British nation's Eurosceptic sentiments. Yet the Tories are not for leaving Europe altogether. They still want to engage, or so they claim. There is very little chance of this from the sidelines on which they will be sitting.

Already there is a shining example of the potential damage to Britain. If the Conservatives were to remain part of the centre-right alliance, it is probable they would be one of two rapporteurs on the hedge fund and private equity directive which Europeans still furious with the role played by Anglo-Saxon financiers in the economic crisis are planning to inflict on the City. As rapporteurs, they could have injected some sense and reason.

This is an extraordinarily misguided piece of legislation, but it is just the start of what's planned. If Brussels gets its way, it will be all over the City like a rash, and eventually Paris will steal London's position. Many Europeans sense a once-in-a-lifetime opportunity to assert their will over London's financial markets. The credit crunch and now gathering political crisis seems to have destroyed Britain's will to resist.

The supposed government-in-waiting seems not properly to recognise the dangers. Rather, it has become like the naughty schoolboy who retreats to the back of the class with a pea shooter. His antics may be amusing, and in the spirit of anarchy even mildly admirable, but they are not ultimately likely to do Britain any good.