I have written before
on how the UK appears to be on the back foot in this debate with the European Commission setting the agenda through the Larosiere
report and its proposals for the setting up of pan-European regulatory bodies that potentially downgrade the role of the Financial Services Authority and other national regulators. The UK has been very lukewarm, even quietly hostile, to this policy.
Yesterday's elections seem to me to make it even more likely that the European view - driven by an intense belief that the Anglo-Saxon approach to financial services regulation was one of the causes of last autumn's financial meltdown - will triumph. In France, where President Sarkosy has led the way in challenging the US-UK view of regulation, the President's centre-right party swept the board. Similarly in Germany and, to a lesser extent, in Italy. Reading and listening to reports from those countries last night and this morning it is clear that their endorsement of the governing parties is in part a vote of confidence in their reaction to the economic and financial crisis. This huge strengthening of the European People's Party
in the European Parliament is a major boost to the backers of the Larosiere approach.
In tandem with this significant electoral endorsement of the pan-European regulatory solution we have the British Conservatives walking out on the European People's Party, now by far the largest group in the Parliament: with them goes the one hope of any real UK influence as the proposals make their way through the Parliament. Inside the EPP, the Conservatives might have had some say as they appear to share the broad stance of the UK government that strong national regulators backed by true global action as proposed by G20 is the right way forward, not regional regulation. Outside the EPP, they will have no say as they line up with various fringe right-wing parties from eastern Europe. This debate on the Tories' place in Europe may have a few twists and turns yet, however.
With a weak and totally distracted British government and no voice in the major group in the European Parliament it is hard to see how the UK can stop it being full steam ahead for the Larosiere approach.
Amid the chaotic domestic fallout from the European Parliament elections in the UK it would be very easy to lose sight of some of the wider issues that last night's results will influence. Top of my list this morning is the debate on the reform of financial services regulation.