Has Cameron killed the City?

The Germany's strategy of solving the euro crisis is still not completely clear: but it starts looking rational. Unlike other world leaders Angela Merkel understands what behind the financial crisis is. Rather than throwing good money after bad and adding and allowing more bailouts (for example by allowing European Central Bank to print more money), as she was pressured by Obama, Sarkozy and Cameron, in true German style, she called the financial markets bluff and started methodically reforming the financial system first. She also ensures that the execution and control of the reform will be under German control so it is not hijacked again by scammers and many politician who are happy-clappy about the the financial markets. But the jury is still out how it goes as no doubt it will be a bumpy process.

David Cameron decided to opt out from Merkel's reform. He justified it by defending the British national interest or, more precisely, by the City's. Leaving aside a rather dubious point that City interest is congruent with the British national interest, which in the midst of the financial crisis sounds - to put it mildly - irrational, was Cameron's action helping the City in the long term?

The financial industry is heavily subsidised in the UK by the taxpayers (i.e. the costs to the UK economy of having this industry exceed the tax receipts by far). The City does not exist as the UK financial centre but as the main European one competing with likes of New York, Tokyo, Shanghai and Hong Kong. Without ability to do business in Europe freely the City will be a "surplus to requirements" on the world's markets. There is no doubt that very rational financiers in Frankfurt and politicians in Berlin would like to take over the City's position. And the fuming Sarkozy and the French will be happy to help, just finishing off the City. Now Cameron created the best opportunity: the openly expressed desire of vengeance by Sarkozy and much less, but in practice far more lethal, by Merkel will ensure that France and Germany will do all their best to cut the City out of European deals and financial markets. And, with the support of practically the rest of Europe, it will be easy: unlike the war with Iraq a real "cakewalk". This is very likely to result, in a decade or so, in Frankfurt getting the pole position in finance in Europe with some spillover and subordinate business conducted in Paris. When Thatcher went to Brussels to negotiate she brought back the rebate. When Cameron went there he put the financial industry on the gallows.

It was not just Cameron's idea to "defend" the City's interest. He was under pressure from the British financiers. (Having said that Cameron and his team are unlikely to understand such considerations. The mainstream media do not seem to fare any better. There seems to be a complete strategic void in the establishment.) It is clear that they lack a basic survival instinct. The City financiers et consortes give preference to a short term personal gains, like this or next year bonus, over the long term interest of the industry and the country. "Greed is good", who said that?

However, sadly, it seems so British and so unsurprising. In the 1970's the British heavy industries refused to adopt to a changing world: first signs of globalisation. They put a pressure on the British government to subsidise them with taxpayers money and keep them going. As a result within a couple of decades the industry that had led the world into the 20th century was confined into history. The very same process is happening now. The City financiers demand state subsidies (i.e. bailout, quantitive easing, tax exemptions, etc) and want to carry on as before. They disregard the fact that the world is changing. They look after their short term interest and it looks like that the financial industry that led the world to the 21st century will be history in the UK not before long. It is the same approach as militant trade unionists of the 1970's although they most likely were acting unwittingly and were not wise enough to understand that. However considering the current degenerated and pathological state of the financial industry in the UK, which appears to be beyond help, finishing it off, unlike the collapse of the manufacturing, may actually be the best option for the British future. Countries can be successful without overblown financial services: Sweden, Denmark, the Netherlands or Germany. Now it is clear they cannot be successful without healthy manufacturing. These are not emotional arguments but purely pragmatic economic and social considerations.

Last but not least: unlike the UK, Germany went through the 1970's and 1980's managing their manufacturing base excellently. They strengthened it and now are the world manufacturing powerhouse. It looks very likely that in a decade or more - possibly after some unpleasant events like wars - the Germany will have a blooming financial sector, whilst in the UK the City will be seen as British Leyland or British Coal is seen now. And no doubt some will argue that the City collapsed because... it did not get enough support from the taxpayers.