Why Cameron, the us & the city love the single market

Britain's media often divide our politicians into "pro-US" and "pro-European" camps, often with the entirely unjustified implication that these align roughly with right and left-wing positions.

This division was evident again today as top Tories lined up to condemn an EU initiative to cap bankers' bonuses.

But look beneath the surface and the divide doesn't make sense. Why, if the Atlanticist and pro-EU wings of the elite are opposed, did the US step in in favour of our EU membership ahead of Prime Minister David Cameron's announcement of an EU referendum to be held in the next Parliament?

US Assistant Secretary of State for European and Eurasian Affairs Philip Gordon took the unusual diplomatic move of holding a press conference on internal British policy.

Gordon told reporters that the US "also values a strong UK voice in the European Union. Britain is such a special partner of the United States that shares our values, shares our interests, has significant resources to bring to the table - more than most others.

"Its voice within the EU is essential and critical for the United States."

Asked if the "special relationship" so beloved of British ministers would survive if Britain left the EU, Gordon merely replied that "all relations change in time" and that the US saw its most meaningful relationships as conducted through the EU.

The following day the message was spelt out even more bluntly in an interview which Charles Kupchan, a former director of European affairs for the US national security council, gave the Financial Times.

Britain and the US had similar interests on EU issues, he said, "with both governments keen to see continued market liberalisation and enlargement to include central and eastern Europe."

Kupchan identified a shift in US defence and intelligence priorities, arguing that it now saw the EU as a critical and essential adjunct of the Nato military alliance. Britain leaving would damage this relationship.

These US interventions were designed to give Cameron covering fire in his battle against Tory backbenchers and Ukip over EU membership.

So Cameron was able to promise his referendum, though adding that it would only happen if the Tories were re-elected. Meanwhile he would try to "repatriate" some powers over social and employment legislation. The EU single market was sacrosanct, and in any referendum he would urge people to vote for continuing membership.

That was in line with the House of Lords EU committee's report on banking published shortly before. This said it was "vital" that the government ensured that the banking union being mooted by EU chiefs "does not undermine the single market as a whole and the single market in financial services in particular, which is vital to the UK and the City of London."

CityUK, a body which represents City of London banks, weighed in after Cameron's speech to warn that US banks including Goldman Sachs, Merrill Lynch and JP Morgan were "likely to migrate to Frankfurt" if Britain left the EU. The Financial Times ran a full-page editorial telling the PM not to take any risks with the single market, of which Britain had been the main architect, and to concentrate instead on "dynamic pro-business reforms."

So why do the US, the City and the PM all love the single market so much?

The short answer is profit. The City controls over two-thirds of EU financial services and, though most of the banks involved are from the US, this activity is also critical for British finance.

Today a fifth of all US external investment is in Britain and its overseas dependencies. As a percentage of GDP US investment in Britain is 10 times that invested in France, Germany or Japan.

US banks use London to dominate corporate finance, mergers and acquisitions, fund management and commodity trading across Europe. And they want more.

They want to eliminate any remaining national regulations that limit full competition in banking services and, no less importantly, any that hinder corporate takeovers by giant US hedge funds and investment banks.

The single market has always been tied up with US interests. It was initiated by the 1986 Single European Act. The Act's prime mover was Britain's Margaret Thatcher government and it came shortly after the "big bang" when Thatcher and US president Ronald Reagan deregulated their financial markets and turned London into a tax-haven for unregulated US banking operations.

The Act wasn't about creating a "free trade union," which had existed since the 1960s. It was about aggressively eliminating national institutions or regulations which stood in the way of competition.

Key targets included professional codes of practice, national working agreements, national industrial policies and - top of the list - public-sector services and state-owned industry.

It was a charter for total domination of Europe by the biggest of big businesses.

Germany supported it because it gave its highly efficient industrial giants dominance of European production. Britain and the US initiated it because it opened up the closed European markets for banking and energy.

Thatcher and her ministers were happy to see British industry go to the wall if the City got control of financial services - a Faustian pact indeed.

Today, in the midst of economic crisis and contraction, the conflicting interests in the EU are becoming sharper. France and Germany are forcing through a centrally controlled euro currency bloc, which they seek to use to take back control of financial services - imposing EU regulations on hedge funds and banks.

The EU's proposal for a Tobin tax on financial transactions and today's Brussels bid for a cap on bankers' bonuses - which Cameron and London Mayor Boris Johnson are already gearing up to fight - are the latest steps in this struggle.

Hence the demand of the City that Britain remain "at the heart of Europe" to oppose such regulations, and hence the concern of the United States.

The US remains the world's dominant economic power, but its might is on the wane. It is heavily indebted and the viability of the dollar is dependent on the US grip on global banking and energy markets. The biggest such market on Earth is the EU.

But as Kupchan made clear the importance of the EU for the US is not just economic, but geopolitical. The US can no longer afford to wage more than one major war at a time. But it needs to be able to do so to maintain control of strategic raw materials across Africa and Asia, where its dominance is increasingly challenged, particularly by China. Active EU participation is critical. Nato depends on it.

At the same time, British bankers are terrified of any change in the status of the City. They hold the highest proportion of corporate debt in the world - almost four times Britain's GDP.

That is why the City, Cameron and the US love the single market. But the labour movement should not.

Despite the wrangling between rival capitalist interests, the Faustian pact continues. The City's survival depends on savage austerity - which depends on rigid adherence to EU "competition policy," preventing any state support for the productive economy and, for the future, even more "dynamic pro-business reforms."

This is Cameron's agenda, a desperately dangerous end-game in Britain's subservience to the US.

It is high time the Labour Party and labour movement opposed it head on.