WHO CONTROLS FINANCIAL SERVICES?

Professor Tim Congdon used to be, between 1992 and 1997, an economic advisor to the Chancellor of the Exchequer. Despite such an establishment position, Professor Congdon agrees with UKIP that Britain needs to disengage from the European Union and pursue an independent future better suited to its own interests.

In a recent pamphlet, Professor Congdon looks at the Northern Rock affair and how the law in this area, like so many others, is now set by the European Union. He identifies the Takeover Directive, the Market Abuse Directive, the Directive on deposit insurance and EU state aid law as four areas where "the European dimension was [arguably] fundamental".

A Takeover Code was introduced in 1968 and was a home-grown framework for the orderly and honest conduct of company takeovers in the City of London. In 2006, an EU Directive, the Takeover Directive, replaced the Takover Code. During the Northern Rock affair the Governor of the Bank of England, Mervyn King, thought at one stage that the Takover Directive prevented the Bank from organising a rescue operation for the company. Professor Congdon notes that it is uncertain whether the Takeover Directive did prevent action but that its existence prevented or delayed the sort of pragmatic actions that the Bank would have taken in the past.

Secondly, in the case of the Market Abuse Directive, King felt that "covert lending" was the way to proceed with Northern Rock. This behind-the-scenes method of support had been used in previous crises before the Directive came into force. However, rightly or wrongly, King hesitated, concerned about legal advice that such covert lending could be illegal under the Directive.

Thirdly, Professor Congdon mentions that, in 1994, an EU Directive made bank deposit insurance compulsory throughout the EU. The minimum level of insurance was then 20,000 euros. This may possibly not have been a factor in the case of Northern Rock but it shows, yet again, the extent of EU legislation.

Lastly, during the rescue, the Bank of England was concerned that loans from the Bank to Northern Rock might count as state aid under EU law. If this were the case then conditions would be attached to the loan - for example, that it should be repaid within a certain time - that could seriously affect negotiations for the takeover of Northern Rock by other companies.

So there we have it. A situation where, free of EU law, the Bank of England could have acted quickly and decisively but where, according to Professor Congdon, officials seemed to be more concerned about checking that they were acting in accordance with EU law.

Professor Congdon believes that, rather than have this situation continue, Britain should repatriate powers from the EU and even completely renegotiate its relationship to something more in tune with Britain´s needs.There will be a public meeting with Tim Congdon in January.