Cameron wields veto to defend Fred the Shred and a dysfunctional City

It is a depressing thought that David Cameron has ridden into battle in Brussels in defence – of all things – of the conglomeration of short-termism, bonuses and economic corrosion represented by the City of London.

One of the few benefits to the UK economy of the euro crisis might have been that the European Commission would have stirred themselves into some kind of financial reform.

We have lived too long with a dysfunctional City, sucking up capital and talent that might have been used productively.

Sadly, we are going to carry on doing so.

Cameron was stirred into sacrificing the euro rescue on the altar of the City by a brilliantly timed, but mistaken, report by the think-tank Open Europe.

Earlier this week, their report Repatriating EU Social Policy warned in mildly hysterical terms that the City of London was in danger from EU regulations in the pipeline.

It made a series of debatable assumptions and knitted them together into a nationalistic panic, which deserves more critical scrutiny than it is currently getting.

The report made front page news, especially in London, where – as usual – they wheeled out City of London MP Mark Field to harrumph like Colonel Blimp in a Turkish bath.

The trouble with its two major assumptions is that neither is correct:

Assumption #1: That the City of London, as presently constituted, plays a crucial and important role in the UK economy.

Assumption #2: That the current EU proposals on financial reform are designed to stifle Britain’s financial sector.

Yes, the City pays £53 billion in taxes, which is certainly important, and would be a sign of UK economic success if this came from the City playing a useful role nurturing and supporting the real economy – but, as it currently stands, it signally fails to do so.

The tragedy is that the City has become a huge engine designed for its own self-aggrandizement, vacuuming up the talent and resources out of the UK’s economy in order to make its key figures immensely rich.

It is allowed to continue this largely useless work of enriching itself purely by paying large sums to the exchequer. Any threat to its privileges, and everyone looks at their tax revenues and leaves them alone.

Or vetoes European treaties.

As a result, we are stuck in the UK with an ineffective engine of economic development, when other EU nations – the ones Open Europe believes are so jealous of us – have effective engines.

As a result, our enterprises and entrepreneurs are starved of the credit they need, our communities are abandoned when they most need financial infrastructure, and our best and brightest dedicate themselves to a life of corrosive speculation rather than long-term investment.

The rhetoric around the Open Europe report also implies that this is somehow based on pique and jealousy on the part of the nations of the eurozone.

In fact, France and Germany and many of the others, already have a thriving and stable local banking network that is able and prepared to invest in their entrepreneurs. We have a dysfunctional, highly centralised oligopoly which is neither.

So when the EU bring forward proposals to break up the cosy monopoly of big accounting firms, or to tax speculative financial transactions – both ideas that would enormously benefit the real economy, not just in the eurozone but here in the UK – we should support them vigorously.

Not to do so will tragically entrench a dysfunctional UK economy and a City dedicated to speculation rather than real investment.

History will look back at Cameron wielding his veto as a huge opportunity missed.  The bottom line is this: Britain's interests lie in financial reform.