Cameron's veto will feed demand for an EU referendum

Why should the EU be given the right to govern and tax (arguably out of existence) what is, in Europe at least, a predominantly British-based industry that makes a huge contribution to our economy?

That's the question critics of David Cameron's actions at the recent EU summit will have to answer, if they hope to make a case against the Prime Minister's use of Britain's veto.

In a remarkable move during the EU's latest bid to resolve the bloc's debt crisis, Nicolas Sarkozy and Angela Merkel have chosen to risk their ability to quickly implement measures that would increase eurozone fiscal discipline over an attempt to impose EU regulation and a transaction 'Tobin' tax on Britain's financial services industry.

Confronting Britain in this way and provoking use of our veto over a bid to gain control over, and income from, the majority of Europe's financial sector that is based in Britain is an extraordinary demonstration of misplaced priorities from the EU at a time when the urgency of eurozone restructuring is paramount.

If the EU is serious about finding quick solutions to the eurozone debt crisis, they would surely have dropped such intrusive demands to interfere in another country's affairs in order to use the far speedier existing treaty mechanisms available?

But instead of coming away from this latest summit with a deal to calm market fears of national defaults and the disintegration of the euro, the determination of the 'Merkozy' partnership to regulate Britain's financial services industry has introduced a delay of more than three months for replacement 'fiscal compact' structures to be planned.

UK industry

A look at how vital financial services are to the UK economy shows clearly why David Cameron had to resist this arrogant 'Merkozy' push to take over and tax the City.

Referencing a PriceWaterhouseCoopers report, a recent Open Europe study highlighted that in the 2009-10 tax year the UK financial services sector made a tax contribution of over £54 billion, or 11.2% of the government's income from all taxes during that year.

The industry also contributed a £35bn trade surplus in 2010, playing a critical role in Britain's trade balance and, according to TheCityUK - an independent membership body promoting the UK financial services sector - nearly 2 million jobs are at stake.

Euro greed

But it's also clear from the same Open Europe report why other EU leaders want to force Britain to concede to EU government in this area. The City hosts a huge proportion of European and indeed global activity in many financial markets.

It's home to the largest foreign exchange market in the world, the largest insurance market in Europe, dominates the private equity industry and around 80% of the European-based hedge fund assets are managed in the UK.

There is clearly little point in a European financial transactions tax, the proceeds of which EU institutions hope to pocket, and proposed regulation if the UK is excluded.

New structures

Unless the EU relents on its stubbornness over financial services, a separate deal outside the EU's architecture will now have to be established by the countries who wish to participate in the new eurozone 'fiscal compact'.

This will not just set down new rules imposing stronger EU controls over national budgets but also how to enforce them. No mean ambition.

Either other EU leaders will realise the scale of the task ahead of them in respect of putting together such an inter-governmental deal and will conclude that it was stupid to push Britain away over financial regulation.

Alternatively, the countries who have expressed a wish to participate in the new 'fiscal compact' will forge ahead regardless and the result will raise new questions about how that will affect the balance of power between Britain and the other 26 EU members.

Should such a new voting block, doubtless also working informally within the European Union institutions as well as outside, be willing to consistently out-vote Britain in a range other EU policy areas, this will only feed demands for a proper reconsideration and referendum on the totality of Britain's membership of the EU.

If it becomes clear that we have even less influence over EU law-making than is already the case, then there is no remaining reason why we should wish to accede to the rules that come out of the EU nor pay the billions of pounds every year that Britain contributes to the EU's budget.

Beneficially, the result of this latest summit could be that holding an 'in/out' EU referendum - such as the one demanded by the People's Pledge campaign - and forging a new, 'free trade plus voluntary co-operation' deal will start to look all the more appealing.

Second EU attack on City looms

Hot on the heels of the recent EU financial services directive looms a second EU attack on the hedge fund industry - the vast majority of which is based in London.

And presumably our own government, past administrations having handed over their powers to the EU, will once again find themselves too enfeebled to protect this major contributor to much-needed tax revenues.

The Evening Standard reports today that the German and French leaders have teamed up to call for a German-style ban on the practice of short-selling to be extended across the EU.

The shock unilateral move by the German government last month to ban short-selling destabilised markets and sent the values of shares, and the investments that rely on them, plunging.

The move was criticised over the instability it provoked while only being capable of suppressing a reaction to the euro's structural difficulties, rather than resolving the EU project's underlying, fundamental problems.

In a bid to block more financial institutions from betting on the failure of the EU's financial support packages, euro policies and the creditworthiness of euro countries, Angela Merkel and Nicolas Sarkozy have written a letter to Jose Manuel Barroso asking the Commission to examine a proposal for an EU-wide shorting ban covering both shares and sovereign bonds.

The pair have evidently ruled out the alternative of making the EU's actions more convincing to the markets, presumably in tacit admission of what virtually everyone else already realises.

Namely, that nothing the EU can do can solve convincingly the financial problems of various of its members while they remain locked within the fixed-exchange euro system.

The key question for us is this. Perhaps smarting from recent events, is our government going to 'man up', live up to their title, be worthy of the votes that many people so recently bothered to cast, and do what it takes to block this looming new move?

Or will they just allow themselves to be over-ruled and humiliated by the EU yet again?

EU funds directive shows who governs

Only days into office, our new Con-Lib coalition government has been humbled by those who have actually long been in charge - the European Union.

It appears that the EU cannot be prevented from making a new financial services law that threatens to drive Britain's hedge funds industry offshore and cost us billions in tax revenue.

Quoted in Frankfurt's FAZ newspaper, German Chancellor Angela Merkel made clear the mirage of Britain's influence in Brussels and the state of democracy within the EU when she said: "Unfortunately we have to overrule the UK, but that is possible with a majority."

Given our government can be completely over-ruled by the EU, many would be forgiven for wondering why we bothered so recently to elect a government of any political colour.

It seems it was not to govern.

What election?

Once again we are shown that a majority of ministers from other European governments are in charge and all our new 'leaders' in Downing Street seem to be able to offer in response is shrugged shoulders and mutterings about battles they can't win.

Worse, their response shows no interest in actually seeking to change this anti-democratic EU situation and to regain the power to prevent severe damage being caused to a key British business sector.

How do our politicians hope to restore public faith in our democratic system if they continue to appear in this way to be little more than puppets, unable to control a Brussels regime making damaging laws that both business and government oppose?

Do David Cameron and George Osborne actually want to govern, or do they only want to posture - to occupy lofty positions, but only tinker on the margins while major decisions over how the country is run are made in Brussels by ministers in other governments that no-one here elected?

Media failure

While the response of our new leaders has so far been little more than pathetic and embarrassing, the issue at least reflects accurately the state of national democracy under the EU regime.

Yet, perversely, the EU remains largely unrecognised by the 'Westminster Village' - in which I include political journalists in the mainstream media - as a major contributor to today's lack of public faith in our political system.

Not once during the election campaign did we see or hear mention of how wriggling in the most blatant way out of a clear election promise to hold a referendum on the EU Constitution - when it returned repackaged as the Lisbon Treaty - undermines trust in election promises being made by Labour or the Liberal Democrats, in particular, this time around.

Not once during the election campaign, despite the amounts concerned overshadowing considerably other points of economic debate, and despite the waste of it being crystal clear, did we see or hear mention of the scale of cash Britain will hand over to the EU this coming financial year - £7.6bn (net).

No candidate was asked to justify this, while economic debate focussed on much lesser amounts.

Naturally, the politicians don't want to admit the extent to which they've marginalised themselves by handing ever more powers to the EU.

But, worse, the media seem complicit in their game that day-to-day government in this country has not become little more than a charade.

Critical cash

Has the print media, in particular, even considered that their falling revenues may to some extent be explained by the fact that political journalism appears to have drifted away from reality, occupying the same bubble as the politicians?

Sure, much news is now obtained online. The rise of the internet is undoubtedly also a factor.

But if it appears that the mainstream print media are failing to hold politicians to account - by failing to puncture their spin and to challenge them with the big questions about their credibility - why then should anyone bother buying a newspaper?

It seems a first step in putting greater pressure on our politicians to seek to govern again may be to pressure our media to burst the bubble of our leaders' increasing powerlessness.

It's a fair bet that for them to do so more robustly than at present may even be in the media's own best financial interest.

Reality check

What Nick Clegg and the rest of our new government must conclude from this early losing power clash with the EU is this.

Electoral reform without rebalancing the EU's powers back in favour of elected governments - as the pre-coalition Conservative manifesto pledged steps towards - would merely be rearranging the deckchairs while democracy, and public faith in our political system, carries on sinking.