EU blamed for Northern Rock fiasco, says Tim Congdon

A new pamphlet for Global Vision by top economist Tim Congdon argues that the UK's membership of the European Union has reduced the scope of key agencies of the British state to respond to financial crises and increased uncertainties about the extent of the responsibilities they retain. The blunders and misunderstandings which took place during the Northern Rock fiasco can largely be blamed on commitments arising from the UK's membership of the EU.

In Northern Rock and the European Union Congdon finds that the overall effectiveness of the three official UK institutions most involved in the Northern Rock rescue - the Bank of England, the Treasury and the Financial Services Authority - was seriously undermined by Britain's obligations to the EU. The time and energy absorbed by these legal niceties significantly hampered the rescue of Northern Rock.

In particular, Congdon finds that:

• Worries about breaking the Takeover Code - which became statutory in 2006 as a by-product of EU legislation - caused the Bank of England's reluctance to act as an ‘honest broker' to Northern Rock.
• The imprecise wording of allegedly relevant directives, especially on insider trading, delayed and hampered decision-taking in the critical weeks in August and September 2007 when Northern Rock sought help from it's regulator, the FSA, and the Bank of England.
• The EU's rules on state aid caused concern in the Treasury, which led to the inappropriate imposition of a deadline for a private sector rescue and the repayment of the Bank of England's loan.
• The heavy redundancies at Northern Rock were justified in terms of compliance with the EU's state aid rules, not in terms of their costs and benefits to the British nation.

Tim Congdon commented:

"Key agencies of the British state - the Treasury, the Bank of England and the Financial Services Authority - were heavily criticised for their role in the Northern Rock fiasco. But the EU limited their freedom of manoeuvre, and created serious legal and administrative uncertainties for them. So EU directives and the European Commission must also take a large share of the blame."

Ruth Lea, Director of Global Vision, stated:

"The health and stability of the financial sector is vital to the well-being of the British economy. Tim Congdon's paper shows that it is crucial to renegotiate our membership with the EU so we are free of EU involvement in our banking system."

--ENDS--

Notes to editors

1. A hard copy of this pamphlet can be ordered by emailing info@global-vision.net

2. A PDF copy is available by clicking here