EU financial supremo Sharon Bowles MEP talks Brussels regulation and that governor of the Bank of England job
If you don’t know Sharon Bowles, now is the time to correct that.
In her time at the European Parliament she has been shaping the financial rules and regulations that come out of Brussels and affects us over in the UK.
She is a big deal there, and she knows it.
She tells me “I am the one person always in the room of every negotiation, knowing where the bodies are buried, knowing what the concerns are across the piste, knowing how it fits into the economic governance legislation and knowing how it all fits in with tax and competition”.
The European financial legislation is hugely influenced by her. She says: “There are thousands and thousands of amendments and pages of legislation that have got my thumbprints all over them, improving things for the UK and the City”.
She thinks sufficiently highly of her abilities to have applied to be governor of the Bank of England. She threw her hat into the ring to take over from Mervyn King boasting that no-one knew more about European financial services regulation than her.
She might be right.
Her power stems from her position as the chair of the European Parliament’s Economic Affairs committee. She is the first Brit to head the committee. In the Times poll of top 100 people to watch this year she clocked in at number 48.
ECB president Mario Draghi has to report to her committee, as do many of Brussels leading policy-makers.
Bowles is someone worth knowing.
European Regulation and the City of London
Unfortunately understanding her work is tricky. Brace yourself for some, ahem, rather technical stuff.
Of course, the technical stuff would all be bread and butter work for Bowles, who originally trained as a physicist (specialising in semiconductors). She spent years diving into further research, experimenting with semiconductors and lasers, and presented papers to the UK Semiconductor consortium. She later qualified to be a patent attorney in the UK and Europe.
With this training, the self described “technocrat” Bowles brings a scientific diligence to the nitty gritty of European legislation.
For example, Bowles is a fierce exponent of banks paying bonuses in subordinated debt.
The idea is to tether bonuses to bank performance, and Bowles has been campaigning for it since 2004. She had some success. RBS followed her in 2008, using subordinated debt so bonuses would immediately be hit by downturns. But the bank stoked controversy by using the equity share remuneration so that a £3.6 billion loss in their retail banking arm still led to £1.3 billion in bonuses. Bowles led the protests against the retrograde move.
But does Bowles really have the power to influence banks? Of that she in no doubt. Brussels politicians are the dominant force she says, bluntly pointing out that “all of our financial services regulation comes from Europe”.
Intriguingly she sees herself as an arbiter between the EU and the City – helping both understand each other.
Bowles gets disappointed at the Eurosceptic attitudes in the UK, bridling at suggestions that EU politicians were “hostile” towards capitalism.
“There’s the same hostility in Brussels as people in the UK have the other way, but it comes from those not deeply involved in negotiations and not knowing what’s going on”.
“There is a lot of sympathy and high regard for the UK as well, but the fact is when you get very noisy elements of the City like that happened over hedge funds – saying ‘We don’t need this and Brussels are stupid’. Obviously it’s not well received, people don’t like being insulted. It cuts both ways. There is no future in trading insults really”
Bowles isn’t phased by any worry over the City disliking Brussels regulation. Her analysis is that the City would not like regulation in general and actually the top ranks are warmer about Europe than they would let on.
“The main gripe at the moment from the City is not Brussels regulation, it’s the UK wanting it tougher than Brussels”. Bowles describes the relationship between the UK and Brussels as Brussels “doing the regulation but the UK is putting the icing on the cake where it can”.
If anything, Bowles would argue the UK government is much harder on regulation than Brussels.
“There is a G20 agreement, pressed not least by the UK, that everything should be regulated”.
“We’ve done our own Retail Distribution Review for packaged retail investment product because we thought it was very necessary. Guess what? Europe thinks that was a good idea too”.
She offers an example over CRD4 (Credit Requirements Directive 4), casting herself as fighting to protect the City from lumbering UK government regulation.
“The government is the one behind pushing the capital and liquidity and all the things the banks don’t really want up to the maximum limit.
“That is not the line that is being taken in terms of trying to get rid of these things by any others but the UK in the negotiations on CRD. What we are doing is trying to make sure that it is workable and very sufficiently flexible to allow things like Vickers to happen and UK banks can be hit with more capital”.
“I’ve talked to chairs and CEOs, they may not like everything that comes out of Brussels because they may not like regulation at all. If it was coming out of the FSA and the government here, they wouldn’t like it either”
“They understand the need to be in Europe and are very worried about the prospects of not being”.
However, Bowles argues that there aren’t many pro-European voices in the City as they have other things to worry about – like the reorganisation coming from the Vickers review.
As a result, corporations are “creeping around a little quietly on Europe because they don’t want to upset the government while they’re trying to negotiate something else out of them”.
Does Bowles buy into the danger of regulating the City so much that people relocate? As if.
“Relocate to where? This is a garbled issue. We are signed up to the European single market, we have a single market in financail services that means you have a level playing field and the same rules, so you don’t have dodgy stuff.”
Bowles has little sympathy for those complaining about City regulation – “The rules weren’t tight enough to stop dodgy stuff happening, so the rest of Europe is quite rightly saying – “Hang on, you weren’t too good at being all that tight in the past in London, we’re not so sure about you now…!”
For her, the City needs to clean itself up by getting simpler and moving away from “too complex products” and a “war of complexity”. “The City shouldn’t be bamboozling people with products they can’t understand, she adds.
By doing this, the City should preserve its world-leading position. Any action in this direction would be welcome for Bowles, who has scant sympathy for politicians who clamour, as she sarcastically mimics,
“Oh we have got to be defenders of the City, oh everybody please protect me!”
Bowles has blazed a trail on getting more women into top positions. She has recently stopped the European Central Bank from appointing any new members to its executive because, she says with a laugh, “They don’t have any women on the board!”
You can’t fault her for consistency, as she makes clear the City needs to continue its efforts to increase the number of women in boardrooms.
Amid talk of the EU introducing a gender quota into law for boardrooms, Bowles is measured and welcoming of the idea. Even with Britain set to veto the proposal as EU politicians vote on Tuesday, Bowles insists that the statutory quota is “likely to happen”.
Bowles doesn’t buy into the UK government’s line that the City can be relied upon to increase the number of women voluntarily. Quotas would be a necessarily evil.
As she puts it, “It’s very strange isn’t it that the voluntary measures seem to accelerate as soon as there’s a threat of a statutory measure…!”
Bowles vs the Eurosceptics
For such a busy European politician, Bowles has little time for the slings and arrows of EU critics whether Conservative MEPs like Daniel Hannan or elsewhere.
“They’re not doing anything, for heaven’s sake! People who are loudest are those who have got the time because they’re not doing anything else, I’m day-in-day-out in three trialogues, or chairing a committee, or writing an amendment.”
(On a minor digression, trialogues, for the non-EU speakers among you, are three-way meetings between the EU Council, Parliament and Commission to thrash out differences. They are infamous for lasting easily into the early hours)
Bowles is firmly a supporter of staying in the European Union, to the chagrin of those like Hannan who argue that the UK could become an independent free-trading nation.
“We aren’t niche economies like Norway and Switzerland are we?”
“We export £20bn of financial services every year, we export 60% of the EU’s financial services, we have banks that desperately need the single market in financial services to continue to produce at that level.”
“Banks from other countries that are in London that are UK banks are already thinking that because of all this uncertainty we’re going to wind down all the assets that we have got in London because we’re worried you’ll not be able to hang onto banking passports.”
She does concede that the UK could become a free trade nation, but at great cost.
“Okay, we can become a free trade nation… by the time we have gone around and negotiated with 150 countries who really won’t be interested because we will no longer be in a single market”.
The impact on the UK market would be immense, Bowles warns.
“Immediately you would have 10% tariffs going on our car exports. The regeneration that has gone on in the North West so they can export 50% of the cars that they do into Europe. That’ll be wound back. People will be losing jobs. I don’t see the argument that we can immediately as a country of 60 million compared to being the world’s largest single market, that the countries will be queuing up to free trade agreements.”
The Coalition and the EU
First off some good news for chancellor George Osborne. Bowles says he has have played a “blinder” in his EU negotiations. No Mandelson “foot stamping and deeply adversarial” critique for the government here.
Prime minister David Cameron, by contrast, normally gets a worse reputation because of the “rabid” press reporting.
Cameron is almost like a political firefighter, according to Bowles, being sent into the negotiating room only for the most headline and serious situations.
“The prime minister only has to do big headline issues where we are at an impasse, while the other things where we happily negotiated something that works never get into the headlines”.
Cameron ends up getting lumbered with the “tough stuff”, she says.
So, what about the banking union for example?
Bowles is cautiously optimistic. The Treasury mindset, she tells me, is “very competent and they’re reaching many of the same conclusions I reach myself”.
What sort of conclusions? In short, pragmatic support for the EU partners.
Bowles demonstrates her diplomatic nous as she praises the idea of a banking union as “beneficial if they gain more stability from the EU”.
For this, the UK will need “a lot of detailed and clever negotiation where it’s much more of a case of seeing all sides of the problem”.
She adds a pointed warning, “we’ve got some very fancy footwork to do to try and come out of it successfully”.
The end result? London can hope for something that “works” for them, but no more.
As Bowles makes clear, “I say works for us rather than doesn’t interfere in London. London will be interfered with because we do things collectively as we’re part of a single market. We can’t do things unilterally”.
Cameron and the 4am veto
Bowles reserves sharp criticism for Cameron over one particular incident, which you may remember from December 2011.
If not, here’s a reminder of the moment where – in Bowles’ description – “tactics went astray and Cameron cocked up”.
Bowles describes the fall-out from Cameron’s veto as a “cancer” that soured UK relations in Europe.
Her explanation for the effect is even more pointed, warning that the UK has been marginalised.
“It has been a big step backwards as we’re not around the table and everything is now being done in some important areas on an inter-governmental basis, which squeezes the parliament out”.
The damage is still there according to Bowles, “It’s not as if that was December and now it’s gone, there is a permanent reminder of it”.
So what could this permanent reminder cause?
In short, Bowles warns that “Everybody just thinks you’re just going to veto this, veto that, then we’ll just go around you the whole time. There are plenty of ways in which revenge could be taken.”
What sort of revenge? You can get an idea from stories bubbling to the surface like german chancellor Angela Merkel’s threat to cancel the next European budget summit because the UK might veto a budget increase.
Her fiercest criticism of Cameron’s veto comes in a subtly back-handed way, as she remarks to me that “not all our negotiations are done in a bad way”. I’m told that negotiations over things that aren’t financial services are going hunky-dory, so “it’s not a total disaster everywhere!”
Bowles is firm on the need for the UK to help its EU partners out of the Eurozone crisis.
She speaks disapprovingly of the UK’s current position, being in a “halfway house where we have all the benefits and none of the disadvantages”.
“To talk about repatriation of powers in a big way warns people and tips them off in advance, doesn’t it? If we went in and said everyone is in a growth crisis, let’s have a serious look at what is impeding growth and get rid of it, we’d probably have fellow travellers on the path”.
I decide to chuck in a curve-ball for the LibDem MEP. With the eurozone troubles, would she still want the UK to join the euro?
Her reply is a classic rendition of the “yes but not now” line.
In full? She argues that we may be driven into the Euro thanks to banking.
“Obviously it’s not on the agenda where the euro is going through a crisis. If some time in 10 years’ time, the euro is through its crisis and we’re still in the EU and there is a banking union and we are on the outside of it and nobody wants to bank in the UK because of far bigger guarantees and insurance in banks that are on the continent, that would be a different situation.”
“That is the scenario that some senior banking people have put to me saying that ‘Well it’s going to be really difficult for us when there is this banking union and backing the guarantees behind a continental bank is bigger than we can have in the UK, we’re going to be at a competitive disadvantage’, what’s our response then?”
Bank of England governor Bowles?
Bowles has thrown her hat into the ring to take the reins of the Bank of England. Rest assured, the € 370,000 annual pay is not the main reason.
What’d her angle be? Bowles casts herself as the experienced European operator.
“You do have to have people who cannot just walk the European stage but the international stage and of course you have people [in the Bank of England]who are doing it but you haven’t got people who was the person who was in the room of every negotiation. I have a relationship with regulators around the world.”
“We’re fighting for survival in Europe and we have to have a good and strong relationship where we can negotiate things successfully if we think there is a threat from the ECB to things like market infrastructure, it is probably quite a good idea to have people around who know all the people in the ECB and are on good terms with them and can negotiate things.”
Could she be the first female governor of the Bank of England? At first I’d have laughed at the idea, with Bowles being given 16/1 odds for the job.
Having heard her explain herself, I can see a logic to Bowles being appointed.