Monday, March 17, 2008

The joys of independence

A fascinating drama is going to be played out this week which will illustrate with utmost clarity the difference between a sovereign country and a vassal state.

In the former camp, we have the United States of America which, when it decided to take action on Bear Stearns – whether successful or not – was entirely its own master.

Firmly lodged in the latter is the United Kingdom. This week – picked up by The Independent - our provincial government is going to have to convince our masters in Brussels that its plan for operating Northern Rock as a nationalised company conforms with EU law.

The government has until today to do this, in order to meet a six-month deadline imposed by our supreme government - the EU commission - after which the bailout of Northern Rock may be considered in breach of EU state funding rules and to have distorted the British savings market.

It will then be left to competition commissioner Neelie Kroes to decide whether the UK has obeyed the rules, which – according to The Scotsman - means that Northern Rock will be forced to become uncompetitive or fall foul of European state aid rules.

This is the view of Anthony Woolich, competition partner at City law firm LG, who says our provincial government faces a "catch 22" over Northern Rock's restructuring because the requirements of European competition law appear to conflict with recovering taxpayers' money.

The Treasury is due to receive a plan from the nationalised bank's chairman, Ron Sandler, to restructure the firm ahead of a deadline from the European Commission which needs to be convinced there is no ongoing state aid.

"If the Government wants to remove Northern Rock from concerns about state aid it needs to make it uncompetitive, because unfair advantage is an inherent part of state aid," says Woolich. "In effect Sandler would need to weaken Northern Rock. This, we are told, may undermine hopes of repaying almost all its loan to the Bank of England by early next year.

Nor is there any chance that our masters (in this case, mistress) in Brussels will overlook any transgression. The Sunday Times tells us that Denmark’s biggest banks have written to our Neelie to complain about the behaviour of the newly nationalised Northern Rock in the savings market. They are claiming the publicly owned bank enjoys an "unfair competitive advantage" and that the "extraordinary protection" afforded to Northern Rock's customers from the British government could lead to a "distortion of competition" in the market.

With that hanging over the government, it is going to have to come into line pretty sharpish or it will find itself being fined a shed-load of money which will find its way into the commission's coffers.

Either way though, it is going to cost us dear – considerably more than would have been the case had we been – like the USA – an independent country. Such are the joys of our membership of the EU.

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