EU rules blamed for Rock regulation failings
European Union rules limited the ability of British financial authorities to cope with the crisis at Northern Rock, according to a pamphlet published today by a leading economist.
Tim Congdon said that the blunders and misunderstandings which took place during the collapse of the bank can "largely" be blamed on commitments arising from British membership of the EU.
The effectiveness of the Bank of England, Treasury and Financial Services Authority was "seriously undermined" by Britain's obligations under EU rules, said Prof Congdon, a former Treasury adviser who now sits on the Institute for Economic Affairs' shadow monetary policy committee.
He also said that the time and energy required to comply with European regulations "significantly hampered" the rescue of the beleaguered bank, which was temporarily nationalised by British chancellor Alistair Darling in February.
In his pamphlet, Northern Rock and the European Union, Prof Congdon argued that:
* The Bank of England was reluctant to act as an "honest broker" because of concerns about breaking the Takeover Code, which became law in 2006 as a by-product of EU legislation;
* Imprecise wording of EU directives "delayed and hampered" decision-taking in the crucial weeks in August and September 2007 when Northern Rock first sought help from the FSA and the Bank;
* Treasury concern over EU state aid rules led to the "inappropriate" imposition of a deadline for private sector rescue and the repayment of a Bank of England loan;
* Redundancies at Northern Rock were justified in terms of compliance with EU state aid rules rather than their costs and benefits to the British nation.
Prof Congdon said: "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."
Prof Congdon's pamphlet was published today by thinktank Global Vision, which campaigns for a looser British relationship with the EU.
Global Vision director Ruth Lea said: "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."