Chancellor sets out challenge of EU financial regulation threats in Pre-Budget Report

Not many clues in the UK Chancellor's Pre-Budget report today on how the Treasury is preparing to defend the City of London against new measures coming from Brussels aimed to restrict the financial services sector. Much less was there any ideas of what the rationale would be when there is, according to some, pressure in the UK economy to reduce dependence on the financial services sector.

New Internal Market Commissioner, Michel Barnier, is on record as saying that the City of London is an asset to Europe. However, there is real anxienty in the Square Mile that the European Commission proposals on market regulation will put the City in a competitive disadvantage and that the Government is not properly geared up to take the battle to Brussels. The Anglo-Saxon model has been castigated by the French, Dutch, Belgian and Germans for the financial crisis even though their banks too were horribly exposed.

The Pre-Budget Report says that the Government is "closely involved in negotiating the proposed Alternative Investment Fund Manager Directive" and that it "has been working to secure substantial improvements". Still early days I suppose but its not clear that the Government has developed a fully operational strategy yet to deal with the regulatory threats to its hedge fund and private equity industry.

The Pre-Budget Report also says that the Government is "actively engaged in EU efforts to amend the Capital Requirements Directive to provide a state-of-the-art prudential framework for credit institutions and investment firms in the EU." Current proposals will raise the amount of capital banks must hold against resecuritisations and assets held in their trading books: "The UK is strongly supportive of the adoption of these rules and will continue to ensure that EU legislation appropriately strengthens prudential standards while being consistent with international agreements."

Another priority is “Solvency II”: "contributing to the development of modern and risk-based EU-wide solvency requirements for insurers that protect Europe’s claimants, savers and pensioners. What would be good to know is what the Government's position on the tax consequences of the Directive is.

The British have a real fight on their hands to defend the interests of the City. It will also have to square its position with its claim to take a global leadership role in cracking down on "excessive risk-taking" in in financial services as well as reducing over-reliance on the financial sector in the British economy.

Have Socialists let Centre-Right choose a candidate just to spike Blair?

What has been most surprising about last nights dinner discussions in Brussels the role of the Presidency and Foreign representative jobs being created by the Lisbon Treaty is that the European Left have capitulated so quickly on the Presidency job.

Are we expected to believe that the socialist parties are more interested in holding the office of Foreign Representatives when the President job should be alot more powerful in terms of setting the political agenda for the EU. Of course, it's still not clear just how big the job will be - and that was something EU leaders did discuss only very loosely at dinner last night - but it will still be a powerful counterpoint to the position of the European Commission President - and if a member of the centre-right EPP has just been appointed to Commission President position then it is reasonable for the Socialists to go for the top Council job.

I can only assume that opposition among the socialist parties to Blair's candidacy is so great that they conceded this early to spike any potential Blair bandwagon. Blair was counting not so much on the support of Socialist PMs like Zaparto in any case. He did however need the firm support of Merckel and Sarkozy. The Franco-German axis is back - and unconstrained by any centre-right partners in the UK. Sarkozy was enthusiastic in his early support for Blair but has shown he is quite fickle lately -while Merckel has cannily kept counsel on who her favourite contender would be.

The British Press have now assumed that with Blair out of the running for President, then UK Foreign Secretary David Milliband is somehow favourte for the EU Foreign Affairs job. He would make a good candidate certainly - he is from a Centre-Left party and he gave a very-well recieved speech recently mapping out his vision of a post-Lisbon Europe - however, there are stronger candidates such as the French Socialist former Europe minister, Elizabeth Guigou. While Milliband could certainly match Ms Guigou's talents, No 10 would be very reluctant to let him go - his departure would force a by-election in his South Shields constituency. EU think tank veteran Stanley Crossick suggests that if the UK nominate Chris Patten for the post, we would be more likely to win it. Mr Patten - a former EU Commissioner - is hugely experienced in international affairs and would be a restraining influence on his more eurosceptic conservative colleagues. However he is from the centre-right and of course the Socialists will want one of their own for this post.

As for the Presidency job - I am going to be brave and make a prediction. If Tony Blair is too rich for their blood - then the Franco-German axis will go for a compromise candidate - and Herman van Rompoy - Belgian PM would be the classic compromise candidate.

Its not so surprising that this has come down to a tradition Left-Right fight but the fact that the Socialists have just simply sat back and let the Centre-Right pick the top job for one of their own warrants further explanation.