Prime Minister David Cameron exempted the UK during the EU summit on December 9, 2011 from a new treaty after other EU leaders refused to grant the UK "safeguards" for its banking and financial services. Instead, the 17-eurozone countries with other EU members except Britain will enter into an intergovernmental agreement to coordinate fiscal policies.

In the European Parliament on December 13, 2011, European Commission President Jose Manuel Barroso said that Britain's demand for special treatment for financial services would harm the European Union’s single market.

Tight regulation and supervision of financial services is necessary if peoples’ saving is to be protected from being used for betting and gambling by dealing-room traders and speculators.

How did betting and gambling permeate what had been conservative cautious banking culture? The answer may be found in the liberalization years of the Reagan and Thatcher administrations of the 1980s. Free enterprise meant de-regulation, a mentality that led in 1999 in the US to repeal the Glass-Steagall Act of 1933 and in the UK to deregulate financial markets and opt for a light-touch supervision. As a result, commercial banks were cobbled together with non-banks—investment, insurance, and brokerage firms. Light touch regulations, lighter touch supervision, combined with obscenely huge bonuses and new access by traders and speculators to people’s deposits to bet on stocks, currencies, interest rates, and derivatives created an atmosphere of casino go-go banking, damaging once-respectable international banks and contributing to the 2008 financial meltdown and the recession, which followed. The effects of the 2008 financial meltdown are still felt ten years later in near zero interest rates on customers’ deposits, an anomaly that undermines the integrity of the capitalist system, to say the least.

That Britain's disagreement with the EU is driven by a lack of "safeguards" for British banking and finance is unconvincing. The Vickers Independent Commission on Banking has already recommended and the government has accepted the Commission’s major recommendation, that by 2019, banks’ retail business should be separate from their casino business, though not a complete separation into two independent companies. It is hard to envision what serious issues might lurk in the Eurozone reform proposals that the UK finds to be so objectionable as to justify isolating London from the rest of Europe, even if it were the Tobin tax on financial transactions. "London banks stunned by Britain's EU veto" was Reuters' headline on December 12, 2011. "People working in London's financial industry denied Cameron's actions had been inspired by them and said they could ultimately damage the capital's position as a financial centre," Reuters continued. 

So, if it was not the City bankers who led the latest attack on the Eurozone, who was? The parliamentary debate on October 24, 2011 points the finger at Britain's Eurosceptic nationalists. The debate was prompted by a petition signed by more than 100,000 people demanding a referendum on whether the UK should stay in the EU, leave it or renegotiate its membership. 111 parliamentarians, 81 of whom were from the Conservative Party voted in favor of the referendum.

Britain could use all the help it can get from its Eurozone neighbors, not only because more than one half of Britain's trade is with the EU and an estimated three million jobs depend on exports to the EU, but also because the Erozone enhances European and world peace and would help the UK face the structural weaknesses in its GDP; namely, disproportionately high contribution of banking and finance and the reliance on depleting North Sea oil reserves.  

Enhancing European and world peace 

The Eurozone is more than an economic union. It is a brilliant political and economic construction for European and world peace. The Eurozone is built on the ruins of the first and the second world wars. World War I killed over 15 million people. World War II killed over 60 million people, the deadliest in history. That Europe had 250 conflicts over the past one thousand years, 150 of which were during the nineteenth the twentieth centuries alone should be sobering. Might the defusing on December 4, 2011 of a 2-ton unexploded World War II British bomb in Koblenz, Germany remind the anti Eurozone camp of the terrifying alternative to European unity, particularly with today’s infinitely more destructive weapons. To fail to learn from such a history is to repeat it. 

Parochial European rivalries for dominance in Europe threaten future European and world peace and prosperity. Eurosceptics' nationalism harks back to a past replete with discord, violence, and bloodshed. The relentless assault on Eurozone countries by British Eurosceptics, in concert with the chorus of credit rating agencies and some media barons is short-sighted and dangerous.

Washington's new military strategy, unveiled by President Obama on January 5, 2012, would shift America's military focus to the Asia-Pacific region. America's new strategic security architecture relies, at least in part, on the Eurozone's capabilities as a guarantor of peace among European states. Under the new architecture, Washington's best interest would be served by supporting a Eurozone healthy economically and unified politically. London cannot afford to be isolated.

That the European Union has been awarded the 2012 Nobel Peace Prize is a fitting tribute to the European Union's transformation of Europe from "a continent of war to a continent of peace."Reflecting Britain's uneasy relationship with Europe, and in a stark contrast with other EU leaders who expressed their delight and pride in receiving the Noble Peace Prize on Friday, British Prime Minister David Cameron was conspicuous in his absence. 

Dealing with Britain's disproportionately high banking and finance contribution to GDP

The growth of banking and finance’s contribution to GDP in the UK over the past four decades at the expense of manufacturing threatens Britain's national security. A BBC articleby Hugh Pym and Andrew Evans on July 12, 2010 entitled “what might the UK economy be like in the future” demonstrates the decline in manufacturing as a share of GDP from 1970 to 2000. The article shows that while finance and business services grew as a percentage to GDP from 16% in 1970 to 33% in 2009 with further growth forecast to 38% by 2020, manufacturing shrank from 32% in 1970 to 12% in 2009, with further declines projected by 2020. While jobs in finance and business services as a percentage to total employment grew from 11% in 1980 to 21% in 2009, manufacturing jobs shrank from 25% of total employment in 1980 to less than 10% in 2009. 

Trading the industrial might of the country that led the world into the industrial revolution for financial intermediation and casino banking is a poor exchange. Already, the 2008 banking meltdown caused the severest of recessions in generations, costing British taxpayers tens of billions of pounds. Such losses could very well dwarf all the profits from banking and financial services that had allegedly accrued to the British economy from the City of London, which turned out to be phantom profits, except for the real monies bank executives took in bonuses and profit sharing.

In terms of quality, income from banking and finance is risky and unpredictable compared to income from manufacturing. In addition to losses from careless lending, rogue traders in dealing-rooms often cause gigantic and unexpected losses. Although, bank scandals are generally kept under wraps, enormous losses in recent years could not be kept secret; such as the £1.3 billion in September 2011 at the London branch of Union Bank of Switzerland, the £3.5 billion in October 2010 at the French bank Societe Generale, and the £820 million in 1995at the Singapore branch of the 233-year-old Barings Bank, which led to its sale to ING Bank for £1. No one can predict when or which bank might be the next victim. Serious banking reforms are the answer to an improvement the quality of bank earnings. 

The head of the British armed forces emphasized the importance of economic strength to national security. General Sir David Richards stated in a lectureto the Royal United Services Institute in London on December 14, 2011 that the biggest strategic risk facing the UK is economic not military. "No country can defend itself if bankrupt", he concluded.

Within the context of economic security, it might be added here that the decline in UK manufacturing has serious national security consequences. No country may secure itself effectively against external military threats if it does not possess the necessary human skills and industrial infrastructure to manufacture and maintain its own machinery and armaments. 

Manufacturing in the UK should be re-emphasized at the expense, this time, of banking and financial services. Importing fewer manufactured goods, exporting more manufactured goods, and engaging in less bank gambling and betting, will generate a higher quality GDP and a healthier work force. Talented men and women should be employed in solid professions in engineering and science, not lost to the corrosive culture of greed, gambling, and betting. 

Reliance on depleting North Sea oil reserves

The eventual depletion of North Sea crude oil reserves will deny the UK economy a huge prize. In 1976, before North Sea oil became a factor, Britain faced a financial crisis serious enough to force the Labor government at that time to apply to the International Monetary Fund (IMF) for a loan of nearly $4 billion.

However, British fortunes suddenly improved dramatically as North Sea oil started to flow in the late 1970s, a feat described by former Labour Prime Minister Jim Callaghan as “God’s gift to the British economy”. 

The significance of the oil sector was captured by Edmund Conway in an article in the Telegraph Newspaperon November 5, 2009: “In 1979, when Margaret Thatcher came to power, the amount Britain owed, as a nation, was £88.6 billion. In the subsequent six years, taxes from the North Sea (which had been pretty much non-existent previously) generated an incredible £52.4 billion… The benefits went far beyond the public finances. Were it not for the cushion provided by oil exports, the deficit in Britain's current account…would have been one of the worst in the Western world. Moreover, much of the massive rise in business investment in the years before the financial collapse was due entirely to spending in the North Sea. In short, without oil, recent history would have been vastly different. Growth would have been weaker, consumer spending less and the public finances decidedly more perilous.”

Too bad that oil is a depleting asset. Accurate projections of oil reserves volume are difficult to make. What is known, however, is that Britain’s oil reserves will run out at some point in the coming few decades. Whenever that happens, the UK economy will suffer a serious contraction, unless new sources of income are developed.