The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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EU Financial Market Regulation: A Strategy of Raising Rivals’ Costs

Professor Roland Vaubel


Leading German economist Professor Roland Vaubel warns that the European Commission will undermine the City of London. Following the financial crisis, the French government has pursued the strategy of raising rivals' costs in a deliberate and consistent manner. Firstly, Jacques de Larosière, a former Governor of the Banque de France, was appointed chairman of a "High-Level Group on Financial Supervision in the EU" by the European Commission in 2008. And since February 2010 the European Commissioner for Internal Market and Services, Michel Barnier, has pushed ahead with regulations that will threated the competitiveness of UK’s financial services industry. Furthermore, Jean-Paul Gauzès, member of the European Parliament for the French ruling party UMP, has been elected rapporteur for the legislation on financial market regulation.

French governments have used the strategy of raising rivals' costs in other fields before, for example, in the regulation of labour markets and the arts market. In both fields, the level of regulation is high in France and low in the UK. The strategy of raising rivals' costs is supported by the Commission which thereby increases its power.

Under qualified majority voting, the majority of highly regulated countries (say, France) have an incentive and the power to impose their high level of regulation on the minority of more market-oriented countries (say, the UK) in order to weaken the latter's competitiveness. In the political economy literature, this is called "the strategy of raising rivals' costs". The common level of regulation that is imposed on the minority is even higher than the level originally prevailing among the majority because the majority is no longer constrained by the competitive pressure from the minority.

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