George Osborne's assertion that the UK will require "safeguards" for the City of London before consenting to the creation of a eurozone banking union is an important moment. The Chancellor is effectively renegotiating the terms of Britain's EU membership in public. Referring to David Cameron's "veto" of the fiscal compact last December, he told the Today programme:
We were identifying a potential issue for the UK, which is do we want, as Europe’s largest financial centre, to have a banking union on our doorstep without certain safeguards?
There will have to be safeguards, there will have to be conditions to protect Britain’s most important industry, its largest private-sector employer and, by the way, Europe's largest financial centre.
It was odd of Osborne to cite Cameron's "veto" as an example of how the UK could win safeguards. As Tory MPs well know, Cameron won nothing of the sort. He received no guarantee that members of the fiscal union would be blocked from using the EU's institutions to alter the terms of the single market. As the PM was later forced to admit, "I'm not making a great claim to have achieved a safeguard".
There is no reason to think that he will prove any more successful in winning special treatment for the City of London. Channel 4 News's Faisal Islam notes that a eurozone banking union "will not function properly without some oversight of the wilder activities of the City of London casino. The shadow banking system in particular is disproportionately run from the Thames."
If, as seems likely, Osborne fails to prevent greater regulation of the City that will strengthen the hand of those Tories who argue that EU membership is no longer in Britain's interests. And that would raise the prospect of an in/out referendum on EU (see David Owen's piece for more on this), something the Tories have privately refused to rule out. With such a referendum likely to end in a No vote, it is no longer inconceivable that the UK could leave the EU in the second term of a Conservative-led government.