The UK’s diplomatic response to the Ukrainian crisis has been tepid to say the least. While William Hague has made many statements of support for Ukraine the UK seems to be very much sitting on the side-lines when it comes to discussing sanctions.
The civil service document that was photographed seems to show that the Governments primary concern is to insulate the City of London from participating in any sanctions taken by the EU. With the rise of emerging economies and the political and tax difficulties of doing business in the USA, The City of London has quite literally become the world’s financial centre over the past decade.
In many ways this gives the UK an increasingly powerful diplomatic leaver. The devastating impact of just financial sanctions against Iran shows how difficult it is for any nation, even a rogue state to operate outside of the international financial system. Even Russian arms shipments to Syria were turned around simply by removing the insurance on the container ship through the Lloyds insurance market.
However as uncle Ben said to Peter Parker “with great power come’s great responsibility”. Its one thing to use such measures against the odd rouge nation however taking financial sanctions against Russia may be something else. How long would it be before the likes of the Chinese or Arabs quietly began to withdraw their own funds from the UK for fear of future sanctions?
I’m not sure if this argument holds water. The major reason for the City’s success is the complete lack of competition. Any other EU country would take the same sanctions, The USA is the last place anyone wants to put money and most offshore financial centres are UK overseas territories, they are little more than offshore extension of the City of London. Switzerland is far too small to accommodate hundreds of thousands more workers from the City and Singapore has an entire list of issues in becoming the world’s financial centre. I can’t imagine anyone ever being willing to park billions or Trillion’s anywhere near China which kind of rules out Hong Kong or Shanghai.
However as the UK increasingly relies on the City as its main economic driver even the threat of a reduction in business in the City is probably enough to alter the UK governments policy. For a nation like Russia that relies on selling its natural resources to feed its own people being cut out of the international financial system would be devastating. However the fall out to the City of London could also be equally devastating, at least in the longer term.
Destabilising Russia could also have unintended consequences for Europe and the UK. Refugees and even rouge nuclear weapons could all end up heading west.
Will this mean in the future that the UK is increasingly unable to take action against aggressor nations and thus forced to take on a neutral stance to protect its status as a world financial centre? Obviously it’s easy for the USA to talk of sanctions as America does little business with Russia. The economic impact on America would be very little as would the effect on Russia. I wonder if the USA would be so keen for sanctions against Mexico?
Hosting the world’s financial capital boost’s the UK’s soft power however it is at best a two way sword and any cuts imposed on others will cause us to bleed as well.
As the world becomes more interconnected the use of sanctions becomes increasingly effective. Indeed almost devastating. However does their increasing effectiveness as with nuclear weapons make them increasingly more difficult to use. What’s the point in dropping a bomb on someone if the fall out lands on your own soil?
Is the power of the City in setting UK foreign policy a further symptom of the UK government’s inability to look past the Watford Gap when setting UK policy? The Bank of England has for decades used the City as its major metric in setting UK economic policy. Is the Foreign office now subject to the same considerations?
Are we as a country prepared to surrender our foreign policy and the ideals which cost us so much in the last century to keep office towers in Cannon street full? Are we as a nation ready and willing to adopt the stringent neutrality and the lack of participation in world events that the Swiss have over the past century to maintain our financial dominance? Is our culture even capable of taking a neutral stance when we see atrocities being committed elsewhere?