Let's hope the parliamentary commission on banking standards takes them on in its June report – it's got the evidence to do so

For four and a half years our leaders have beheld the threat posed by our handful of enormous banks and averted their eyes. Among politicians, this has fuelled strange forms of denial. Among the public, it has created a deepening cynicism that what we sense to be true – these banks are holding us all hostage – can't be officially acknowledged.

The group I'm involved in, Occupy Economics, has now begun a campaign to break these banks up and make them serve the real economy. Why have those honest enough to challenge the megabanks either archbishops or technocrats? Sitting on the parliamentary commission on banking standards set up in the wake of the Libor scandal, the archbishop of Canterbury, Justin Welby, confronted the chancellor:

"Big complex banks are not only too big to fail, they are too big to manage, yet … we have heard you continue to defend the idea of a small group of absolutely colossal banks. Is that lack of will to break them up … not simply a recipe for a repetition of disasters?"

Senior regulators will tell you much the same thing. If you listen to them, you'll learn that there is "not so much as a scintilla of evidence of bigger being better in banking". And you'll hear that our big banks consume "eye-popping" state subsidies, sometimes greater than the supposed contribution of their sector to GDP.

Senior Bank of England figures are also apt to observe that the "public interest can diverge from the private interest of a firm in profit maximisation" and that banks need to prioritise the public interest. In Downing Street, Francis Maude has been considering the ownership structure of public service institutions, talking up the potential of mutualisation to make them more responsive and efficient. He has declared: "We all know the dangers of private sector monopolies."

But do we? If you listen to the government, you'd think megabanks were doing us a favour just by sticking around. Suddenly the problem is no longer the structure of the institutions themselves but that of their regulators who, revamped, will assuredly restrain them. Most recently, their criticism has focused not on the structure but only the "ethics" of individual employees, or – above all – "culture", that irksome ghost in an otherwise groovy machine. Government appeasement of the big banks shows how the mood music of economic liberalism can play as defensive apologia for the interests of the powerful.

Yet if Osborne seems already to have decided what the commission's conclusions should be, its members have looked friskier. "If we come out with a code of practice, is that pretty lightweight stuff?", asked one. Pushing their remit, they've discussed industry structure. Welby, especially, has asked some clear-sighted questions. Has the overall contribution of the banking industry to the UK over the past 50 years actually been "positive or negative"? Mervyn King's answer: excluding basic bank services, it's "debatable".

And the commission has been reminded of the limits of regulation. Former Barclays chief Martin Taylor: "I don't believe that regulators can outwit necessarily determined traders. The traffic wardens don't break up the drug cartels."

Yet trying to address "culture" alone is similarly forlorn, like trying to catch a vapour in a butterfly net. Who do you think let the "culture" genie out of the bottle? Trading desks that "infected" the high street banks? Yes, but that wasn't the only legacy of 80s deregulation. Demutualisation left the sector in thrall to stock market pressures, which duly pushed it off a cliff. In 1998 bank shareholders were holding on to their shares for around three years, on average, before selling them on. By the time of the crash 10 years later, it was three months. Public limited company banks are a permanent invitation to cheap risk-taking, then getting out while the going's good.

Successive governments have misunderstood the nature of international "competitiveness" in hosting large, "universal" banks. They aren't really independent institutions at all: they exist to convert public support into private profit. Other things being equal, they go wherever they can extract most value, "just as the larva of the spider-wasp eats out the host in which it has been laid" in Martin Wolf's memorable image.

Are the reforms taken forward by this government sufficient to solve the "too big to fail" problem? To quote Andy Haldane, the Bank of England's executive director for financial stability: "No." (Appearing before the parliamentary committee on banking standards, economist John Kay added: "I would be slightly surprised if anyone really thought they were.")

Rate-fiddling, mis-selling and money-laundering might seem like natural exuberances if your core business is gaming the state. Barclays' new boss, Anthony Jenkins, may have closed the bank's "structured capital markets" tax-dodging unit. But an ex-employee, testifying anonymously to the commission, suspected that many of the bank's "tax structurers" have simply "embedded themselves elsewhere in the business".

Indeed, Jenkins seems stuck between the public and the pressure from many shareholders for a quick buck. He wants Barclays to be "socially useful", yet with equity still at only 4% of its assets, promises shareholder returns in the "high teens" on its UK retail and business division alone. HSBC et al are pursuing similar targets.

Who do they think they are? We're in a recession. They're a utility, not some genius new technology start-up. This is money they're only able to make at our expense – with the NHS budget pledged, in effect, as security for their borrowing. As long as we're letting them get away with it, those guys are making hay while the sun shines.

Let's hope the commission will have sinews stiff enough to take on the banks when it reports in early June. It has heard serious evidence for doing so.

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Two flawed analogies are trotted out: comparing the eurozone to Argentina's 1990s dollar-pegging, and the EU to the US

A true giant of modern thought, Ludwig Wittgenstein believed that all problems in philosophy arise from the misguided use of language. Although this opinion, put forward in his early writings, seems far-fetched nowadays, Wittgenstein had a point.

Since the start of the sovereign debt crisis, two false analogies have prevailed in the public dialogue regarding Europe: the first draws parallels between the present situation in the eurozone periphery with the crisis in Argentina in 2001, while the second, especially popular in the British press, compares the European unification process with the federalisation of the United States of America.

Starting with the first analogy, it is almost impossible to follow the debate on the euro crisis for a week without bumping into an article that likens Greece and the rest of the European south to Argentina. The most recent example I saw, is by Thomas Catan and Marcus Walker, published in the Wall Street Journal, on 19 May: "Like countries that joined the eurozone, Argentina in the 1990s gave up control over its own currency, fixing it 1-to-1 to the US dollar… Like euro members today, Argentina had to grin and bear it until wages and prices fell far enough for the country to become competitive again," reads the article. The authors claim that Argentina should be "a cautionary tale" for leaders in Europe, because Argentineans, like Greeks or Spaniards, supported the peso's peg to the dollar, until they suddenly stopped.

The analogy is outrageous. Argentina, like dozens of countries before and after it, had opted to peg its currency to another, namely the dollar. In fact, this is not unusual in international economics. The 17 members of the eurozone, on the other hand, have chosen to denounce their own currencies and "irrevocably" adopt another. I sometimes wonder how the hell people cannot see the difference here: the drachma, the lira, the deutsche mark, simply do not exist today. Hence, no one can unpeg them from the euro or the dollar. Let me put it another way: Argentina devalued its own currency; Greece will have to introduce another one. The new currency will not be the drachma of the 1990s. It will just have the same name as the drachma.

True, no decision in politics is truly irrevocable. So the Cypriots or the Greeks, for example, could choose to ignore the logistical chaos of abandoning the euro and print a new currency. But will the new currency, which will be issued by effectively bankrupt states, have any exchange value whatsoever? Will the Russians accept it in exchange for oil, and the Americans in exchange for medicines? Especially Greece, which, unlike Argentina, is not a net exporter of raw materials (or any materials for that matter), will have no means to support the new currency. Greeks can print as much as they like of it, but will they be able to buy electrical appliances, cars or even foods produced abroad with it? The answer is no. Sure, they will be holding real money in their hands, but they will still be "poor", probably much poorer than they are now.

There is another, even more obvious difference between the eurozone and Argentina. The government of Buenos Aires chose to unpeg its currency from the currency of a foreign nation. In the case of eurozone, the single currency is the most crucial part of an immensely complicated structure of unified decision-making we came to call the European Union. Like the euro, the EU is also a unique construct in modern history and all analogies drawn between it and other cases of economic crises are unfounded. The EU is based on the premise of an "ever closer union". Sure, you can slow down the whole process and even bring it to a halt, as the British government demands. But if you put it in reverse gear by dissolving the euro, this will trigger a chain reaction of "renationalising" that will bring the EU to an end. And that is only the best-case scenario. In fact, the most likely scenario is that the chaos that would ensue immediately after the dissolution of the euro would lead to the sudden death of the EU. It doesn't take a genius to understand that the economic, political and geostrategic stakes are immensely higher for the eurozone member states than they were for Argentina in 2001. I am not arguing that such an eventuality is impossible, but it will be like nothing we have seen before, just as the EU is like nothing we have seen before.

And that brings us to my second point. The term "United States of Europe," which is so often used in the British press, mistakenly likens the EU to the USA and implies that Brussels is (or soon will be) the capital of a federal state. Nothing could be further from the truth. In every single federal state in the world, the central government is responsible for "high politics", most notably defence, foreign policy and budget. Local governments, in turn, are relatively free to decide on "low politics" issues, like schools, healthcare, etc. What happens in the EU is exactly the opposite. Its member states are close allies (most are members of Nato anyway), but they do not have a common defence policy. There is some degree of coordination in foreign affairs, but rarely unanimity, let alone central planning. And the central budget of the EU is just 1% of the region's total GDP. The nation states collect taxes and decide where and how they will spend most of their money. The fiscal pact, which was voluntarily signed between sovereign EU governments, just puts a limit on how much they are allowed to spend.

Unlike federal states, the EU is responsible for the micromanagement in "low politics" fields. It is obviously annoying for some of us to have Brussels decide on trivial things, but it is also the only way for a single market to function. Someone needs to draw and enforce the rules for competition, trade, patents, recognition of professional qualifications, etc. Otherwise, the free movement of goods, capital, services and people that makes the EU by far the largest market in the world would be impossible. In fact, it is the member states and the representatives of national governments who decide most of these rules, in the Council of Ministers' meetings. The EU commission largely suggests directives to member states, implements their decisions and acts as the guardian of the treaties as national governments have agreed. Even for the eurozone member states, the most powerful decision-making body is not the commission, but the Eurogroup, which comprises of the finance ministers of member states.

In other words, both the EU and the eurozone are unique structures. Analogies with the US, Argentina or other places in the world, are erroneous and only confuse the issue. So please, colleagues, just stop it, if for no other reason than that Wittgenstein would be furious with you.

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Index rises to levels last seen before dotcom bubble burst, fuelled by a relatively calm eurozone, QE, low interest rates and rising confidence in Japan

Shares in London have reached levels last seen at the height of the dotcom boom nearly 13 years ago.

At a close of 6,755 points, the FTSE 100 blue chip index matched levels from September 2000, just before the market's fascination with loss-making technology companies such as lastminute.com came to an abrupt end and the dotcom bubble burst. The closely watched index of the 100 biggest companies traded in London is also within sight of its all time peak of the 6,930 reached on 30 December 1999.

The FTSE 100 is nonetheless lagging behind many other global markets, including the S&P 500 in the US and the Dax in Germany, which are at record levels.

Investors are betting that central bankers, including the Bank of England and US Federal Reserve, will continue their attempts to boost the global economy by printing money and keeping interest rates at historic lows. The buoyant stock market may take some of the pressure off George Osborne as he tries to persuade voters that his emphasis on public spending cuts to re-establish confidence in the economy is working. Bailed-out RBS was also the biggest gainer on Monday, rising 4.5%.

Earlier this month, the chancellor narrowly avoided the humiliation of a triple dip recession and since then has enjoyed the first signs that economic activity is picking up, mainly in the services sector and the south-east.

Even so, the FTSE 100 – which only four years ago sank to below 4,000 – is linked to the the global economy, which accounts for around 70% of sales by FTSE 100 firms.

Investors were encouraged by the Japanese government's optimism, amid signs that Tokyo has inspired the first sustained period of solid expansion in two decades. Signs of growth, albeit tentative, have encouraged a more positive mood among investors, while the long-running eurozone crisis seems to have entered a period of reasonable calm. A number of major deals, the latest being Yahoo's $1.1bn (£750m) proposed purchase of blogging site Tumblr, have also helped sustain the rally.

The historically low level of interest rates has also made shares more attractive than other investments. Gold and silver, previously considered safe haven investments, have lost their lustre.

Since the global banking crisis sent markets tumbling, with the FTSE 100 falling to 3,529 in March 2009, shares have slowly been regaining lost ground, gathering momentum in recent weeks. The turning point came last summer when the head of the European Central Bank said he would do "whatever it takes" to save the euro from collapse. Mario Draghi's message was taken by investors as a vote of confidence in the 17-member currency club and a signal that a repeat of the Greek crisis would be dealt with swiftly by Brussels.

Richard Hunter at the UK's largest financial adviser, Hargreaves Lansdown, said shares in Britain's 100 biggest companieswere likely to continue rising this year as long as companies could sustain their current run of profits.

"It doesn't look like central banks are going to stop printing money any time soon. Interest rates are going to remain low. When there is little money to be made investing in government bonds and commodities are volatile, stock markets have become the focus of most investors' attention," he said.

But some City analysts believe the recent positive run could soon come to an end, especially if the central banks turn off the money taps.

Julian Jessop at researchers Capital Economics said: "[We] expect a substantial correction in equity prices in the second half of the year, perhaps of the order of 10% for the US and UK markets and 15% for Europe and Japan, most likely triggered by the scaling back of the Fed's quantitative easing programme and a renewed escalation of the crisis in the eurozone. Assuming global monetary policy remains loose and Europe emerges stronger, the markets should then perk up again in 2014. But we doubt the current euphoria will last throughout 2013."

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FCA chief Martin Wheatley says attempt to cap bonuses of those earning above €500,000 will lead to pay rises

A European plan to limit bankers' bonuses could have the perverse effect of leading to a doubling of their salaries, the chief executive of the new City regulator, the Financial Conduct Authority, has warned.

Martin Wheatley told a conference that the attempt to cap bonuses at 100% of salary for anyone earning more than €500,000 (£420,000) could make it difficult to "punish" bankers by clawing back payments when things go wrong.

The European Union has provisionally agreed a deal to cap bonuses at one times salary – or double that with shareholder approval.

The last time regulators attempted to restrict bonuses, pay of middle-ranking bank staff, known as "vice presidents", had gone up "by 100%", said Wheatley. "And the same thing will happen again."

The precise details of the proposals by the European Banking Authority, which sets the rules for members of the EU, are expected to be published shortly. But according to leaks on Friday, the EBA is for the first time publishing a basic salary level – €500,000 – at which the cap, approved by the European parliament, kicks in.

Tim Breedon, the former chief executive of Legal & General who is now a non-executive director at Barclays, acknowledged that the way bonuses across the industry had been structured before the financial crisis had been a "catastrophic failure". Barclays is now trying to link pay to the conduct of its staff, not just their financial performance but is yet to decide how to react to any cap on bonuses.

When the idea of a bonus cap was first raised earlier this year, Andrew Bailey, the head of the Prudential Regulation Authority, the City's new banking regulator, warned it could push up banking salaries by £500m a year.

Experts at PricewaterhouseCoopers estimated last week that up to 10 times as many bankers as expected could be captured by the cap if the EBA does set a minimum pay level of €500,000. It hinges around defining those deemed to be "material risk takers" who are supposed to covered by the bonus cap. Until now it has been up to the banks to decide which of their staff falls into this category.

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Finance and banking jobs in Scotland would be at risk if major firms opt to pursue larger markets in England, warns Treasury

The Treasury has claimed that thousands of Scottish banking and finance jobs could shift to England after independence because major Scottish finance firms would want to chase much larger markets in England.

The warning from Sajid Javid, the economic secretary to the Treasury, came as his department published a study outlining how Scottish independence could cause significant risks for mortgages, insurance products and pensions from increased regulation, borrowing and business costs for the finance sector.

The most serious impact could be on Scottish banks and insurance firms, such as RBS and Standard Life, Javid said, because independence would end the "seamless", fully integrated single market for financial services across the UK.

The report, the latest UK government critique of independence, pointed out that about 85,000 people in Scotland were directly employed in the financial services sector, with a further 100,000 employed indirectly, comprising about 7% of jobs in Scotland. In 2010 the sector contributed about £9bn to the Scottish economy.

A senior Treasury source admitted there was a high degree of uncertainty about whether independence would necessarily increase the costs of mortgages, pensions and insurances to Scottish customers.

While the analysis paper warned that 2 million Scots would have to move their savings from UK-run ISAs, losing tax relief and potentially incurring increased savings costs, the official acknowledged that the Scottish and UK governments would have "a huge interest in making this work" for the mutual good.

But about 90% of the business for Scottish financial services is outside Scotland, with 84% of Scottish banks' mortgages sold in the rest of the UK, which would leave the industry with substantial questions if the country voted for independence in September 2014.

Even if Scotland did share sterling under a currency union with the UK and had the Bank of England as its central bank, Scotland would be forced under European law to have a separate financial regulatory system and its own deposits guarantee fund, to compensate savers if a bank crashed, which would drive up their costs and damage profitability.

"If you're a Scottish-headquartered financial services company, at the moment, you've a seamless market of 65 million people. Post-independence your home market is going to be 5 million and your neighbouring market is a foreign country [and] is going to be 60 million people," Javid said.

"You're going to have to make a choice: which one are you going to focus your resources on and which one is going to give you more profitability and better results? It's obvious between 5 million and 60 million where the choice would lie, and that's bound to have an impact on Scottish jobs and it's bound to have an impact on the availability of products in Scotland."

Backed by Michael Moore, the secretary of state for Scotland, Javid said these Scottish lenders could also face higher borrowing costs and further pressure from shareholders to cut operating costs.

If these businesses shifted many of their operations to England, "it's bound to have an impact on the general availability and choice of financial products for ordinary Scots both for mortgages, insurance and investment products", the minister said.

John Swinney, the Scottish finance secretary, dismissed the report, asserting that Scotland's wealth and expertise in financial services would provide a great deal of security for the industry and the economy.

"The Treasury's creative accounting on behalf of the no campaign simply does not add up. It does not reflect the reality of how financial services operate or stand up to expert scrutiny.Constructed on a AAA credit rating that has since been shredded, this is just the latest attempt to attack an independent Scotland's ability to be an economic success story," Swinney said.

"The Tory government and their Lib Dem followers will use this paper to make all sorts of implausible claims about things like mortgages, when the reality is that many countries around Europe, including those of similar size to Scotland, have substantially cheaper mortgage rates than the UK."

Martin Gilbert, chief executive of Aberdeen Asset Management, told a conference in London that the near-demise of RBS and Bank of Scotland had put an Exocet into the Scottish financial system and made it tougher for the independence vote. "Independence is all about North Sea oil," he added.

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US banking giant facing revolt by dissidents in wake of $6bn London Whale trading loss last year

JP Morgan faces an angry shareholder revolt this week as investors attempt to strip boss Jamie Dimon of the chairmanship of the banking giant.

The revolt in the wake of last year's $6.2bn (£4bn) London Whale trading loss has been aggravated by a decision to cut off dissident shareholders' access to voting information ahead of the bank's annual meeting on Tuesday.

Last year a proposal to split Dimon's roles as chairman and chief executive gained 40% of the vote.

But that vote came before the magnitude of the incident was clear and ahead of regulatory and internal reports that have been highly critical of the failures of oversight at the bank.

A vote to strip Dimon of the chairman's job, while not binding, would be a heavy blow and there have been reports that he has considered resigning if he does not keep both titles.

Shareholders also intend to vote against the reelection of several other directors over their role in the trading fiasco.

Last year's vote was sponsored by the American Federation of State, County and Municipal Employees (AFSCME) pension fund.

This year support for the vote has grown and AFSCME has been joined by employee retirement plans for New York city and the state of Connecticut, as well as the UK's Hermes fund managers.

The split has the backing of major investors and the influential advisory firms Institutional Shareholder Services and Glass, Lewis & Company.

But Dimon has fans too. The T Rowe Price group, one of the firm's top 10 investors, has publicly backed Dimon ahead of the meeting, an unusual move for a large shareholder.

Prof Peter Henning of Wayne State University in Detroit said he expected the roles would not be split. He said the bank's financial returns had been exemplary, though "hubris" had clearly played a part in the London losses.

"There are good reasons why the roles should be split that have nothing to do with the Whale. This shouldn't be a referendum on Dimon," he said.

"The problem is that there is no guarantee that an independent chair would give any greater degree of oversight."

But Prof Charles Elson, corporate governance expert at the University of Delaware, said it was clear the roles should be split.

"The chairman of the board is there to monitor the CEO. A good CEO recognises that," he said. "Titles have meaning."

Last week the split's backers were denied access to a running tally of how the vote was going.

Broadridge, the firm that collated the votes, was asked to restrict access by the Securities Industry and Financial Markets Association, Wall Street's main lobby group. As the banks are its clients, Broadridge said it was contractually obliged to comply.

The split's supporters argue JP Morgan has been handed an unfair advantage in the final stages of the fight. Large index funds, for example, often wait until the last 48 hours to cast their vote.

The Council of Institutional Investors, whose members manage $3tn of assets in total, is now lobbying for the Securities and Exchange Commission to review the situation.

Shares of JP Morgan Chase have been broadly flat since December 2006, when Dimon assumed the chairmanship.

But the bank has significantly outperformed its peers and Dimon is credited with steering the bank through the credit crisis with aplomb.

Dimon initially dismissed the Whale losses as a "tempest in a teapot" but the losses rattled Washington and led Barack Obama to push for tighter regulation of Wall Street. Dimon's thinking on the situation seems to have evolved too.

In April he told shareholders the loss was the "stupidest and most embarrassing situation I have ever been part of".

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Move to ensure olive oil is served in non-refillable bottles condemned as weirdest decision since curvy cucumber ruling

EU bureaucrats have been ridiculed for shifting their focus from fighting the eurozone's debt crisis to impose strict rules on how restaurants serve olive oil.

From 1 January eateries will be banned from serving oil to diners in small glass jugs or dipping bowls and forced instead to use pre-sealed, non-refillable bottles that must be disposed of when empty.

The European commission said the move was designed to improve hygiene and reassure diners that olive oil in restaurants had not been diluted.

But critics say the rules are a sop to Europe's olive oil producers, and will only add to the frustration felt by many towards a bloated bureaucracy regarded as out of touch with ordinary people.

The commission said its proposal was supported by 15 of 27 EU-member governments, including the continent's main olive oil producers – Italy, Greece, Spain and Portugal – which are among the countries worst affected by the euro crisis.

Germany opposed the plans in a private vote; Britain, which regularly cites perceived meddling from Brussels as the reason for its strained relationship with Europe, abstained.

The German newspaper Süddeutsche Zeitung described the move as the "weirdest decision since the legendary curvy cucumber regulation", referring to now-defunct EU rules on the shape of fruit and vegetables sold in supermarkets.

The regulations are based on those in force in Portugal since 2005 and are part of an EU initiative to help olive oil producers hit by rising operating costs and falling profits in recent years.

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Outgoing Bank of England governor blames regulatory failure for banking crisis and not individuals

The outgoing governor of the Bank of England has called on the British people not to "demonise" bankers for the financial crisis.

Sir Mervyn King said on Sunday that the failings of the financial and regulatory system were the root cause of the turmoil which struck the world economy almost six years ago.

King, who leaves the Bank this summer, told Sky News's Murnaghan programme that there was widespread risk-taking in the runup to the credit crunch, and it had been a mistake to give the banking sector such a lofty status in the good times.

"Where the banks contributed to the problem was that they themselves had taken too many risks on their balance sheet and they simply didn't have enough capital to absorb the losses that were likely to come along and people took fright, they lost confidence in the banks, they didn't provide money to the banks so the banks couldn't lend to businesses or households.

"I would say to people though, don't demonise individuals here. This wasn't a problem of individuals, this was a problem of failure of a system. We collectively allowed the banking system to become too big, we gave them far too much status and standing in society, and we didn't regulate it adequately by ensuring it had enough capital."

Asked if he regretted not doing more to prevent the crisis, King said he and the Bank had issued warnings.

Conservative MP Brooks Newmark said King could not escape some responsibility for the errors that helped to cause the biggest financial crisis in generations.

"He is the Governor of the Bank of England, it sort of says it on the tin what he is responsible for," Newmark told Murnaghan.

Lord Myners, the former City minister, agreed that King had failed to see the problems building-up in the runup to 2007, and had become "hung up on moral hazard" once the banking sector was being bailed out.

"The judgement of history which with Governors is written about a hundred years later, will say that he failed in two very major respects and also a third one, that he failed to modernise the Bank," Myners added.

King also expressed concern over Britain's new Help to Buy scheme, which involves the government guaranteeing up to 15% of a mortgage on properties worth up to £600,000.

The scheme, which begins in January 2014, is due to run for three years. King warned that there is "no place" for a permanent scheme of this kind.

"This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market.

"We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position.

"So, we mustn't let this scheme turn into a permanent scheme. Now when is the right time to terminate it will depend on economic conditions at the time."

King also warned that the struggling eurozone economy remains the largest threat to the UK, and criticised European leaders for driving their economies into a "downward spiral".

Britain's "modest recovery" could be derailed, he warned, if the single currency region remains trapped in recession or only achieves low growth.

"It is very difficult to see that they will be growing quickly for a long while, and that downward drag on exports from the UK to Europe, they account for almost half of our exports, and the fact that our banks still have some exposure to the euro here is undoubtedly the single biggest factor dragging down on our economy."

The eurozone economy has now been shrinking for the past 18 months, with sharp recessions in countries such as Spain, Italy and Greece where tough spending cuts and tax rises have been imposed.

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Bankers' accusations of trader wrongdoing are fuelled by revenge. The real fixer is Opec

The bankers have finally got their revenge. Oil traders claim that influential bankers – furious that their sector has been squeezed by regulators since the 2008 crash – have persuaded Brussels that oil traders should no longer be able to operate without the same rigorous rules. According to the bankers, oil traders behave worse than money brokers. And so the Eurocrats raided the offices of BP, Shell and Platts, comparing their investigation into oil price-rigging with the one into the bankers' Libor scandal. By focusing on Platts, an unusual reporting agency whose methods to discover the price of oil often provoke accusations of dishonesty, the Eurocrats have won public sympathy and the gratitude of those banks who host massive oil-trading operations.

Over the past century, the repeated charge is that oil prices have been rigged by oil traders, refiners or producers. At its simplest, traders are alleged to either flood or squeeze markets to fix prices to grab a quick profit. Undoubtedly some traders have been dishonest, and US regulators have charged a handful of them for manipulation. But their alleged crimes were short-lived and simple to detect. The current suggestion that BP, Shell and Platts have been conspiring for 10 years to manipulate oil prices – possibly the Brent market in the North Sea – is mind-boggling.

Setting the price of oil is fiendishly complicated. Unlike the price of gold or BP shares, oil's value is not fixed in one open stock market. Crude oil is not only traded on regulated markets in New York and London but also around the clock in thousands of opaque markets. Like wine and cheese, the quality and value of crude oil varies significantly, and this is reflected in its price. The difference in price also depends on the distance between the oilfields and refineries in three locations: Oklahoma, the North Sea and Dubai, as well as other factors such as whether the oil is for immediate delivery or in the future.

Every day, tens of thousands of anonymous traders across the globe are secretly agreeing prices worth trillions of dollars. A market can only work if traders, including their dishonest brethren, know what prices their competitors have agreed. Since 1909, traders have relied on Platts, owned by McGraw-Hill, the US publishers.

Platts reporters call hundreds of producers and traders every day to discover their purchase and selling prices. Unscrupulous traders lie to manipulate the market, but even the best manipulator can only fool the market for a couple of days yet often takes advantage of an incompetent Platts reporter. Some of the most aggressive traders suspected of speculation are global commodity trading giants who are beyond the Eurocrats' reach. And so the bankers are angry.

In a world of squeezes and deception, bankers' oil-trading has shifted the balance. Over the last 20 years Morgan Stanley's sophisticated trading has become colossal speculation. Markets have witnessed huge crashes following crazy speculation to manipulate the oil market. But while US investigators have repeatedly accused honest speculators of causing phoney price increases, they have also failed to find convincing evidence of a conspiracy. After Morgan Stanley's traders suffered huge losses in 2008, Platts declared its price reporting was unacceptable. The bank protested that there was no evidence of wrongdoing but to its distress was excluded by Platts from the system for a period. Now bankers protest that oil traders and Platts should be regulated like them.

The Platts system is imperfect, but no alternative has been found. Whatever transgressions the Eurocrats might discover are inconsequential compared to the world's mammoth price-fixer, Opec. Every day, those who claim to control about 80% of the world's oil restrict their production to keep prices artificially high. This group is too powerful to challenge. No one in Washington or Brussels can order the Saudis or Venezuelans to produce more oil or charge a fair price. Instead, Saudi officials in Dhahran unilaterally impose the highest price they can extract. Stymied by Opec, the Eurocrats have gone for smaller fish. Like the US regulators, they will at best emerge from the treacle with a minnow.

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European Banking Authority thought to have approved proposals that would cap bonuses for anyone paid more than €500,000

Ten times as many London-based bankers as previously expected could be caught by Europe's cap on bonuses in a fresh sign that regulators are attempting to clamp down on City pay.

The European Banking Authority, which sets the rules for banks in the 27 European Union countries, is thought to have approved proposals that would require a cap on bonuses for anyone whose pay is more than €500,000 (£420,000).

It is the latest proposed addition to the law published in March that will require bonuses for certain bank staff in the EU to be capped at 100% of their salary – or at 200% if shareholders give their approval.

The proposals, expected to be published early next week, would mark the first time a remuneration level had been published to define who are the "material risk takers" who will be subject to the bonus cap. In general, banks have been able to make their own calculations as to whom they regarded as the risk takers in the organisation.

"This expansion of the definition of risk takers will see substantially more individuals working in the banking industry being hit by tougher pay rules, including being subject to bonus caps from next year," said Jon Terry, a partner at accountants  PwC.

"If the proposals are implemented as proposed, this will mean anyone earning over €500,000 will be deemed a risk taker irrespective of their role or impact on the risk of the firm," he said.

"This will significantly increase the number of employees subject to the bonus capping, to perhaps as much as ten times for some investment banks operating in London."

Barclays, which has provided a more detailed breakdown than any other bank of staff pay in 2012, paid some 1,338 people more than £500,000 – although this included bonuses. It described 393 as "code staff", meaning those regarded as taking or monitoring risk.

The chancellor, George Osborne, had attempted to head off the bonus cap when it was discussed in March for fear that it would damage the City. Andrew Bailey, the head of the Prudential Regulation Authority, the City's new banking regulator, has warned that a bonus cap could push up banking salaries by £500m a year.

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