By Reuters
Friday, July 02, 2010 Email this story | News Tracker | Reprints | Printable Version

LONDON (Reuters)—The Channel islands of Jersey and Guernsey are setting up a diplomatic mission in Brussels for fear their representation to the European Union will be marginalized by a cash-strapped British government.
The islands’ politicians fear Britain may not pursue their cause vigorously enough on issues such as proposed E.U. regulation that could hobble their vital financial services industries.

“Clearly what is uppermost in our minds is maybe background in (the U.K.’s) minds and they’ve got a thousand and one other things to worry about,” Terry Le Sueur, chief minister of Jersey told Reuters in an interview. “If … the UK government is generally cutting back on expenditure wherever it can, I think we’ve got to accept the fact that they will have less resource to direct—be it manpower or time—towards looking after the interests of a whole variety of dependent territories.”

The two islands, spanning less than 200 square kilometers, are major offshore financial centers, with low taxes helping lure banks, hedge funds and private equity firms. They rely on the United Kingdom for diplomatic representation and defense but are outside the European Union.

That leaves them vulnerable to proposed new regulation such as the directive on Alternative Investment Fund Managers that could bar their funds from selling into Europe.

They are also eager to be heard in Brussels on issues such as trade, agriculture, aviation and fishing, Mr. Le Sueur said.

The diplomatic mission, which opens in September, marks the islands’ first overseas representation and is a step towards taking control of international relations from Britain. It is also a rare example of the two statelets working together.

“It’s an indication of a step towards greater autonomy and that’s probably a recognition of the fact that the Channel Islands are becoming increasingly mature and capable of looking after themselves and running their own operations,” Mr. Le Sueur said.

Close to the northern French coast, Jersey and its even smaller neighbor are classed as British crown dependencies.

Jersey-based funds held £181 billion ($274.65 billion) of assets and its banking deposits totaled 178 billion at the end of March.

Other issues high on the agenda in negotiations with Brussels are fishing rights, aviation and agricultural exports.

If the Brussels mission proves successful, the islands may set up offices in Washington and elsewhere, said Mr. Le Sueur, whose post of chief minister is equivalent to prime minister.

“People in Jersey and Guernsey may get indignant but from the perception of the European Union and Brussels, they sometimes regard us as a single entity,” Mr. Le Sueur said. “There are some matters where if we can work together for the benefit of both of us, then we’d be daft not to.”

By Chris Vellacott