A unified pricing mechanism. Integrated trading. Shared information, and standardised rules. The European Union this week pushed forward with plans for what it calls a “capital market union”. It is attempting to build a common rule book and a single market in money that will, in theory anyway, make it cheaper for companies to raise capital, and strengthen the continent’s key financial centres.

A threat to the City? That would be the knee-jerk reaction. In fact, it should be a gift to London. Why? Because, in the real world, the more Brussels harmonises its rule books the worse its performance gets. And because the common rules will undoubtedly be far more cumbersome than the national ones they replace. If London plays it right, it should emerge from this process in a much stronger position.

There is no questioning the ambitions of the commissioners in Brussels to create a single market in finance to serve the whole bloc.

On Thursday, it unveiled the latest round of proposals to bring national capital markets under a single umbrella. There will be a single tape for pricing, as in the US, shared rules on transparency and settlement, and common standards on disclosure.

It will be a “decisive moment” in strengthening the regulation of the industry, according to the financial services commissioner Mairead McGuiness. “It is important that we develop our own capital market,” she added ominously, making it clear that the reforms are specifically designed to create a European market that can challenge both London and New York on the global stage.

Of course, there are plenty of reasons for the City to feel nervous. No one should be in any doubt that the EU doesn’t like the fact that the bulk of the continent’s financial services industry depends on London to operate effectively.

The plan is that Paris, Frankfurt, Milan and Amsterdam will be turned into a single powerhouse finance centre, linked electronically, with the City turned into little more than an irrelevant offshore nuisance.

And while the importance of a strong capital market in creating a strong economy can easily be overstated – the strength of the City hasn’t always done the rest of the country much good – the Commission has a point when it argues that cheaper, easier access to investment will help the bloc’s entrepreneurs.

Even so, the Capital Markets Union could still be a gift to London. Here’s why.

First, although the pen-pushers and second-rate politicians in Brussels have not yet noticed it, the more the EU harmonises its rules the worse its performance gets.

Sure, there are some benefits to integration, but, in practice, it typically only consists of the elimination of some minor compliance costs. What gets lost when rules are standardised is all the innovation and dynamism of competition.

We have seen that time and again in the three decades since work on creating the Single Market began in the early 1990s. While the gains are real enough, so are the losses, and net-net you end up in a worse place than where you started.

That explains why, ever since the Single Market was created, and Europe’s economies became more integrated, growth has been slower than when they were more fragmented. We can be certain that the same process will play out in financial services as it has in every other sector of the economy.

Next, the integrated standards will inevitably be more cumbersome and convoluted than the ones they replace. In fact, the rules already in place are quite rightly regarded as some of the most mind-bogglingly tricky and pointless ever devised, protecting traders and investors from non-existent risks at a staggering cost in paperwork and compliance.

It is certain that another round of harmonised rules will deliver yet more of the same, imposing another layer of regulation for no discernible benefit. The City will have the opportunity to offer a simpler alternative.

It is already stripping away the Mifid II rules that were the first part of the capital markets union. By staying out of the latest round it will make itself more competitive, not less. Indeed, most EU-based companies and investors will be relieved to have a cheaper, more flexible financial market right on their doorstep.