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Monday, January 13, 2020

How will Brexit hit the City?

Our balance of payments has for a long time depended on the financial markets and in particular, on the City of London.

Already, a number of companies are relocated out of the country, losing us jobs and much needed revenue. When I was in Mannheim I was told that property prices in Frankfurt were soaring as a result of financial companies moving their headquarters there from London. The latest threat to the City therefore, must be a matter of concern.

The Guardian reports that the EU will be unashamedly “political” and block the City of London’s access to European markets if Boris Johnson tries to exempt the UK from its laws.The City earns about £205bn a year from European demand for financial services. Trade experts have described the so-called “equivalence” decision as vital for the UK’s financial services sector, which generates 11% of total tax revenues.

British banks, traders and insurance firms will lose their automatic “passporting” rights to work for EU clients at the end of the transition period. After 31 December 2020 they will instead be reliant on the commission providing temporary rights:

A major issue in the EU-UK negotiations over the future relationship concerns the extent to which the British government wants to diverge from the bloc’s rules in various sectors of the economy.

The outgoing governor of the Bank of England, Mark Carney, said this week that it would not be appropriate for the UK to be a “rule-taker” in the field of financial services after Brexit.

The European commission president, however, warned of the economic costs of seeking a loose relationship with the EU. Ursula von der Leyen was also speaking in Zagreb following a meeting with Johnson in Downing Street.

“We have to find a good balance between divergence and being close to the single market,” she said. “There is a difference in being a member state and not. And there are trade-offs between regulatory divergence on one side and access to the single market. This room now has to be explored in the coming negotiations. In June we will take stock of the progress.”

The European commission will make a unilateral decision before the summer on whether it recognises British regulations and supervisory bodies as being sufficiently robust for its financial services sector to continue to work for EU-based clients.

This issue underlines how difficult it will be for Boris Johnson to disentangle the UK from Europe. If he is working in the UK's best interests then he will accept that his room for manoeuvre is limited. So far though his rhetoric is taking us in an opposite direction.
In the immortal words of the Brexiteer's we should surrender and take back control of our destiny and REMAIN in the EU to thrive in the World.
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