EU at ‘crunch point’ over future of the Eurozone says expert
And Professor David Blake has dismissed the idea of a power shift from the City to the continent as a result of Brexit, stressing that London would continue to be one of the world’s foremost financial centres irrespective of quitting the block. However, he also warned the trade agreement unveiled on Christmas Eve had “significantly weakened” the UK’s bargaining position.
The EU’s hostility to our ‘Anglo-Saxon’ financial system runs very deep and goes back to the very origins of the European Economic Community
Prof Blake, Professor of Economics at City, University of London, told Express.co.uk: “The idea that liquidity has already shifted to the EU is ridiculous.
“The idea that Frankfurt will replace London as Europe’s financial hub is equally ridiculous.
“The EU’s hostility to our ‘Anglo-Saxon’ financial system runs very deep and goes back to the very origins of the European Economic Community.
“We should therefore expect it to be very insistent that we follow their rules in order to access their single market.
Ursula von der Leyen’s EU wants to force the City to play by EU rules, warned Prof Blake
Boris Johnson must not weaken, said Prof Blake
“We should be equally insistent that we will do no such thing. “This time we must not compromise. It’s time to stop another disaster.”
The UK’s financial sector contributes £126billion annually to GDP – equivalent to seven percent of the overall total.
In total, it employs 3.5 percent of the UK workforce, and generates 11 percent of total government tax revenue.
Prof Blake added: “The City of London is the predominant financial centre in Europe. It does six times more financial services business with the EU than the EU does with the UK.
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Canary Wharf does more financial services business than in the whole of the EU, Prof Blake claimed
“More financial services business is done in Canary Wharf than in the whole of the EU combined.
“The UK securities market is the biggest in Europe, the UK banking sector is the biggest source of cross-border lending to EU banks and corporates with more than £1trillion of loans outstanding, and the UK is by far the largest market in Europe for ‘alternative finance’.”
Despite this, the deal agreed at the end of last year did not include an agreement on financial services, but rather a non-binding commitment for the UK and the EU to cooperate in order to reach a ‘memorandum of understanding’ (MOU) on financial regulation, with UK negotiator Lord David Frost on record as saying talks must begin before March.
Under current EU rules, the UK financial sector can only access the single market if the EU determines that the UK financial regulatory system is deemed to be ‘equivalent’ to that of the EU in a policy aimed at safeguarding the level playing field in the EU single market.
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Lord David Frost in Brussels
EU chief Brexit negotiator Michel Barnier
However, such rules can be withdrawn at short notice – typically 30 days.
Prof Blake said: “It is clearly not a sustainable long-term position for the UK to operate a £30billion-plus business in the EU which can be stopped on a whim with 30 days’ notice.”
“Furthermore, the nature of the political dimension is clear. The EU sees Brexit as an opportunity to force significant chunks of UK financial services to move to the EU.
“More than £1trillion of investment funds have been moved from London to the EU since 2016.
The European Central Bank is in Frankfurt
“The EU is particularly keen to see euro-denominated business – most of which has been carried out in London ‒ moved into the eurozone.”
There were a number of possible arrangements which had been mooted, Prof Blake said.
Enhanced equivalence would accept existing rules governing financial services in the UK as being sufficiently similar to whose which operate in the EU, without requiring them to be identical.
Mutual recognition would aim to achieve similar result as enhanced equivalence, but assumes that financial services regulation and supervision in the UK and EU would remain sufficiently aligned in the future.
It would be jointly monitored by a committee to ensure regulatory alignment.
Theresa May, whom Boris Johnson succeeded as Prime Minister
Prof Blake foresaw significant problems which he said would become increasingly obvious as 2021 progresses.
He explained: “However, the UK’s bargaining position has been greatly weakened by what was agreed in the TCA. It’s deja vu all over again.
“Our leverage in the negotiations between David Frost and Michel Barnier had effectively been destroyed because Theresa May and Boris Johnson had given away our strongest bargaining chips by committing to paying the £40billion divorce bill and agreeing to the disastrous Withdrawal Agreement which preserved the EU single market but at the cost of splitting the UK single market between Great Britain and Northern Ireland.
“The EU would never have backed itself into a corner like this. As it is forever saying. ‘nothing is agreed until everything is agreed’.
“Yet we have fallen into precisely the same trap again by accepting the sequencing of the negotiations for the TCA that suited the EU.”