The chief economist of the European Central Bank (ECB) has said Brexit presents an opportunity for Europe to become a bigger player in the global financial system.
Brexit does not pose a risk to financial stability, Peter Praet said in an interview with German website VDI Nachrichten, but the Eurozone’s financial centres could “play a more prominent role” in the global financial system once the UK has left.
Cities such as Frankfurt, Paris, and Dublin have all made it clear they want to take some of London’s share as a global financial centre, with European politicians such as French President Francois Hollande insisting operations like euro clearing should be moved to mainland Europe.
Praet did not favour a particular jurisdiction, but said Brexit would allow closer integration of the EU banking sector, with a shared lender of last resort, within “four or five years.”
He said: “Brexit is regrettable and harmful, but it is also an opportunity for the banking union.”
Only a “fully fledged European banking union” will allow the EU to grow as a financial centre, Praet said, in a further sign EU leaders will push for closer economic integration after Brexit.
Europe’s central bankers have set out their stall ahead of the Brexit negotiations with repeated attempts to woo banks and financial services from the UK.
Earlier this week Sabine Lautenschlaeger, a member of the ECB’s executive board, said the regulator would allow banks regulated by the UK’s Prudential Regulation Authority (PRA) to have a temporary equivalence arrangement if they move operations to the EU.
Meanwhile Germany’s Bundesbank has launched a Brexit website to try to make it easier for banks to move to the country.
Praet also defended the ECB’s loose monetary policy from critics who say the massive monetary support of quantitative easing combined with ultra-low interest rates has harmed some parts of the Eurozone economy.
He said he was “very aware” of criticisms from Germany in particular, saying “interest rates could be higher.” Some economists have expressed concern about the effects on savers, with low bond yields suppressing returns for pension funds.
However, Praet said countries must be “patient”, saying the policy was “contributing to the continued existence, stability and functioning of the Single Market".
The Eurozone economy is “improving” but is reliant on monetary policy support, Praet said.
In a separate interview with Italian news organisation Il Sole 24 Ore he said the ECB is “confident on growth” but would look through effects from the movement in oil prices.