If the last few days have taught us anything, it’s to expect a lot of frivolous political bickering around the upcoming Brexit negotiations.
The row over Gibraltar has oscillated between the absurd and the ridiculous, reminding us how quickly debate can slip into an exaggerated, nationalist tit-for-tat.
Yesterday provided another example, albeit on a lesser scale, when German MEP Manfred Weber decided to weigh in on the somewhat niche but significant subject of euro-denominated clearing.
“People expect that we do the euro business and all the business which is linked to the euro on European soil,” said Weber, leader of the conservative European People’s Party.
“EU citizens decide on their own money... What do we mean with this? That’s about the financial markets. When Great Britain is leaving the European Union, for us it’s not thinkable that at the end the whole euro business is still managed in London. When this is an external place, this is not an EU place any more, then the euro business should be managed on EU soil.”
Weber is not the first continental politician to make such a threat (Francois Hollande said the loss of clearing would “serve as a lesson” to the UK), and he won’t be the last. Fortunately, however, such empty rhetoric does nothing to change the economic fundamentals that have made London the clearing capital of the world across many different currencies.
Companies use London’s clearing services because they are trusted, well-regulated, and provide excellent value for money. As we have previously noted in City A.M., the loss of these advantages could result in a bill of more than $100bn for Europe’s financial sector, with an unwelcome knock-on effect for the wider Eurozone economy.
More importantly, both the UK and the EU need to decide what they stand for, post-Brexit.
Theresa May insists she wants Britain to remain a free trade-endorsing outward-facing country – a sentiment one would hope is shared by her peers across the channel. If so, the EU simply cannot make the bizarre demand that euro-denominated financial instruments can only be cleared within its borders.
Such protectionism would go even beyond anything proposed by “America First” President Donald Trump, and threaten the euro’s status as a global reserve currency. Brussels should resist Weber’s parochial sentiment and take a more positive and open approach to its future, both during and after Brexit negotiations.