Centre-right German MEP Markus Ferber recently said: “The UK has been a special member of the EU for many years: it is important that it does not become a special non-member. It has to be clear that EU membership is better than any other option. The UK will notice this.”
If there is such a thing as a collective view in the rest of the EU of the coming Brexit negotiations, these words from Ferber – a senior figure in the European Parliament in setting EU financial regulation – are perhaps the closest thing to it.
But in the debate around the impact of Brexit on the City of London, too often the views of the 27 EU member states who will be sitting on the other side of the negotiating table have been caricatured as attempts to ‘punish’ the UK or ‘steal’ market share from the City.
A good place to start in understanding what they think is to listen to what they say. So here’s a 10-point summary of what politicians and regulators in the EU27 really think – based on an analysis of hundreds of speeches, articles and reports over the past few months.
Not all of it makes for happy reading for the City of London: while most of the EU are as keen to do a trade deal with the UK as the UK is with the EU, the UK should not expect any special favours when it comes to the City.
Future access to the Single Market from London will be strictly controlled, politics will trump economics, and while most expect London to retain its dominant position as Europe’s financial centre, they also expect it to be damaged by Brexit.
1. Politics first
Maintaining the unity of the EU and the integrity of the Single Market is the overwhelming priority of the majority of EU27 countries. Nothing will be agreed in any sector until everything has been agreed in all sectors.
2. Tough talking
The UK will face a tough negotiation process with the three most important groups (Germany, France and EU institutions). Many of the UK’s closest friends are already adopting a relatively hard stance. While there is little appetite to ‘punish’ the UK, the stance of some countries has hardened in recent months in response to rhetoric in the UK.
3. An imperfect alternative
There is no option on the table that provides anything like the same access to the Single Market as being in the Single Market, and any access from London will be strictly controlled. Most (but not all) countries accept the need for a transitional deal for the City, but only for a short period and on the condition that the UK falls under EU jurisdiction during that period.
4. A focus on financial stability
The over-riding concern of most supervisors and regulators in the EU27 is financial stability and close cooperation with the UK authorities post-Brexit. Many supervisors are insisting on UK-based firms having a substantial local presence as part of any relocation, and any deal on financial services should include shared oversight of euro-denominated clearing (while some countries such as France are pushing hard for enforced physical relocation of these activities).
5. The future of the City
Most countries accept that London will continue as the dominant financial centre in Europe post-Brexit, but that a range of financial centres in the rest of the EU will benefit from the relocation of some UK-based business. The UK will lose influence in financial policymaking: there is growing support in the rest of the EU to accelerate the integration of supervision, regulation and market infrastructure across the EU27 – without the UK.
6. Competing for business
The UK faces a wide range of competition for business in different sectors post-Brexit. Some countries (such as France, Ireland, Italy, Luxembourg and Poland) are actively pitching for firms to relocate, offering tax breaks and other incentives. Others (such as Germany, the Netherlands and Sweden) are taking a more passive approach to competition. Everyone agrees that some relocation of UK-based activity will be required.
7. An expensive rebalancing act
Brexit will lead to a potentially healthy rebalancing of financial markets activity across the EU as no single financial centre will be able to accommodate all the business that moves from the UK. This will be accompanied by an increase in the cost and complexity of financial activity due to duplication and relocation, a trade-off the EU27 is prepared to accept.
8. A weaker hand
The importance of the City to the EU economy is not as strong a card as many in the UK might have hoped. Many EU27 member states believe that the UK needs exports of financial services to the EU more than the EU needs exports of goods to the UK – without them our trade deficit with the EU would be a third bigger than it is.
9. A tortuous process
Negotiations on the future of the City will be more complex and more political than many expect: any agreement on services will be tougher than goods because the jobs, control and value remain with the country that provides the services. Few people in the EU27 expect a deal to be agreed in less than two years.
10. A race to the bottom?
Any suggestion that the UK would aim to attract business post-Brexit through deregulation or a more aggressive tax policy – the Singapore-on-Thames approach – would be seen as a direct threat to the EU27 and trigger a tough response.