Britain must brace itself for a "high noon moment" over euro clearing with France and Germany determined to force the sector into the Eurozone, the City of London’s special Brexit envoy has warned.
Brussels has previously attempted to claw the industry – which sees trillions of euros worth of trades settled every week – back from London, where it is primarily based. Its efforts have intensified following last year's Brexit vote, despite warnings that the plan will result in higher costs for businesses across Europe.
In an exclusive interview with City A.M. the City's man on the ground in Brussels Jeremy Browne warned that although "virtually no one" disputes the economic case for keeping the activity in London, efforts were still afoot to have it relocated.
He said: "On this, the Germans are almost as adamant as the French... They are both taking a very hard line on it, and my guess is they will whip the Eurozone into line. The question is whether those countries will defy the French and the Germans, or whether they keep their powder dry, but there's only so many times they can do that."
The former Liberal Democrat MP said he expected the EU27 to present "a united front" which would make it "a difficult issue for Britain and the City". Only countries like Denmark and the Netherlands were likely to support the status quo, he suggested.
Although many EU countries have little to gain from moving euro clearing, with their companies liable for increased costs, Browne said the "absolutists" – who were willing to swallow these additional burdens for the political principle – would hold sway.
Research suggests a large number of jobs could be at risk if euroclearing is relocated from London, while London Stock Exchange boss Xavier Rolet claims it could cost investors €100bn. Browne said the issue should tip over into the mainstream consciousness because of the many pension funds it would affect.
A potential compromise could allow the EU a greater supervisory role over euro clearing. However, this might set off "flashing red lights" for campaigners who supported Brexit as a method of obtaining greater sovereignty, Browne said.
The tussle over euro clearing will also set the tone for how other deals may progress because it pits economic pragmatism against identity politics, Browne added. "It illustrates a wider point... you can infer [a country's] whole view based on this subject because at its heart lies tension that exists in lots of other areas of policy as well."
European Commission proposals for euro clearing are set to come under the microscope next month.
The commission’s plans, put forward in early June, set the scene for the euro clearing activity to be uprooted from London. The proposed shake-up to the European Market Infrastructure Regulation (Emir) gives greater power to regulators, tightens up rules for “systemically important” clearing houses operating outside of the EU and opens the door for them to be forced into the bloc.
Back in July, lobby groups Paris Europlace and Frankfurt Main Finance said European authorities should ensure that clearing houses fall under the jurisdiction of the European Court of Justice (ECJ), which the UK is set to leave as part of Brexit.
Tory MEP for London Syed Kamall told City A.M.: "I have no doubt that there are French and German politicians who want to see this happen. But they really need to understand the logistics of this change and also how this would impact on the cost to the industry.
"This move is purely based on politics and a form of euro-nationalism rather than economics."