London cannot remain the Eurozone's financial hub if Britain is not bound by EU financial rules, Eurogroup President Jeroen Dijsselbloem has warned.
Dijsselbloem told a European Parliament committee he did not expect Britain to accept being bound by EU rules after leaving the bloc, and so the Union would have to take a "firm stand" against London remaining the main financial centre for the continent.
"We cannot allow a third country to have access, full passporting rights, to financial service markets in Europe if at the same time we allow them to deviate in terms of capital standards, requirements, consumer protection, etc etc," Dijsselbloem said.
"We can't allow the financial service centre for Europe and the euro zone to be outside Europe and the euro zone and to go its own way in terms of rules and regulations, requirements etc," he added.
"We have to take a firm stand on this," Dijsselbloem said. "There is no alternative."
Noting his own country's strong trading ties with Britain, he said the EU should be prepared to try and dampen economic fallout from Brexit on both sides of the Channel.
But uncertainty over the departure terms would already push investors to shift interests away from Britain, he added.
"I say this without any joy at all – this will start having an impact on the British economy, on the City, in the coming years," he said. "We should be fully prepared. But it's going to be a tough ride, specifically for the UK."
However, Lib Dem MEP Sharon Bowles, who chaired the European Parliament's Economic and Monetary Affairs Committee between 2012 and 2014, told City A.M. that Dijsselbloem is “posturing”.
“It is because the government has not made clear where exactly we are going, and there have been people trying to push for a highly deregulated approach,” Bowles said, adding that uncertainty had left some European politicians fearing the City morphing into “Singapore-On-Thames”.
It comes after chancellor Philip Hammond today warned that any reduction in the openness of the relationship between the EU and the UK could be bad for British towns.
"The right way for the government to best protect the UK economy is to argue for the most open possible trading relationship with the European Union after we leave the union," he said.