Daily Mail

Breaking up isn’t hard to do

- Alex Brummer CITY EDITOR IN WASHINGTON

THe Internatio­nal Monetary Fund is being unhelpful again. It now acknowledg­es that Britain is resilient and so far has steered clear of the economic shoals presented by Brexit. Instead it is now criticisin­g the City’s leadership as a financial centre.

Anyone reading about Brexit in the Global Financial Stability Report might conclude that the Square Mile escaped the Great Fire of london, two world wars, the gold standard and the financial crisis but finally threw in the towel under the weight of reams of pages of euro-regulation and the ambition of other european capitals.

Indeed, haven’t Goldman Sachs, JP Morgan, Barclays and lloyd’s of london already headed for the exit?

Such is the wishful thinking of doomsayers ready to declare the Square Mile is on the sliding slope to obliterati­on.

Talk to those most intimately involved in day-to-day financial regulation and stability and the picture is remarkably different. The first and most significan­t point is that while Paris, Frankfurt, Brussels or even Dublin may have their minor victories, when small teams of traders are moved offshore as Brexit insurance, most of europe doesn’t want what Britain has.

Being a global financial sector carries enormous trading risks. It requires financial institutio­ns to be generously capitalise­d but it also relies upon the commitment of central banks and government­s to stand behind those risks. As we know from the eurozone crisis, Germany may be swimming in reserves but history inures it to risk taking. France simply doesn’t have the financial infrastruc­ture to compete and its high taxation economy means it is uniquely unattracti­ve to the finance sector. As for Dublin and Brussels, they are simply not in the game.

Remember when Irish banking almost vanished below the waves in 2008? It was the UK government, not the eurozone, which rushed to Dublin’s side with emergency credits. Putting it another way, is there another jurisdicti­on in europe where the government would be prepared and understand the necessity for a banking system that is four times the size of the nation’s total output? The thought is ridiculous.

Secondly, we have the bizarre argument coming from some european politician­s that london, outside the eU, cannot possibly be the vortex, or – as it is at present – the main centre for clearing and settling transactio­ns in euros such as interest rate swaps. In effect such thoughts represent a narrow ‘euro’ nationalis­m which flies in the face of multinatio­nal trade and globalisat­ion.

When some years ago Canadian authoritie­s decided that Toronto’s financial system did not have the capacity, experience or the depth to clear instrument­s denominate­d in Canadian dollars it decided to use lCH Clearnet as its principle exchange.

Indeed, london is used by banks around the world, including those on Wall Street, to clear dollar and other foreign currency transactio­ns. If you want the best deal and maximum liquidity, you go to the markets best able to provide it – not an overpriced, illiquid flag carrier.

Finally, there is the question of the quality of regulation, or as europeans like to call it, ‘equivalenc­e’. Given both sides in the Article 50 negotiatio­ns start from the same place and that many rules were created by the UK anyway (because it has the most complex markets) it ought to be a nonissue. All that is required is some kind of arbitratio­n when there is a problem.

Sounds simple doesn’t it? Then why, except out of bloody-mindedness, make it difficult.

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