EU threat to City risks new crisis
Stock market says the global economy will suffer if London is stripped of financial roles
FRANCE and Germany risk starting a new financial crisis if they try to use Brexit to dismantle the London-based heart of the global economy “just to make a political point”, one of the City’s most senior figures warns today.
Xavier Rolet, the chief executive of the London Stock Exchange Group, says European leaders who demanded tighter global regulation after the 2008 financial crisis are now threatening to “fragment” those same standards to punish Britain for Brexit.
Writing in The Daily Telegraph, Mr Rolet calls on the Bank of England and regulatory bodies in Europe to speed up talks to ensure the carefully constructed system of global regulation developed to stop unexpected risks emerging does not collapse. He calls for an “update” on the progress of these talks to reassure international financial firms.
The head of the stock market uses today’s article to welcome Theresa May’s call for a transition period to give business certainty but said that the details must be agreed before the end of the year. British jobs will begin relocating abroad next year if the uncertainty continues, he warns.
Mr Rolet intervened as it emerged last night that Germany is secretly working on proposals for a “comprehensive free trade accord” with Britain.
There is also evidence that Brussels is prepared to begin talks within the European Union over what trade discussions may look like, but it will not agree to formal negotiations beginning. Mrs May will travel to Brussels tomorrow for a crucial meeting with EU leaders who are under intense pressure to begin trade talks amid fears over the impact on the global economy caused by the diplomatic stand-off.
With Brexit talks deadlocked, David Davis, the Brexit Secretary, accused Brussels yesterday of using time pressure to see if “they can get more money out of us”. His counterpart, Michel Barnier, the EU’S chief Brexit negotiator, hit back by blaming Britain for the delay, saying Mrs May’s decision to call the snap election had cost time.
Amber Rudd, the Home Secretary, also appeared to hand European leaders a boost by saying that a “no deal” Brexit was “unthinkable” – despite Mrs May’s claims to the contrary.
Mr Rolet will today address a crossparty group of MPS and business leaders when he gives a speech on Brexit in the Palace of Westminster. He will make a direct appeal to European leaders not to make “protectionist” moves to strip London of its status as a clearing house for trades carried out in euros – a move first mooted by France’s then-president François Hollande within days of the EU referendum.
London has been the global centre for clearing – in which financial trades are carried out through a third party – since the G20 demanded better financial regulation in 2009. Leaders including Angela Merkel were among
the architects of the system that put London at the heart of the clearing system, which makes it far easier for regulators to monitor millions of daily trades through a centralised system.
It also saves companies billions of pounds by pooling risk. Mrs Merkel said at the time that “we have to make sure we learn the lessons of the crisis and make sure it is not repeated”.
Mr Rolet says taking back euro trading into the eurozone would “increase systemic financial risk” because “the global monitoring of risk would be impaired and that risk more heavily concentrated”.
He adds: “To those who want to dismantle rather than build on a system of global regulatory standards that protects taxpayers and reduces the cost of capital we say: do not willingly diminish systemically important global financial market infrastructure just to make a political point.”
Mr Rolet says it is “imperative” firms are given certainty on the Brexit implementation phase so they can plan ahead. Mark Carney, Governor of the Bank of England, told MPS yesterday that Europe’s financial stability would take a bigger hit than Britain’s in the event of a “no deal” Brexit.