Positive virus test halts Brexit talks at crucial point in timetable

There has been no jobs bloodbath, but the bigger threat to the UK finance industry is the Government

BREXIT talks were halted ahead of a looming deadline for a UK-EU trade deal yesterday after one of Michel Barnier’s team tested positive for coronavirus.

Negotiations between Mr Barnier and David Frost, the UK’S chief negotiator, will not be possible as the timetable reaches a crucial point to avoid no deal. The EU’S chief negotiator, who must quarantine for up to 10 days, broke the news on Twitter. Lord Frost, who officials said was in “permanent” online contact with Mr Barnier, said: “The health of our teams comes first.”

Ursula von der Leyen, president of the European Commission, wished the stricken official a speedy recovery. She said “work will continue in full respect of Covid-19 rules”.

A government spokesman said: “The UK and EU teams have agreed to continue to negotiate remotely for the time being. The talks will resume in person when it is judged safe to do so.”

Under Belgian law, anyone who comes into contact with someone who tests positive must self-isolate. If someone tests negative, quarantine is cut to seven days. Negotiations are expected to continue online, as they did when the pandemic first broke out in March. Talks in person resumed in July after negotiators complained online talks made it hard to make compromises.

EU diplomatic sources said the trade deal was 90 per cent done but warned that breakthroughs on fishing, level playing field guarantees and enforcement protocols remained elusive.

A UK-EU free trade agreement could be announced as early as Monday, said sources, if compromises were made.

But a senior EU official warned that if the deal was not agreed by Monday, there would be insufficient time to translate the agreement into the EU’S other 23 official languages for ratification by the European Parliament. Failure to do so by the end of the year would mean the UK trading with the EU on WTO no-deal terms from Jan 1.

More time could be bought if the deal was simply ratified in English, the official said, although that would likely be resisted by France.

Finance was the major cause of the last big economic crisis, but this time it has found itself – unusually for an industry used to being demonised – part of the solution, rather than the problem. This happy disposition would, admittedly, not have occurred but for government instruction and largesse. Virtually all the economically supportive new lending we have seen in the UK since the start of the pandemic is government-guaranteed.

The industry’s newfound reputation for competent kindness has also been somewhat tarnished by the refusal among major providers to pay out on business interruption insurance – now being tested in the Supreme Court. In some respects, this is a defensible position. In past pandemics, people died but business carried on regardless; this is the first time in history that economies have been forcibly closed down by edict to save lives and prevent health services being overwhelmed. Yet we live in an age of assumed handouts; the insurance industry’s intransigence has met with predictable fury.

Be that as it may, markets have, on the whole, functioned well throughout the lockdowns, with finance adapting more swiftly and effectively than perhaps any other industry to the challenges of home working, and, despite the unprecedented size of the downturn, no apparent threat to solvency.

Interestingly for a sector that threatens to be more damaged by Brexit than any other, wholesale finance is also seemingly much better prepared for leaving Europe’s single market than the rest of the economy. Whether or not lorries back up in Kent, all necessary steps have apparently been taken to ensure that financial markets continue to operate smoothly.

What makes this state of preparedness all the more remarkable is that there is virtually nothing for finance in the ongoing trade talks with Brussels. Initially, the Government had hoped for a Canada-plus type arrangement, which almost uniquely for a free trade agreement, would have included some form of continued access for finance to European markets. It was not to be. Britain’s unilateral offer of “equivalence” has not been reciprocated.

But here’s the point. During the referendum, there were warnings of a likely bloodbath of City jobs if Britain voted to leave, but so far it just hasn’t happened on anything like the scale feared. At the last count, “only” 7,500 jobs had been transferred; what is more, these “losses” have been more than compensated for by job gains elsewhere in finance.

This is not to say that the City has undergone some kind of Damascene conversion on the merits of Brexit. Virtually all practitioners of my acquaintance have held to their pre-existing view, which is predominantly that whatever its cultural appeal, Brexit is a wholly unnecessary, business-unfriendly, pain in the backside.

What we see, however, is that it takes a lot more than an event like Brexit to tip the balance. It is actually historically extremely uncommon for a dominant financial centre to lose its position once established. When such upheaval does occur, it is generally because finance becomes in some way politically threatened, as occurred with Amsterdam, once on a par with London in providing finance to Europe and beyond, during the Napoleonic wars. Fearing despoilment at the hands of the French, activity and market share shifted wholesale to the relative safety of London.

Whatever else Brexit might be, it is not the existential threat of Napoleon. In fintech, payments systems, securities innovation and its simple, financefriendly culture, the City remains streets ahead of anywhere else in Europe, where the industry remains substantially mired in a bygone age of political constraint and hostility. Christine Lagarde, president of the European Central Bank, talks a good game in this regard, but she’s struggling to shift the dial in any meaningful way. The Germans are good at making cars but – as the scandal of Wirecard, the Munich-based fintech firm that turned out to be no more than an accounting mirage, shows – they are not much good at finance.

The big bet in the City is that an FTA that initially excludes finance will provide a platform that, over time, can be used to deepen and extend the relationship to include much capital markets activity. In the poisonous atmosphere of no deal at all, of course, attitudes might change, but for the moment, there is little appetite for the wholesale transfer of activity to the Continent once feared.

In any case, the rather bigger threat to the City comes not from Europe, but from within. Whatever its rhetoric, there is little that is business- and finance-friendly about the UK Government right now. The narrative is entirely about spending public money, with almost nothing in our cultural and political discourse on how the country is going to earn the pounds to pay for it all. The City looks set to survive Brexit largely intact, but there are only so many hammer blows it can take before its position as a great dynamo of economic activity and tax revenue begins to seep away.

follow Jeremy Warner on Twitter @jeremywarneruk; read more at telegraph.co.uk/opinion