Allister Heath:

Do I like the EU’S latest power grab over euro clearing? No: the status quo is best for Britain. But is it a disaster for the City, a sign that the EU is about to force vast amounts of economic activity to move to Frankfurt or Paris or elsewhere in the EU after we leave? Not at all, and in fact it is a decent outcome for both sides. I suspect it means that no (or virtually no) business and jobs will leak from London in that area. It’s not the ideal way of resolving our Brexit differences with the EU, but it nevertheless represents a second-best, pragmatic way forward, a decent compromise. With a bit of luck we will see a lot more face-saving fudges such as this.

So what exactly is going on? At the moment, a vast share of euro trades are cleared in London. This is hardly surprising: the City is the global centre for foreign exchange and also clears lots of instruments denominated in myriad other currencies, including the dollar.

The US, needless to say, accepts this but in return for quite extensive supervisory powers over the UK firms that conduct this dollar clearing. In effect, they are partly regulated by the US authorities – and have to hand over lots of information – and partly by the UK.

If one strips away the aggressive rhetoric, the EU wants a similar relationship when it comes to Londonbased euro clearing. It wants to be able to step in – via the European Securities and Markets Authority and the European Central Bank (ECB) – if it feels that things have gone badly wrong in London and the Bank of England isn’t doing enough to ensure that systemically important clearing houses were stable. Such intervention would only become properly hands-on if it felt that the eurozone’s financial stability was being put at risk by goings-on in London. The EU is seeking enhanced supervision, in other words: it wants joint control over euro clearers, and it wants the Bank of England, currently their regulatory authority, to have its powers curtailed in this area.

There has been lots of attention on the implicit threat – relocation – but it is clear from what the Commission and ECB are saying that this would be a last resort option. This would only be ordered if all else fails and the EU and UK authorities were unable to come to some sort of agreement.

The Commission announced its new policy last week, and now the ECB has called for a change to its constitution to implement it. It also needs new powers for related supervisory reasons.

So much for my optimistic take on the situation. The alternative view is that the EU is just biding its time before it tries to grab, on a dodgy pretext, the clearing houses. I’m not convinced that this is true: behind all of the bluster, genuine finance experts in Frankfurt and Brussels know full well that the City is going to remain Europe’s dominant financial centre. They are also well aware that a financial war between London and the EU would be catastrophic for all involved.

There is a more realistic danger in that companies feel they have no certainty. If the EU can simply demand that clearing houses must move to the EU whenever they wish, then why invest in the UK? This is what City insiders call the “sword of Damocles” argument.

Again, however, I doubt that this is the way it will pan out long term. The problem remains short-term business confidence, before jittery City players fully understand the emerging new world order.

Nevertheless, while others worry, I see the events of the past few days (albeit not of the past few weeks) as reassuring. The clearing houses will stay in London. The City won’t have any problems recruiting workers: EU citizens will obviously be able to stay; lots more will be able to come; and in future there will be plenty of visas for finance workers.

As to the “exodus”, it will be contained. Trying to strike the best possible market access in this area post-passporting remains the big, as yet unresolved, challenge, of course. But the City’s real worry shouldn’t be Brexit: it should be the spectre of Jeremy Corbyn. But that is a story for another day.

‘Finance experts in Frankfurt and Brussels know that London will be dominant’