The European Union risks opening the door to another global financial crisis if it refuses to give London’s bankers a good trade deal, two senior UK ministers said, as the finance industry emerged as a key battleground for Brexit talks.
In a joint article for a German newspaper, Chancellor of the Exchequer Philip Hammond and Brexit Secretary David Davis said they want close cooperation between EU and UK regulators after the country leaves, as part of an expansive trade deal covering both goods and financial services.
This will enable both sides to continue their work ensuring “such a catastrophe” as the 2008 crash “doesn’t happen again,” the ministers wrote in a guest column for the Frankfurter Allgemeine Zeitung. “We must re-double our collective effort to ensure that we do not put that hard-earned financial stability at risk, by getting a deal that supports collaboration within the European banking sector, rather than forcing it to fragment.”
The intervention from the British government is carefully timed to make the case for a more ambitious trade agreement than the EU currently seems willing to offer, before the remaining 27 member states make up their minds. Davis and Hammond are both in Germany on Wednesday meeting business groups and making Britain’s case for a wide-ranging Brexit deal.
The EU and the UK are due to begin formally discussing their future trade ties in March. Both sides are now in the process of deciding exactly what they want to get from the talks.
On Tuesday, European Commission chief Brexit negotiator Michel Barnier reinforced his hardline stance on banking, after previously warning it will form no part of the trade agreement and saying “passports” for the UK finance industry will end.
While Barnier offered a glimmer of hope that some UK rules could be judged equivalent to EU regulations, he said there’s no chance the British financial sector will be granted the status of “generalized equivalence” of standards, which would allow companies to continue operating relatively freely.
The main difference between passporting and equivalence is that one is a right, while the other a privilege. Equivalence can be withdrawn at short notice, would probably cover fewer services and may mean the UK will have to accept rules it has no say over.
Barnier’s latest remarks suggest that, with passporting seemingly off the table, even securing a version of regulatory “equivalence,” or a formal recognition by the EU that the UK’s rules and oversight of specific businesses are sufficiently tough, may be fraught with difficulty.
The UK hopes that when negotiations on a free-trade deal begin, it will be able to convince the EU’s 27 governments to back away from Barnier’s position.
In their FAZ article, Davis and Hammond suggested they will seek to maintain a high degree of regulatory alignment with the EU in order to allow banks to operate as freely as possible across the bloc.
“For such a close trade partnership in goods and services to succeed, we will need to maintain our common principles – including our shared belief in high standards – and continue the intelligent cooperation of our regulators,” the pair said. “The trust we place in each other’s regulators, in a whole range of areas, has been built up over many years of cooperation and there’s no good reason why it should disappear after the UK leaves the EU.”