Apparently no one in the UK has gotten the memo that they lost their empire in the middle of the last century and are no longer in the position to push anyone around.
The Telegraph has written up what could easily be misread as a perfectly sensible move by the UK financial services industry: a pointed set of demand now that Prime Minister Theresa May’s promised Brexit trigger date of no later than the end of March is getting closer. Admittedly, that could slip if the Government loses its appeal of a high court ruling that Parliament must approve the Government’s Brexit plan. But as we’ll see soon, the real issue isn’t timing but continued British fantasies about the Brexit process and their degree of influence over it.
Here are the key sections from the Torygraph piece:
The City has ratcheted up the pressure on the Government by issuing a series of demands that banks and other financial firms want from a Brexit deal with Brussels, including a transition period to stop markets from falling into a tailspin.
An influential lobby group chaired by veteran banker John McFarlane, the chairman of Barclays, has published a list of what it calls “key priorities” for ministers to consider in looming negotiations with the EU over the UK’s future relationship with Europe.
The list from TheCityUK includes calls to “maximise access to EU markets”, a two-stage transition arrangement, and a plea to allow the clearing of euro-denominated derivatives – a £470bn-a-day industry- to stay in the UK….
To avert the potential chaos, the CityUK wants an agreement on a staged transition to be struck at the start of Article 50. This would involve an initial “bridging period” spanning the UK’s exit to the ratification of the country’s deal with the EU, and then an “adaption period” that would allow companies to adjust to the new rules.
Yes, and I’d like a pony.
One wonders if the trigger for this peculiar wish list is the well-publicized departure of Britian’s most senior EU diplomat, Ivan Rogers, who issued a not-all-that-coded attack on the Government’s “muddled thinking”. But demands like the ones that the banking industry is making are prime examples of the behavior that led Rogers to quit.
Let’s review, yet again, why the procedural demand is not going to happen (and do not forget, “shape of the table” issues are often impact substance):
European officials have said from the very outset they are not negotiating before the UK starts the Article 50 process. Numerous EU officials, from Merkel on down, have consistently delivered this message. There has been only the occasional pro-UK whinge from secondary players like Poland, and even those have been few and far between.
And these leaders have kept their ranks closed. They’ve given her and her sidekicks the cold shoulder when they’ve tried to initiate discussions.
That means no transition deal. Read the language carefully: “…a staged transition to be struck at the start of Article 50.” “Struck” means agreed to. That means it has to be settled before the Article 50 two year clock starts ticking.
The Europeans have made clear that the UK will get no special breaks. Again, Merkel and anyone in any position of authority has said “no cherry picking” and stressed that any UK arrangement needs to fit within the parameters set by other existing arrangements.
May has committed the UK to a “hard Brexit”. Again, from the get-go, European leaders said for the UK to preserve access to the single market, it needs to accept the “four freedoms,” and one of those is freedom of movement, meaning immigration. But May has made restricting immigration one of her boundary conditions. There’s no overlap of negotiating position.
The British have no friends across the Channel. The UK has repeatedly been high-handed and abrasive in its dealings with the EU and UK leaders have repeatedly dissed the EU. Making Boris Johnson Foreign Minister was yet another provocation. There’s no good will, and little in the way of friendly backchannels.
The EU has good political reasons to make Brexit painful: pour decourager les autres.
The Financial Times account places more emphasis on the content of the banking industry’s request. Notice the British bankers are now pushing for demands they see as more modest:
The City of London has retreated from demanding continued access to the single market in any post-Brexit deal with the EU, according to its principal lobbying group.
In a list setting out its priorities for the forthcoming EU negotiations that was published on Thursday, TheCityUK abandoned the idea of fighting to retain the financial “passport”, which allows companies to sell their services throughout the single market from a single location.
Previously its desired outcome was for the UK either to remain in the EU’s single market, or to strike a special agreement preserving existing passporting rights. But Theresa May’s administration has shown little interest in pursuing such a deal.
TheCityUK is now pinning its hopes on building a deal around “equivalence”, a relatively new legal concept embedded in some but not all EU financial regulation.
This allows companies from markets that are deemed to have “equivalent” regulatory standards to trade freely across borders with each others’ customers under their home country’s laws and regulations.
Miles Celic, the group’s new chief executive, said that a “bespoke deal” tailored to the needs of the UK should be achievable. “It would protect London as a market and those European customers using it,” he said. “That’s an advantage not only for the UK, but for the EU too.”
Yves here. Recall we had said passporting would never happen because the EU would not grant it.
There are two astonishing assumptions in this little spiel, one explicit, one implicit.
The first is the idea that the EU is on board with preserving the City of London. Huh? All advanced economies regard promoting their banks as a strategic priority. The Continent would love nothing better than to take a piece out of the City. It means more jobs, not just banking but new office construction, and relocation of the related support professionals, like lawyers and accountants.
Here is another remark that reveals how much the Brits are stuck in their own echo chamber:
It also said that the UK should not surrender the right to clear euro denominated derivatives, a demand that some fear Brussels may level.
“It’s a critical part of the broader ecosystem, and one that makes it efficient,” said Mr Celic. “It is in everyone’s interests to leave it in place.”
The ECB already had determined that Euroclearing had to take place in the Continent. The only reason the UK was able to beat that threat off was the European Court of Justice ruled against the ECB, on the basis that it could not discriminate against an EU member. With the UK out of the EU, the ECB can forge ahead.
And does the lobbying group think that no one in the Government or public remembers that less than a month ago, the ECB made clear it is going to play hardball on Euroclearing? As we wrote on December 16:
A raft of stories at the Financial Times verges on funny, in that they affect consternation that EU bureaucrats are intent on taking a big chunk out of the City’s business. It was obvious that this would happen and we said so repeatedly over the summer. Yet it’s been astonishing to see Brexit boosters, the few that wander into Naked Capitalism and the ones who are well represented in Fleet Street, act as if the UK somehow has the upper hand. As we’ve written, Brexit fans have chosen to ignore repeated, crystal clear, and surprisingly unified warnings from EU leaders that they will give the UK no quarter if it really does go through with a Brexit.
The current cause celebre is that France and the ECB are working to expedite a plan to move Euroclearing from the UK to the Continent in the event of a Brexit….And the new wrinkle is the Europeans plan to set the process in motion more or less contemporaneously with the UK’s planned date for invoking Article 50.
So the only way for the Brits to keep Euroclearing is to trade something the Eurocrats regard as valuable, yet we see nothing of the kind in their thinking.
The implicit assumption in the banking lobbyist thinking is that the EU and UK could agree on an equivalence deal when the EU doesn’t have all its financial service regs on that basis. The Financial Times article mentions that commercial lending and insurance are not covered, for instance. Moreover, this would be tantamount to the UK giving up sovereignity, since the EU retains the upper hand. The EU can withdraw the right to operate under equivalence rules with a mere month’s notice if they deem the other country’s regs to be not equivalent. Bank of England governor Mark Carney is making less than happy noises about the idea because it could result in, per the Financial Times, “Britain losing influence and even control over its own markets.”
So what is the lobbyist” proposal? Again from the pink paper:
TheCityUK argues that issue can be dealt with by the UK negotiating a long term deal that would establish the principles on which equivalence was founded and also creating a mechanism to resolve disputes.
This is tantamount to asking the EU to overturn its legal system to accommodate British bankers. Na ga happen.
The EU is a civil law system. Rules and regulations are set forth in great detail. Judges will interpret them but in theory, their rulings don’t have precedential value (in practice they do but not remotely to the degree they do in the Anglo common law system). The idea of having only some rough and ready guidelines and winging it is not even remotely how the EU does things. We’ve commented repeatedly that Eurocrats are rigid, literal-minded, and procedural. That’s actually served as a plus for them since it produces the predictability they’ve needed to keep a now 27 member nation group functioning at all.
There are some smaller discussion items that are just as barmy but we won’t belabor them.
And in case you think that Theresa May is just posturing so as to force the Brexit camp to come to its senses, that’s a major misreading. She’s consistently taken an aggressive posture that has emboldened the hard-liners and created wildly unrealistic expectation in the general public. As Janan Ganesh wrote in the Financial Times yesterday in Theresa May is decisive over Brexit but we choose not to listen:
Mrs May has been as plain as any prudent prime minister could be about her favoured model of exit. Only the dedicatedly obtuse could not infer her priorities from the speech she gave to Conservative party conference in October. Cross-reference it with her earlier interviews and her work as home secretary, and it is clear that she craves the restoration of national control over immigration more than she craves anything else. She also resents the jurisdiction of the European Court of Justice. These imperatives do not imply so much as demand withdrawal from the single market, and make a place in the customs union tricky to retain, too.
None of this amounts to a strategy or a guarantee of success and her remarks have preserved some latitude at the edges. She might try to buy preferential market access for sectors of the British economy and to smooth the transition to exit with interim arrangements. She will certainly pursue a trade deal with Europe upon departure. But the core of the matter is a prime minister set on a hard not soft exit, even as she rejects these terms like a precious musician miffed at their brute pigeonholing as rock or soul.
The Brexit preliminaries are already showing troubling parallels to the Greece-Trokia talks of the first half of 2015: two sides with little trust in or liking of each other, the smaller party with a grossly inadequate negotiating team, both in skill level and staffing, yet grossly overconfident about its bargaining leverage. Yanis Varoufakis did at least have the right economic assessment, even if he had the politics all wrong, and he also understood he was playing a game of chicken. The Tories don’t even seem to recognize that they are also adopting that strategy. Nor do they recognize, as the Greeks learned, when the other side refuses to steer away, the weaker party bears the brunt of the impact.