UK Consternation Over EU Not Accommodating City of London in Brexit…Just As It Said It Would Not Do

Yet again, we have the spectacle of various UK commentators getting their knickers in a twist over the EU doing what it had either said or had effectively said so often that the message could hardly have been considered to be in dispute. But even more so than on other fronts, the UK was particularly disinclined to hear what it did not want to hear regarding its lone national champion, the financial services industry.

The UK’s misguided hopes on that front were dashed today, as we’ll discuss more specifically below.

The EU had set forth the critical parts of its position early on: outside the EU means outside the EU. That means if you are a financial services firm, if you want to operate in the EU, that’s all well and good, but you need to get local licenses. That also means that for certain products, you need to have the individuals selling those products be licensed by the appropriate regulatory body. We have that sort of regime in the US for anyone selling securities, even to professional investors. This is hardly an exotic concept.

The UK has continued pinning undue hopes on “passporting,” that UK financial services professionals would have their UK credentials recognized in the EU. But that had been given a thumbs down previously too.

Another fudge the UK had hoped to get was “equivalence,” which was if UK financial services regs were kinda sorta aligned sufficiently with EU financial services rules, UK firms in those products/services could operate freely in the EU. One can see why the EU wouldn’t go for that. Unless the foreign country hewed precisely to the EU’s rules, “equivalence” equals ceding some, potentially a lot, of control over your own regulations to an unaccountable foreign country. Now admittedly, the EU has done that, in a couple of areas, commercial lending and some insurance products. But neither of these are heavily regulated activities and companies already shop for them across borders. 1 The idea that they’d extend equivalence beyond narrow bounds was never on save in the fevered brains of Brexit boosters.

I know I may sound like a broken record, but reading the English language press gives the impression that the EU rebuff is a new development. For a sanity check, below is a section of a post from February 27, 2017, almost a full year ago:

The Financial Times obtained access to a European Commission document that puts paid to a pet proposal for how the City could have its cake and eat it too in a Brexit, that of the implementation of an “equivalence” regime. We had been skeptical that this arrangement would be approved by the European side. Our view appears to be correct.

While this had not been fleshed out in any detail, the UK proponents argued that London could be permitted to service customers on the Continent more or less as before if UK regulations were deemed to be “equivalent,” since the EU had already allowed for that with some financial services.

The idea had been bandied about before, with a recent sighting in January. Then, an “influential” banking industry lobbying group, TheCityUK, published its demands for Brexit talks. We wrote at the time that they showed how the British side was in a bubble, and that the document pressed for several ideas that had already been rejected by the EU.

The only good thing that could be said about equivalence was that it at least had not been previously nixed. The equivalence proposal resulted from the fact that the industry did recognize that one of its pet asks, “passporting,” was a non-starter. Passporting would have allowed UK-based employees of UK firms to sell services to customers in the EU. It’s not hard to imagine why the EU would not be keen about that in a post-Brexit world.

So shorter: as of eleven months ago, the UK had already been told no once on these pet issues, and was having to be told “no” yet again. Frankly, I am astonished that Michel Barnier and Jean-Claude Juncker can keep up a veneer of politeness with this sort of mind-boggling obtuseness operating on every front. The UK keeps acting as if it ignores clear and persistent rejections, somehow the EU will relent.

The one difference with the EU’s latest “non” is that it stooped to tell the UK that it heard and was unmoved by its argument for being nice to the City: that somehow the Continent would suffer if British bankers were inconvenienced. As we’ve said, that idea is silly. The world is awash with bankers. The Continent had perfectly good ones that would be delighted to eat the lunch of their London competitors. Moreover, the firms that now do Continental business out of London (and that includes US as well as European players) are fully capable of moving staff to Europe (or hiring) and getting any needed licenses. The biggest impediment seems to be figuring out where to bulk up and securing more office space, but the large financial firms were scouting virtually from the day after the Brexit vote. They could read the handwriting on the wall.

Note that Barnier was reported as making some accommodating noises but he’s gotten out ahead of his principals before and has been slapped down. The reality is that as we have said before, “equivalence” in any complex financial products (and the high margin ones are complex) would require the UK to stay strictly aligned with EU rules. That would also mean rapidly implementing any EU regulatory changes and accepting ECJ rulings, and almost certainly the ECJ as final arbiter. That’s a non-starter politically. As Reuters reported yesterday:

As Britain was leaving the EU’s single market and rejecting its rules, including arbitration by EU courts, one EU diplomat said, “it’s clear that they will lose passporting rights as this is part of the internal market and our regulatory regime.”

“When they do that, the only other alternative is what we have in some of our FTAs,” the person added, referring to free trade agreements the EU has with other countries.

Barnier has said that free trade accords have in the past offered only limited access for financial service providers. He has said there was a willingness to look at the possibilities of equivalence.

Some envoys expressed caution about how far that could be done. Others were more open to closer cooperation…

“The key message was that given the UK’s red lines,” another diplomat said, “a free trade agreement is the only possible cooperation scheme.”

So in light of the foregoing, consider the Financial Times’ account, EU rejects Brexit trade deal for UK financial services sector. Key sections:

EU Brexit negotiators have set out a tough line on financial services, ruling out an ambitious trade deal for the lucrative sector and arguing that Europe would benefit from a smaller City of London, according to confidential discussions among the other 27 EU member states…

“There was a strong commission message that there would be no special deal,” said an EU diplomat briefed on the discussions — a first attempt to thrash out the bloc’s position on the issue before negotiations with Britain start in March. “The UK is being told from the beginning what the situation is.”

Another EU diplomat said: “They are out of the internal market, that’s it. There can only be a much less ambitious agreement.”

And consider this new argument, which strikes me as correct, that the EU has safety and soundness reasons to want financial firms to be operating mainly in the domestic currency and under the supervision of the ECB. In the immediate wake of the crisis, there was a push to move away from the “home-host” system, in which international financial firms were primarily regulated by their “home” regulator and regulators in other countries didn’t look very hard at the financial adequacy of the subsidiaries operating in their country. The assumption was that the home country regulator would make sure the financial firm was strong enough on a global basis, and the local regulator would demand more capital from the mother ship only on an as-needed basis. After the crisis, there was some thought about having major operations be adequately capitalized in each country and having the regulators in those countries kick their tires. But that would have led to banks being less “efficient,” which is a feature, and not a bug, of greater safety.

Here is the high level version of the issue:

Brussels’ fear is that, in a financial emergency, UK regulators would prioritise continuity in companies’ UK operations over their activities in the EU27. This could lead to outflows of capital and liquidity or the withdrawal of vital services at a critical moment.

One senior diplomat said that the commission had underlined the importance of making sure that the EU did not lose “influence” over the UK financial sector, which could “have such a huge impact on the EU”.

Recall it was, ironically, the UK that was on the receiving end of a mini-event like that, when Lehman stripped its London operations of cash and collateral right before it collapsed.

This example should put paid to the idea that the EU is being mean to the UK. The fact that the EU hasn’t shouted down the UK in frustration and is willing to entertain an idea that it is highly confident the UK will reject once it again explains what the EU requirement are is far gentler treatment than the UK deserves, given its childishness and the seemingly never-ending presumptuousness and whinging of its officials and commentators.


1 The US is an exception in having pretty strict regulation of insurers. Former Australian Treasury official, now investor and blogger John Hempton contends that is because the US uses private insurance, such as disability insurance, in lieu of social safety nets, and thus the government has a vested interest in making sure those products perform adequately.

Yesterday, Reuters confirmed that while the EU does had a significant number of equivalence pacts, all are narrow and thus not precedents for the sort of arrangement the UK has been pining for:

[European] Commission data showed the EU now has agreements with 38 countries on equivalence of regulation in certain areas of financial services, often narrow in scope.

For instance, the EU has equivalence agreements with Egypt and Russia, but only on the audit framework and transitory regime. With Argentina, it is just the legal and supervisory framework covering credit rating agencies.

But it has equivalence agreements in 22 areas of financial services with the United States and 20 with Japan. Those cover prudential requirements for credit institutions and investment firms, insurance and reinsurance or over-the-counter derivatives, central counterparties and trade repositories.

None of the 38 countries has equivalence agreements in all areas of EU financial services.

Nor are there equivalence agreements with any country on prospectus rules, the transparency of securities financing transactions, or on short selling and certain aspects of credit default swaps, among others, according to the Commission data.

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  1. PlutoniumKun

    Here in Dublin the Irish Central Bank has been overtly obstructionist over London institutions moving over to Dublin – they have said that the system here is simply not equipped to regulate large scale institutions. As they have just massively staffed up and moved to spiffing new offices, I suspect this is genuine, and not a plea for more money and staff.

    The government first criticised the Governor (a very rare move), and have now nominated him for an ECJ seat, which I assume is one way of opening the way for someone more ‘accommodating’.

    In yesterdays Links there was a good Der Spiegel article on the issues in Frankfurt – not everyone in the city is keen on it becoming a new London. I suspect that (as Colonel Smithers reported here before the New Year), the EU recognises the need for more time to set up regulatory systems for finance, so will be happy to opt for a slow strangulation, rather than a quick bullet to the head when it comes to extracting what it wants from the City of London.

      1. PlutoniumKun

        Quite right, I’m getting my EC’s mixed up – my bad, I’ve often criticised others for getting their European instututions confused.

  2. Colonel Smithers

    Thank you, Yves and PK.

    In the case of my German TBTF, it has become noticeable how many projects are no longer being led by a London based member of staff and how locations away from London are being given more support in advance of business no longer being booked in London. An internal cut off date of 1 July 2018 has been in place for months for contracts to be novated from London Branch and for new business to be booked in other locations.

    “As we’ve said, that idea is silly. The world is awash with bankers.” Readers should be reminded of PM Harold MacMillan’s reply to the Lord Chancellor, the Earl of Kilmuir, during the Night of the Long Knives in 1962. Lord Kilmuir complained that he had been given less notice of dismissal than a cook. Super Mac replied that it was easy to find lord chancellors, but difficult to find good cooks. There are few characters like Super Mac in British public life anymore. British public life is dominated by arrogant PPE graduates from Oxford, humourless accountants, spivs and bootlicking hacks.

    The London masters of the universe will soon find out that they are no longer.

  3. Colonel Smithers

    I forgot to add that the City’s International Regulatory Strategy Group, led by Mark Hoban and staffed by some former colleagues, have been told for months that their lobbying was not only futile, but unwanted, too. They were politely listened, largely in the hope that they could relay something to May and her motley crew. The EU’s latest rebuff should not have come as a surprise. It has hardly made the news, even in the City. City AM, the City’s mindless cheerleader, still thinks the EU will buckle as it needs London more than London needs the EU and EU27 will be difficult to maintain as 2018 progresses. One wonders what is in the air or water in London.

    1. vlade

      Re your last sentence – the only thing I can remotely (and even that is x-th hand only) compare the current British thinking is the South from 1850s till 1865 or the last days of Reich. I do wonder how many do see it privately (and make money out of it), but refuse to admit in public.

      1. PlutoniumKun

        I suspect many are like the person shouting ‘everyone calm down, its a false alarm’ during an emergency, while simultaneously shifting slowly over to the fire exit so they can be first out and not caught in the crush.

        Although having said that, the manner in which both sterling and property values have maintained their relative strength the past 12 months indicates that there is still plenty of stupid money out there.

        1. Jim A

          My (very limited, so probably not very accurate) understanding is that the prices for high value London property are driven in large part by money laundering/safekeeping by the international kleptocariate. It is handy to have a pied de terr in same place as your cooked banker. So the question becomes will London still be a money laundering center after it leaves the EU? To me, the answer to that is completely unclear. On the one hand, getting your money into Euros in the EU is a nice goal. On the other hand, with the UK doing it’s own financial regulations, it is easy to imagine them in a race to the bottom when other business for the city evaporates. Also there are traditional relationships between the City and several of the specialty money laundering zones, like the Channel Isles and parts of the

          1. PlutoniumKun

            That is certainly a major driver, although there are reports of lots of high end apartments unsold in London. London property is unquestionably an investment hedge for a lot of foreign money of questionable origin. Many have already lost a lot due to sterlings fall. I think a lot of the smart (foreign) money is waiting to see if sterling falls more before thinking of buying. I think a big unknown is what impact Brexit will have on hot and dirty money. Many of the Brexiters are openly hoping London will attract even more. But they may not have figured on fears over Sterling damaging its attractiveness.

      2. Colonel Smithers

        Thank you, Vlade.

        You are probably right.

        I have just returned from an event about Russia and was told something similar, “playing the dip”, about investors who mouth off in public about Russia, but quietly invest.

      3. rd

        Another good example might be the collapse of the British Empire after WW II where it appears the British Government was unaware that they no longer had a British Empire by 1954.

        From “Parkinson’s Law” 1955

        “The colonial territories were not much altered in area or population between 1935 and 1939. They were considerably diminished by 1943, certain areas being in enemy hands. They were increased again in 1947, but have since then shrunk steadily from year to year as successive colonies achieve self-government.

        1935 1939 1943 1947 1954
        372 450 817 1,139 1,661

        It would be rational, prior to the discovery of Parkinson’s Law, to suppose that these changes in the scope of Empire would be reflected in the size of its central administration. But a glance at the figures shows that the staff totals represent automatic stages in an inevitable increase. And this increase, while related to that observed in other departments, has nothing to do with the size – or even the existence – of the Empire. What are the percentages of increase? We must ignore, for this purpose, the rapid increase in staff, which accompanied the diminution of responsibility during World War II. We should note rather the peacetime rates of increase over 5.24 percent between 1935 and
        1939, and 6.55 percent between 1947 and 1954.”

        1. RBHoughton

          What a splendid bit of research you have published there rd. Many thanks. How nice to recall the common sense of economists in the days of Parkinson and O F Schumacher.

  4. David

    I wish I could believe that this level of unreality was specific to the current excuse for a British government, but it’s not. The idea that we can pretty much have what we want in Europe has been around since the 1980s: effectively it began with the estate agents and second-hand car salesmen who increasingly populated the Tory Part after the rise of Thatcher. I remember in late 1990 seeing the UK government’s negotiating position and list of red lines for the two Union negotiations that were about to start, and thinking to myself “these people are living in dreamland”. And so it proved, as the government was forced to abandon virtually all of its initial positions one by one. John Major famously claimed “game set and match” after the negotiations were over, but, whilst he played a good hand as Maastricht (largely because he had an excellent advisory team, the kind of people who don’t exist any more) most of the major battles had already been lost. It’ll be the same this time, only worse.

    1. Colonel Smithers

      Thank you and well said, David.

      One of John Major’s advisers during the Maastricht treaty process was Sir John Kerr, author of Article 50 and now in the House of Lords.

      I would just add that, as part of the take over of the Tory party by estate agents and Old Estonians, from estate owners and Old Etonians, PR also became more prominent in public life. PR people began to appear in the media, vide Thatcher’s adviser Sir Tim Bell, and assume positions of leadership. As long as the PR and media manipulation were right, the substance did not matter, hence the “game, set and match” headline in the Murdoch Sun.

            1. Synoia

              I perceive them as equals. Mac does not stand above the others.

              The one failure which stands out above others is the forgiveness of Germany’s war debt, compared with the complete lack of forgiveness for the UK’s debt from two world wars.

              If it were not for the petroleum-driven inflation of the ’70s, that debt would be a burden today.

      1. YankeeFrank

        Another of Major’s excellent chief advisors/negotiators was George Edward. A funny anecdote he told to a family member of mine related to the negotiations over chocolate products sold between Britain and the rest of the EU. The EU negotiators began the session demanding Edward relent and call British chocolate (e.g., Cadbury’s Dairy Milk, etc.) “something other than chocolate”. Edward closed his book, stood up and walked out of the room without saying a word. The EU negotiators ran after him apologizing and asking him to come back as they needed to get this work done more than he did. British chocolate is called chocolate everywhere in the EU.

        Edward thought the EU project was a misguided effort that would eventually fail as there is no way the historic hatreds between the EU countries would ever be contained in a “United States of Europe” as he put it, but his PM called upon him to help and he saw his role as doing the best for Britain he could given the circumstances.

        George Edward was an intense and fascinating man. He authored a study that showed British
        “justice” in Scotland was anything but (he was of Scottish descent himself), due to the fact that defendants rarely understood a single thing the judges were telling them during hearings/trials due to dialect differences and the highly technical legalistic English speech patterns of barristers and judges (almost all of whom are English in Scotland — go figure ;) ). With this study he managed to change the way defendants are arraigned in Scotland so that they actually understand the process and what is being said to them.

        Unfortunately, and as David pointed out, men like George Edward do not exist anymore in British government, esp. amongst the current batch of Tories. And even if they did, Britain’s position now is the opposite of its position during the formation of the EU. I have a special love for much of Britain (esp. the north and Scotland), and I do hope they come through this unscathed. I fear though that might not be the case.

        1. Mark P.

          I have a special love for much of Britain (esp. the north and Scotland), and … hope they come through this unscathed. I fear though that might not be the case.

          It’s going to be a different world.

          It’s high time. It’s 2017 and the British have been living off fantasy images of themselves derived from 1940-45 my entire life. It’s understandable: in the 1950s and even the 1960s, there were still parts of London bombed out from the Blitz.

          Still, the country needs to re-encounter reality.

          The irony — and the hope — is that the U.K. in its post-Thatcher de-industrialized state, will be — after Brexit scrapes off much of the City of London’s contribution to British GDP — in somewhat the same situation as West Germany was in the 1950s, when that latter nation’s existing industrial base had been demolished by WWII and the Germans had to rebuild from nothing. Whereas the German economy now is essentially the best 19th century export-based industrial manufacturing economy you can have in the 21st century.

          The U.K has advantages in biotech and IT/AI, which will be the primary industries of the 21st century. It would be pretty to think that after Brexit has razed some of the existing City of London-centered neoliberal economy down to the ground that the U.K. will develop a national industrial strategy that focuses on those 21st century industries.

          1. Synoia

            The U.K has advantages in biotech and IT/AI,

            Only if not drowned by Climate Change. East Anglia has an average height of 8′ above sea level.

  5. rd

    Other than cheddar cheese and haggis, what unique products and services does Britain provide that can’t be found somewhere else in the EU?

    Britain is a sizable market, but isn’t much bigger than Canada, although it is closer.

    I am still baffled why Britain thinks they are going to come out of this with anything more than a NAFTA-type of agreement. Financial services will probably not be generally included in that agreement. Heck, even in the US, insurance is heavily regulated on a state-by-state basis, hence the recent attempt by Congress to neuter state laws on that front as they didn’t believe the market was similar enough to the EU passporting.

    1. Yves Smith Post author

      Stilton and clotted cream (OMG terrific) and excellent shooting sticks.

      More seriously, they do have some pharma and they have an aircraft wing facility which would be hard to relocate and has some very skilled employees.

      But yes, the list is short.

      1. vlade

        The wing business may slowly die under most Brexit scenarios. It’s pretty much impossible to relocate now (lucky UK), but my understanding is that the new composite A320 wings are somewhat differnet technology, and Airbus is not willing to commit even in talk to doing it in the UK, and there’s EU pressure (Spain and Germany) to relocate.

        More say in:

      2. PlutoniumKun

        The UK is strong in biotech too. This is also under threat from Brexit because of the growing reluctance of non-British researchers to commit to living in Britain.

        1. vlade

          Yep, I know of cases where people are already hunting for UK researchers – who are going to lose EU money, and I don’t mean just EU grant money. UK says it has “best VC market in the Europe” – but it runs on EU money (which was witheld even last year).

  6. The Rev Kev

    I’ve got no embarrassment when I say that I supported the British choosing Brexit in spite of all the threats and punishments promised against them. I think that those who voted ‘Yes’ knew the consequences but balanced it against what their position would be in a few short decades. It appears that other countries in the European Empire are also feeling the same and there are a lot of rumblings heard in countries like Poland and Hungary as Brussels makes decisions on their behalf and promises punishments if those diktats are not met.
    However, not in my wildest dreams did I ever contemplate how the British political establishment as a whole would make such a dog’s breakfast out of the whole negotiation process. They had their mandate, a rough timeline and knew what was expected of them but I have been appalled by what I have seen. The final date barrelling down on them like a Mack truck and all they can do is concentrate on infighting and political point-gaining? Seriously? And when then eventually are forced to cough up the fur-ball of a treaty that it will be, they will turn around and say: “I wasn’t us that did it. It was all the fault of the British people for making us do it!”

    1. JTFaraday

      Simply put, I think part of the problem is that there isn’t that much to negotiate. “Out means out.” What they should be doing, is preparing to get out, and it doesn’t look like they are. Instead, they are busy trying to stay in.

      OTOH, there are those who say they should forget the EU, take their neoliberal lawlessness and “trade with the fast growing countries” instead. I think we can see where that’s headed.

    2. MisterMr

      I agree what JTFaraday said, but also I think that there was a problem with Brexit from the beginning:

      Simply put, I think that Brexiters sold a cake to some costituents, and the same cake to other costituents, repeatedly.
      This was possible because the negative influence of the EU was greatly overstated, so it was natural to think that if you get out of the EU everything will be better.

      But in pratice the only way to deliver would be to take the cake from someone else (namely other EU countries) and give it to some costituents, hence the extrwemely unrealistical demands of the UK, that would amount to a ripoff of the EU.

      But as the UK doesn’t have the power to force it on the EU (and in fact the opposite might happen), the government has now to tell what costituents it’s willing to throw under the bus, and this causes infighting.

      So in my opinion May isn’t really “incompetent”, it’s more like she is asked for the impossible, but she can’t admit that it’s impossible.

      1. Anonymous2


        A lot of the problem is that the people who rose to power through supporting Brexit, some of whom are fantasists like Johnson, do not want it made clear that they won by telling a pack of lies. So all decisions are delayed as long as possible so that the truth does not become apparent. Hence the UK government does not have a serious negotiating position because that would mean facing up to reality.

        But of course if you are involved in international negotiations without having a serious negotiating position, it cannot end satisfactorily. Reality must break in eventually.

    3. Ignacio

      they will turn around and say: “I wasn’t us that did it. It was all the fault of the British people for making us do it!”

      That will almost certainly be their excuse. They are professionals!

    4. flora

      an aside: there is a theory among some US liberatian plutocrats that by destroying/discrediting the US govt they can benefit. The best way to destroy a govt is financially and economically. (This was some of the thinking behind the GOP lead govt shutdowns in 1990s, 2010s, and now. “give us what we want – tax cuts – or we’ll pull down the whole system.”) It’s possible a similar Samson-pulling-down-the-temple thinking exists in the UK plutocrat sector. If so, the govt ineptness in negotiations may be more than simple idiocy. Perhaps the UK plutocrats would not mind, would even welcome a hard Brexit.

      “To lose one parent may be regarded as a misfortune; to lose both looks like carelessness.”

      ― Oscar Wilde

      1. Synoia

        The UK Upper Class (Plutocrats) is not Libertarian.
        They, because they are steeped in their History, fully understand what is provided by “The Kings Peace” aka The Rule of Law,

        They are not lunatic enough to believe that the “rule of law” is a magical construct and people will automatically obey the rules.

        Libertarians in the US enjoy rule of law for all but wish themselves free of rules and obligations. Another word for that behavior is sociopathy.

        1. JTFaraday

          Well, you know, I think there is today a certain amount of benefiting from the rule of law and from what we might call legacy systems of governance– which in this case includes trade agreements– that current cohorts in government and in business did not put in place and do not really understand. This is true bureaucratically or practically, in terms of administration, but also in terms of what those legacy systems were put in place for. We might say, theoretically speaking.

          I really do think we have been able to just roll along Adam Smith style, if you will, pursuing our various ends for a few generations already, and it is only more recently that the wheels have started really coming off. I am not so sure that the elite classes really do understand anymore that they can’t just conduct themselves like common criminals and expect that the system that has held them aloft all this time will continue to function. So much of the in the weeds details of the GFC had to do with undermining property rights in the form of officially sanctioning fraud.

          Just look at the financial sector in Britain. Off the top of my head– RBS and the GRG, Libor bid rigging, unregulated AIG Insurance in London as ground zero for the start of the GFC.** These are people who positively PROFESS to not believe in regulation, which is also to say in the rule of law, IN PRINCIPLE, and who are now basically demanding the right to handle EU money– on their terms only.

          Hello?? Just the fact that they, and their government mouthpieces, are demanding the right to do this suggests that none of them reasonably, rationally understand why the rule of law exists. Moreover, this is the same class of people who are always dictating to other people and other nations– in Latin America, lets say– what conditions are needed to make their countries hospitable to business.

          And here they are, undermining at home, the very first thing and most foundational condition.

          **Would you want to do business with these people? Really? Let them in your country? invest in theirs? I wouldn’t. If it were up to me they wouldn’t even have to vote themselves out, I would kick them the f*** out.

      2. PlutoniumKun

        There is plenty of evidence that some financial elements behind Brexit hoped to benefit doubly – firstly through ‘disaster capitalism’ – they see economic disruption as a great opportunity to profit (sometimes its the exact same people who made a huge killing in Russian in the 1990’s). There is also a strong libertarian element who dream of creating a Hong Kong of the Atlantic (or at least, a Hong Kong that exists in their imagination, not the real place as exists now).

  7. hemeantwell

    Brussels’ fear is that, in a financial emergency, UK regulators would prioritise continuity in companies’ UK operations over their activities in the EU27. This could lead to outflows of capital and liquidity or the withdrawal of vital services at a critical moment.

    This might be putting it too generically, but does this mean that within the EU there are limitations on “hot money” flows? In other words, does the EU have provisions limiting financial flows within the EU that it would hypocritically try to prevent a non-EU country from implementing against EU financial institutions?

    1. MisterMr

      “does the EU have provisions limiting financial flows within the EU that it would hypocritically try to prevent a non-EU country from implementing against EU financial institutions?”

      Why hypocritically? What makes you think that the EU is supposed to protect or help non-EU entities?

  8. Synoia

    The man and the dog strategy:

    1. Form a German/French/Luxembourg subsidiary.
    2. Incorporate etc in jurisdiction
    3. Apply for licenses
    4. Hire man and dog

    What does the man do? Nothing.
    What does the dog do? Ensure the man does nothing.

    Continue doing the work. Computers are everywhere, and network not difficult.

    For Business entities to winge about Brexit is fruitless. They must make their own plans.

  9. Matthew G. Saroff

    Am I the only one who thinks that whatever diminishes the City of London, and its cross channel sibling Wall Street, is an unalloyed good.

    Most of finance in the financial hubs of New York and London these days is parasitic, not productive.

    1. PlutoniumKun

      I think its a major positive of the Brexit car crash. The structure of the EU allowed the City of London a virtual veto on any EU Directives and policies it didn’t like, as the UK government would dutifully block everything at Brussels level, and there was little anyone else could do. One outcome of this is that the worst offenders in the financial markets now don’t have a direct voice in Brussels, and their power will be dissipated among a number of national capitals. They will still have an outsized lobbying voice, but no longer the absolute veto on policy they once had. The UK has long been one of the most overt neoliberal voices in Europe, and now thats weakened – and not just in finance, it will have an impact on labour, agricultural and environmental policy too – the UK was a particularly regressive voice in all those sectors.

  10. EoH

    Would Premiership football teams share their portion of broadcasting revenue with those not part of the deal?

    Brexiteers sweat blood, for example, at the idea of remaining subject to EU courts. Yet giving City firms ready access to the EU market would necessitate their consenting to EU courts’ jurisdiction regarding conduct anywhere that directly affects EU nationals. The list of inconsistent goals seems as long as a rugby team’s pub crawl.

    Given the government’s total lack of preparedness, or even an awareness that it needs to prepare (or its simple refusal to do so), the only practical way out of this is to reverse course under a new government and stay in the EU. That way, the only blood on the floor would be that of top Brexiteer’s, not the rest of the country’s.

  11. PKMKII

    The one difference with the EU’s latest “non” is that it stooped to tell the UK that it heard and was unmoved by its argument for being nice to the City: that somehow the Continent would suffer if British bankers were inconvenienced. As we’ve said, that idea is silly.

    Silly, but also essential to the British national self-image. To meet the EU at the negotiation table realistically is to admit that the financial industry in the City of London is not special or vital to anyone outside of the UK. And as rd said, that doesn’t leave anything left to the national self-image. The empire is long gone, whether of the colonies or the market. I know there’s a lot of talk about the economic impacts once the Brexit [FAMILY BLOG] properly hits the fan, but what about the impact on the UK populace’s notions about itself and its country?

    1. PlutoniumKun

      I think I’d clarify one thing you say by replacing ‘British’ with ‘English’. I can’t link to it as its behind a paywall, but there was an interesting article by a Cambridge academic a few weeks ago circulating regarding the specific problems with English nationalism. To simplify – English nationalism was subsumed within the British identity in order to pacify the Celtic fringes, but when the Empire fell apart there was no clean sense of identity to fall back on. While other nations were happy to merge their national identity to a broader European one (and this includes the Scots in particular), the English didn’t have that to fall back on as their national identity was already something of a fudge.

      I believe that there has been too much focus on the economic aspects of the Brexit vote and not enough on the national identity side – I think a very powerful force behind it is a specific English nationalism, one which was never able to identify itself as European. You need only look at the chasm between the English and Scottish Tories on this issue to see that Brexit is very much a reflection of a specifically English psychosis with its roots going back to the 18th Century.

      1. Anonymous2

        As a Scot, I concur fully. Brexit is above all an English cause. partly doubtless because they no longer feel themselves to be top dogs they are suffering some sort of psychological collapse.

        There is a famous spoof history book called 1066 and all that. It concludes IIRC to the effect that Britain was no longer top nation and that therefore history had come to an end.

  12. ChrisPacific

    There seems to be a fundamentally different idea on each side of what the negotiations are about. Barnier and the EU give the impression that they are (jointly with the UK) trying to construct a kind of intricate and complex machine, and they want to sort out the details of what it’s supposed to do and how it will work in order to be acceptable to both sides. The UK, meanwhile, think it’s about pounding on the table and yelling, and whoever pounds the hardest and yells the loudest will win.

    There are two main problems with the UK view. Firstly, it’s inaccurate. Even if Barnier were to collapse weeping on the floor and say “I give up, have everything you want,” there is no way that the EU27 would sign off on it. Secondly, even if it was accurate, it is highly likely that they would still wind up on the losing end, since they have so fundamentally misjudged the balance of power.

    1. Synoia

      that they would still wind up on the losing end, since they have so fundamentally misjudged the balance of power

      Both sides loose.

      When the first item to be settled is a bill of 100 Billion (or so), there is nothing more to discuss. The demand for 100 Billion demonstrates both bad faith and bad intentions.

      Any negotiations from that point on can only increase the amount.

      Please propose an alternative. Stay? Change the EU from within?

      Change the EU for within comes under the heading of “Physician, heal thyself,” and is about a probable as publicly funded elections in the US.

      1. ChrisPacific

        When the first item to be settled is a bill of 100 Billion (or so), there is nothing more to discuss. The demand for 100 Billion demonstrates both bad faith and bad intentions.

        That’s actually a good example. I don’t agree with that as a standalone statement. It might be true or it might not be. If you are a masked bandit holding up a stagecoach, then I’d agree. On the other hand, if I’ve just taken delivery of a bundle of goods and services worth $100 billion, then it might be entirely reasonable.

        Which of those scenarios is closer to the truth? The EU approach would be: let’s get together, look at the detail, and see if we can come up with a number that we both agree on. The UK approach seems to be: let’s communicate via shouty press releases in our respective national media and not otherwise discuss it.

        Since you asked me for an alternative, I’ll say that I would be in favor of reality-based negotiation in which each side states clearly what they want in a manner that is internally consistent and free from contradictions. Unfortunately the UK has a fair amount of work to do just to reach the start line in that scenario, and apparently little interest in doing it.

        1. CharlesV

          I would be in favor of reality-based negotiation in which each side states clearly what they want in a manner that is internally consistent and free from contradictions.

          Completely unrealistic to think this was possible: the UK government has a much harder job to do as it has to interpret the results of a horribly divisive referendum and then sell this to a divided nation and parliament, of course they are going to say different things to different people.

          The turn of the EU will come in this next stage of the negotiations, I can’t find the link but I think it was Delors who acknowledged recently that once we get down to the detail of the trade negotiation the EU is going to be subject to a lot of lobbying from specific sectors to water down their insistence that there will be no exceptions to the principle that it’s an all or nothing deal on the single market. They will then also start saying different things to different people.

          Generally, I think too much attention is given (including on this site and Richard North’s) to what the UK press is saying. They are tossed a bit of red meat to chew on (this week Mrs May’s stance on new EU arrivals) to see what happens and how it will play out but not much of substance. Seems odd therefore to spend a lot of time on this.

          1. earlofhuntingdon

            If the results of the referendum were so divisive and hard to interpret, perhaps it would have been best to repeat it. The arguments for seemed to be highly emotive and not too specific or accurate. Their unreality is attested to every day this government continues to grossly underestimate the costs it will incur – in people, resources and time – properly to execute a disengagement with the EU.

            The bill from the EU to pay for long term liabilities the UK has incurred because of its membership may be 40-50 billion pounds, discounted present value. It is probably conservative to say the UK will incur a similar amount to cover its domestic expenses to execute its disengagement: from new passports, border controls and immigration to supplemental laws, regulations and the bureaucracy to implement them. The list is as long as Pinocchio’s nose.

            The UK cannot simply revert to the status quo ante membership; it has to recreate it. None of those costs – nor the opportunities lost in paying for them – nor any of that process, seems to be acknowledged by this government.

      2. Yves Smith Post author

        With all due respect, and I don’t want to sound like an EU defender, but the “bill of 100 billion of so” is hogwash. The EU repeatedly set forth its list of what the items to be settled were, and even had a hierarchy (as in “you really do owe this” to “yeah, arguably there’s an obligation here”). The 100 billion was the max number you got when totaling all the possible firm to pretty squishy obligations.

        On top of that, everyone understood the payments would be made over time, so the real value (the NPV) would be way less.

        The final figure is something on the order of 40 to 50 billion euros. That is still squishy due to time value of money plus the UK and EU agreed that some amounts due are contingent on future events.

        1. vlade

          TBH, given the idiocy of the UK position(s), it’s hard not to see the EU now as the only adult in the room, treating the UK population better than their own government.

        2. Synoia

          I agree the number was an estimate. However, as the starting point in a process, it appears as bad faith from the beginning. You are correct that the issue is divisive, politically managed in an interesting way, and appears as chaos.

          Public discussion of economic issues, specifically German Surpluses, vs Southern European defects appear verboten.

          Britain itself is very split. 51% is not a huge majority. Could the UK remain in the EU without changes, and if so how would the EU have addressed the issues some of which are Economic, some immigration and an increasing hegemony?

          My own family is so split that discussion in the family is not possible, and discussion at social affairs avoids the topic.

          As the barbarian who accepts no norms, I bring up the topic frequently, because I have no position in the game, except to mistrust “leaders” on all sides of the issues.

          Historically such divisions were the foundation of Civil Wars. One in the middle, a spectator like myself, has the greatest chance of being caught in the middle.

          On this site, the view is that the UK is not managing the process and inviting chaos.

          That’s my view too. But I also ask, was there an alternative other than the Brexit? If so what, and when was it proposed? Brexit did not happen overnight, nor did it seem to propel the Brexiteers into position of power, consequently it leaves questions of Motive unanswered.

          The answer to may have required a much more democratic EC and much power surrendered to the EU parliament from individual countries, and making the European Commission answerable only to the EU Parliament. While there were noises about such a process, it them become blatantly obvious to all its a Federal structure. The Europeans appear to both want a Federal Structure Cake and eat individual country sovereignty.

          But, how does one resolve the contradictions?

          Blame Brexit?


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