According to one of the European Central Bank’s (ECB) most senior regulators, British-based banks are running out of time to guarantee they have continued access to the single market.
Sabine Lautenschläger, an ECB board member, said any British bank wanting to relocate to the euro area “should really have submitted its license application already”, and will have to do so by the end of June at the very latest, according to a report in the Financial Times.
Mrs Lautenschläger said eight banks have already taken formal steps to acquire a new Euro area licence, and a further four are planning to “significantly extend their activities”.
Europe starts playing hardball
She also fired a broadside at any banks hoping to guarantee continued EU access by merely opening a small office in Paris or Frankfurt.
They must have “sufficient local capabilities in areas such as pricing, trading, hedging and risk management” if they want to ensure they receive a licence, she said.
There may be an element of sabre-rattling in such warnings, but the City’s concern over what sort of access British banks will have to European markets after the 29th March 2019 remains real and acute.
In any case, the upshot is clear – Europe is starting to play hardball. Wednesday’s Times reported that the European Union (EU) could close European airspace to British flights if the UK didn't abide by single market rules during the transition period.
And of more immediate concern are the rumblings from other EU capitals that Brexit negotiations could stall within weeks if progress is not made on the still unresolved Irish border issue.
Numbers game
None of this should come as a massive surprise. In these negotiations Britain is in the weaker position, largely because trade negotiations are a numbers game.
The EU is a market of some 511 million people. Even if you take out the 65 million people that live in Britain, it is still a market of 446 million people.
That’s 446 million people you can sell to versus Britain’s 65 million. So the odds are, as they have always been, in favour of the EU.
Access to the EU is critical to Britain’s future economic survival, regardless of how any of us feel about Europe.
Michel Barnier, Jean-Claude Juncker and Guy Verhofstadt all know this. So do Theresa May and David Davis.
Spring election
Ultimately, this could mean two things. One: Brexit negotiations are about to get serious, potentially nasty. Two: Banks are going to start implementing contingency plans as soon as it becomes obvious there really is no other choice.
It’s possible many banks are clinging on in the hope that Mrs May’s government is now so weak that there may be a general election in the Spring, which might alter the whole Brexit process.
As Mrs Lautenschläger said herself, the banks have until the end of the second quarter to begin formal applications.
If there is no clarity on the direction of Brexit negotiations by then it’s entirely possible there could be a banking exodus.
Given how many things are in a state of flux it is impossible to rule out anything this year.
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