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Speaking at the Wall Street Journal’s CEO Council yesterday, Brexit Secretary David Davis said that the future UK-EU deal would allow for “significant regulatory divergence” because it would be based on “mutual recognition of outcomes,” rather than both sides adopting the same regulations. Davis said he wanted “the substance of the future relationship nailed down” by October, but acknowledged that “it won’t be in legal form at that point.” Asked about what would happen to the transition period if the withdrawal agreement collapsed, he said, “I don’t know what the circumstances at that point would be on transition.” Davis also dismissed the idea there would be “mass migration” of firms from the City of London, saying, “The benefits of London are so enormous that the critical mass is not going to evaporate. We are still going to be the biggest and most important financial centre in the world in five years, in ten years.” On solutions to avoid a hard Irish border, Davis said “very small businesses” that straddle the border could be granted “quite large exemptions,” adding, “So in effect we will give them tax-free status.”
Elsewhere, following a meeting with Irish Foreign Minister Simon Coveney yesterday, Germany’s Foreign Minister Heiko Maas said, “We have to do everything we can to avoid the glimmer of seeing something like a hard border becomes reality.” Speaking alongside him, Coveney said, “We have got unambiguous solidarity today from the largest country in the European Union, and that is hugely appreciated on the Irish Border issue.” He also stressed, “There will be no withdrawal treaty if there is not a backstop on Irish Border in that treaty.”
Separately, Reuters and Bloomberg report that talks on the future UK-EU relation will be starting next week.
Wall Street Journal City AM Bloomberg The Daily Telegraph The Irish Times Reuters Bloomberg
EU regulators yesterday urged banks to take “timely action” to avoid post-Brexit disruption to cross-border derivatives and insurance contracts, warning financial firms that their “contingency planning should consider timely responses to all potential challenges, such as contract continuity and possible relocations.” The regulators said they expected “increased relocation activity” nearing the Brexit date, adding, “By the time legal certainty on a potential transition period may be attained, financial institutions would not have sufficient time to take necessary measures.” While the Bank of England has argued that companies can’t on their own tackle contract continuity, EU regulators made clear that the responsibility for avoiding post-Brexit disruption rests with the private sector, saying, “Financial institutions are responsible for ensuring that they are able to fulfil their contractual obligations under all circumstances, not least with respect to derivatives, liquidity provision, and swap contracts EU27 parties have entered into.”
Elsewhere, the Irish Central Bank has yesterday warned financial services firms about the disruptions caused by Brexit and said that firms should still prepare for a worst case scenario, due to the uncertainty about the final UK-EU trade deal. Deputy Governor of the Central Bank, Ed Sibley, said, “Brexit will have broad, fundamental impacts and will substantively alter the functioning of the UK, Irish and European Financial Systems.”
Separately, Gerben Everts, a board member of the Dutch Authority for the Financial Markets (AFM), yesterday said the AFM expected as many as 30 “significant” financial firms to request a license to operate in the country due to Brexit. He added, “We see that the Netherlands is an attractive option for financial companies in innovative spheres like fintech and exchange platforms.”
Australia is due to host a new round of talks with the UK to discuss a post-Brexit bilateral free trade agreement, The Sydney Morning Herald reports. UK officials will visit Canberra “within days” for a working group on a future trade deal, with expectations on both sides that such a deal could be valid as soon as the transition period ends in December 2020. This comes as Australian Prime Minister Malcolm Turnbull prepares to meet with Theresa May during his visit to London next week.
The Sydney Morning Herald
Speaking to Politico yesterday, Goldman Sachs banking group CEO, Lloyd Blankfein, said that while the full consequences of Brexit remain to be seen, he thought that the “effects of Brexit would have been more dramatic,” noting that, “Maybe there’s been a lag, but certainly, there hasn’t been a dramatic fall-off.” Blankfein also mentioned that while Goldman Sachs’ European financial centre will remain in London, the bank is planning to relocate to Frankfurt and Paris, as Brexit has required “more distribution [of the bank] than otherwise we would have planned.” Blankfein also called for London to be encouraged to remain a dominant financial centre in Europe after Brexit, due to the City’s expertise in the financial services sector.
Elsewhere, Ana Botin, chairwoman of Santander, yesterday said that London’s financial centre will stall due to Brexit. Botin said, “I don’t think so many companies or people are going to leave the UK, it is the people that are not coming that we should worry about because the UK was on a huge upward trend and that is not as strong now.” She added, “The US is taking lots of steps to make their finance centre more competitive. It is not about the UK versus continental Europe, it is about the UK against the US and the big financial centres.”
A new report commissioned by non-profit organisation Friends of the Earth reveals that UK environmental standards in every policy sector are likely to weaken after Brexit. Considering different environmental policies under five different Brexit scenarios, the analysis finds that Brexit creates risks across all the options, with nature protection being particularly threatened. This comes as Environment Secretary Michael Gove previously claimed that the UK could become a “world champion” of environmental policy after it leaves the EU. The analysis says, “It is difficult to see recent speeches and announcements as offering any real security or genuinely mitigating the [environmental] risks posed by the scenarios.” The report’s authors recommend that the UK and the EU “include in any future trade agreement an environmental non-regression clause and a reference to a new ‘environmental advancement principle’ that underlines the importance of pursuing ever higher environmental standards after exit day.”
Friends of the Earth
The director-general of the World Trade Organisation (WTO), Roberto Azevedo, yesterday said that “positive signs” were emerging in the tariff dispute between the US and China, although he remained “quite worried.” He also warned against “restrictive trade policies, especially in a tit-for-tat process that could lead to an unmanageable escalation,” adding, “A cycle of retaliation is the last thing the world economy needs.” This comes as the WTO’s annual review finds global trade grew 4.7% last year, its fastest pace in six years, and forecasts growth of 4.4% in 2018.
According to the EU’s statistical office Eurostat, industrial production in the Eurozone fell down by 0.8 percent in February 2018, which is much lower than economists’ forecasts of a 0.1 percent increase. Compared with February 2017, industrial production increased by 2.9 percent, lower than the 3.8 percent increase predicted by economists polled by Reuters. The decrease is due to production of capital goods falling by 3.6 percent, durable consumer goods by 2.1 percent, intermediate goods by 0.8 percent and non-durable consumer goods by 0.5 percent.
In a TV interview yesterday, French President Emmanuel Macron said he will go “all the way” in his reform of the French railway system, but reassuring that current workers of state-owned railway company SNCF will not see their contract changed as part of the suggested reforms. Macron also reiterated his intention to overhaul the education system and reduce government deficit in France, which he stressed is “the country in Europe with the longest-standing fiscal deficit, and its debt stands at more than 95 percent of GDP.” However, Macron also cautioned, “France will not become the land of progress overnight,” demanding “patience” as his reforms will take time to produce results and adding, “France is a house and I have to repair the foundations first.”
The European Parliament’s Civil Liberties Committee yesterday discussed a draft proposal to trigger Article 7 procedures against Hungary, which would suspend its voting rights, arguing that Hungary represented a “clear risk of a serious breach” to the EU’s values of democracy and rule of law. European Parliament rapporteur and author of the report, Judith Sargentini, said, “The Hungarian people can no longer count on the fundamental rights that we take for granted in the rest of Europe… I cannot reach any other conclusion than to call for the activation of article 7. We need to stand up for the Hungarian people whose rights have been undermined.” The Committee will vote on the proposal in June, and if passed, it will go to the European Parliament vote in September.
In a new briefing, Open Europe’s Leopold Traugott assesses the prospects for wide-reaching EU and Eurozone reform led by Paris and Berlin. The briefing argues that it is increasingly unlikely that Franco-German cooperation on EU reform will live up to the high expectations that have developed since Macron’s election in June last year.
Leopold writes, “Despite the pro-European rhetoric struck by Germany’s new government, its traditional EU reform red lines on key issues such as debt mutualisation haven’t moved much. Berlin wants and needs to work with Paris to get reforms going, but so far seems unwilling to commit to the compromises necessary to achieve much of this.” He adds, “Many of Macron’s most colourful ideas, such as installing a Eurozone finance minister or creating transnational lists for the European Parliament, are basically dead in the water. Berlin and other Nordic member states want to focus on bread-and-butter reforms instead, steps that are easy to implement and offer concrete benefits. At the same time, Macron is now looking at European defence cooperation outside of the EU and its PESCO framework.”
He concludes, “Macron has presented a coherent vision for Europe’s future, and laid bare the vacuum that currently exists in German political thinking. If Germany cannot reach a compromise with the most pro-European French President in decades, then with whom could it? If Macron fails, Euroscepticism in France and across Europe will only grow stronger.”
The briefing was cited in Politico’s London Playbook, BrexitCentral and Reaction.