© PA

The City of London is rarely starry eyed about anything. But even by its hard-boiled standards, the Square Mile has always been ambivalent in its attitude to the EU. While it relishes the opportunity presented by the single market in financial services, it also fears that Brussels might be some sort of Trojan horse for continental countries that are intent on snatching its business away.

In the years since the financial crisis, the concerns have been in the ascendant. The Square Mile has clashed with Brussels over the possibility of an EU-wide tax on financial transactions and the latter’s desire to place curbs on bankers’ pay. The City also worries that the regulatory change accompanying banking union may ultimately prove to be a ploy to bind London in red tape, eroding its competitiveness as a financial centre. David Cameron’s renegotiation of Britain’s EU membership has sought to establish “safeguards” to protect against this perceived threat.

Nonetheless, when the possibility of exit is raised, few big financial institutions want to surrender that extra business. They would rather see the UK stay and fight its corner than depart.

They are right to do so. For all the reputational blows it has taken, the City remains one of the few areas in which the UK is an undisputed global leader. The country runs a substantial surplus in trade in financial services, including with the EU. Roughly a quarter of the UK’s financial sector business involves the single market, equivalent to 2 per cent of gross domestic product. And balanced on top is a wider array of professional services. Remove a slice of that activity and the prosperity of the whole would be materially reduced.

Brexiteers like to claim that this would not happen. We could continue to trade equably with the EU whether we were in or out, they argue. And anyway, non-EU markets are growing significantly faster. But without the “passporting” privileges that EU membership provides, activity would drift across the Channel. Non-EU firms would no longer be able to site their European operations in London and trade freely throughout the single market. And as these firms opened offices in Paris or Frankfurt, the size and reach of their London units would shrink.

It is simply fallacious to argue that access could be preserved without the price of membership. Stick within the wider European Economic Area à la Norway and you retain the costs and rules without any influence over them. Swiss-style bilateral deals do not come with a passport attached.

There is moreover no regulatory nirvana outside the EU that would offset the erosion of business resulting from Brexit. London’s advantages as a financial centre were never down to the light-touch regulation of the boom years. And since the crisis Britain has rightly been at the forefront of tightening the rule book, intellectually and in practical terms.

City observers are of course right to worry about the new European regulatory framework. Mr Cameron’s safeguards are far from fail-safe and Britain’s interests will need defending.

The antipathy of some member states to finance could lead to more onerous rules in future, or regulations being interpreted in ways that disproportionately hurt London. The European Central Bank’s attempt to pull all euro-denominated clearing into the eurozone may have been defeated in once. But such challenges will recur.

The way to deal with this is not to head for the exit. That would leave the UK with no defences to mount against exclusion. No, if the City is to prosper, Britain needs to stay at the European table, build alliances and defend this valuable turf.

Get alerts on Brexit when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.

Follow the topics in this article