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A senior German central banker has voiced doubts over the City of London gaining access to the EU’s single market after the Brexit vote, warning that much-vaunted “equivalence” measures would not provide a “sound footing” for a new UK-EU relationship.
In a speech in London on Friday, Andreas Dombret of the Bundesbank supported calls for a transitional deal to allow UK-based financial services to access the continent’s internal market after Britain’s planned withdrawal in 2019.
Such a measure, which could prove to be politically unpalatable for Brussels, would provide more certainty to financial services firms, said Mr Dombret.
“It would reduce risks and increase planning security for banks, which would be economically beneficial” .
Amid fears that the City will lose business to continental Europe following the UK’s exit, the Bundesbank official said “numerous major market participants have already contacted the German Federal Financial Supervisory Authority BaFin and the Bundesbank” about relocation.
Hopes of a new UK-EU deal resting on the notion of “equivalence” – where companies from countries that are deemed to have similar regulatory standards are allowed to trade freely across borders – were “not reliable”, added Mr Dombret.
An equivalence deal would rest on the political decision of EU authorities, which could easily be withdrawn, and would not cover wholesale bank operations, he said.
“So it seems that the prospects for EU market access through the UK look rather dim”.
Despite the UK government’s ambitious plans to negotiate its Brexit divorce with a free-trade agreement, EU officials, supported by Germany and Italy, have balked at the arrangement. Hardliners in Brussels want the UK to first give assurances on settling its multi-billion euro divorce bill as the first stage in the negotiations.
The European Central Bank and the Bank of England have also clashed in their assessment of the fallout from a disorderly Brexit for financial stability. Mark Carney, who has dubbed London the EU’s “investment banker”, thinks European customers will be worse off – claims that have been dismissed by his counterpart Mario Draghi.
In the absence of a new deal, Mr Dombret warned financial services firms would have to prepare for operating in “two separate jurisdictions” after the Brexit process was complete.
“These jurisdictions might diverge over time – or instantly, once the divorce has gone through”.
Image via AFP