EU Hardens Brexit Position on Financial Services, Citizens

  • France pushing for finance to be ring-fenced from trade deal
  • Governments want citizens to acquire residency after 5 years

Brexit Triggered: What Happens Now?

Follow @Brexit for all the latest news, and sign up to our daily Brexit Bulletin newsletter.

European Union governments further toughened their position on Brexit, as they added limits on financial services and explicit demands on citizens’ residency rights to their negotiating plan with the U.K.

At a meeting on Monday in Brussels that kicked off a week of talks among the EU’s 27 other states, diplomats approved French requests to ring-fence financial services from a future trade agreement, and strengthened the language in draft negotiating guidelines on European residents in Britain and the amount the U.K. owes the bloc.

In the latest draft, financial services were split off from wording on the trade deal, with diplomats inserting a new paragraph stating that “any future framework should safeguard financial stability in the Union and respect its regulatory and supervisory standards regime and application,” according to the document obtained by Bloomberg News.

That language was designed to reflect a demand from France, a day after the first round of its presidential election, that the bloc mustn’t accept financial services being part of any future trade agreement unless Britain is willing to accept the EU’s rules, according to an EU official.

The new wording delivers a blow to U.K. Prime Minister Theresa May’s ambition for a sweeping trade deal with the bloc that would encompass financial services yet free Britain of the oversight of EU laws. It will also disappoint those in the U.K. who speculated victory in June’s snap election would make it easier for May to secure a better Brexit deal for Britain.

Single Market

With the U.K. signaling that it won’t pursue membership of the EU’s single market after Brexit, raising the prospect that its financial-services companies will lose their “passporting” rights that enable them do business in the bloc, Britain may attempt to strike a deal on the principle of “equivalence.” That would allow trading as long as the U.K. and EU are willing to recognize each other’s standards.

“Equivalence is not a right” for all non-EU countries, European Commission Vice President Valdis Dombrovskis told a conference on Tuesday in Bruges, Belgium. “And it is not a blank check whereby the EU would give up control over key systemic risks to its financial stability.”

Reciprocal guarantees to protect the rights of EU citizens in the U.K. and British citizens in the EU at the time Britain leaves the bloc should include “the right to acquire permanent residence after a continuous period of five years,” according to the draft.

The tougher language comes as European Commission President Jean-Claude Juncker and Michel Barnier, the EU’s chief Brexit negotiator, prepare to travel to London on Wednesday to meet with May for the first time since she triggered Article 50 of the Lisbon Treaty on March 29, formally starting the U.K.’s EU withdrawal process.

The unlimited number of EU citizens allowed to live and work in the U.K. was central in Britain’s referendum last June, with May making regaining border control a priority after Brexit. The EU-27 are insisting that a deal to safeguard citizens’ rights must come before talks can start on a future trade deal.

In a sign the topic may prove a thorny one to resolve, diplomats fleshed out their stance on citizens at a meeting last week. At that point, they said resolving the issue was the priority for the negotiations and that guarantees need to be “comprehensive, effective, enforceable and non-discriminatory," and that people should be able to prove their status through “smooth and simple administrative procedures.”

The latest negotiation draft also ramps up language on the U.K.’s financial contributions to the EU, stressing that Britain’s bill must take into account “the whole period of the U.K. membership of the union.”

The Brexit “divorce” agreement should also address potential problems with the U.K.’s relationship with the EU in the future. Judicial cooperation and law enforcement were added to security as areas that the EU wants to look at in the agreement, according to the document.

Summit Nears

The guidelines are due to be approved at a summit of the EU’s 27 leaders without May in Brussels on April 29. However, the EU will wait until after the British election before starting negotiations.

In a section looking at how the relationship between the EU and the U.K. could develop after Brexit, governments added foreign policy to trade and fighting terrorism as future areas for potential cooperation.

Aides to the leaders of the EU-27, known as sherpas, met the same day as the bloc’s top agriculture official, Phil Hogan, said the U.K. is moving away from some of its “crazier ideas” around leaving the EU as “the worst of the Brexit triumphalism appears to have abated.”

— With assistance by Peter Flanagan

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE