Bank of France Warns on Need to Avoid `Cliff-Edge' BrexitBy and
Britain will bear brunt of pain but others also affected
ECB council member Villeroy de Galhau gives speech in London
Bank of France Governor Francois Villeroy de Galhau warned that the U.K. and European Union need to move to avoid the consequences of an abrupt separation that would pose risks to both economies.
“All actors should as of now undertake all the necessary preparations to avoid any potential ‘cliff-edge,”’ Villeroy said Thursday at a lunch organized by the French Chamber of Commerce in London.
On a day when survey data showed the euro-area economy gathering pace and the U.K. was digesting the government’s reduction in the country’s growth prospects, Villeroy said that Britain bears the brunt of the risks related to its departure from the European Union, though other economies are bound to be affected too.
“The British people chose to leave the EU and, even if we regret it, we respect this democratic decision,” he said. “Now we have to work toward reducing uncertainty and the negative impact it may have for the United Kingdom and, albeit to a lesser extent, for the European Union.”
Villeroy also emphasized that EU authorities have a duty to protect the bloc’s financial system and that will mean inevitably that some financial business will shift from Britain to the remaining 27 members of the bloc. Villeroy has repeatedly emphasized the merits of Paris as an alternative financial center to London.
France has already taken some of the spoils as Brexit forces EU institutions out of the U.K. In a vote this week, Paris won the bid to become the new home of the European Banking Authority when it leaves the British capital.
Rules and Access
“There is one principle in particular to which we have to stick in preparing the agreement between the EU and the U.K.: in the single market, you cannot separate access and rules,” he said. “For the financial services industry, this means that you can hardly expect to obtain a European passport if you do not accept the single market’s rules.”
More than a year after the referendum that triggered Brexit -- and with just 16 months to go until the U.K. departs -- negotiations have still not broached trade, nor the crucial transition period that businesses are crying out for to smooth the exit process.
Villeroy predicted the region will move toward some degree of “Europeanization” for wholesale banking, insurers and asset managers. At the same time, the EU should not be lower the bar for financial regulation and should prevent entities from outside the region setting up shell companies to obtain passporting rights to offer services on the continent.
All “super-systemic” operations for clearing of the euro-denominated assets should be moved from London after Brexit to “where the supervision of the Euro-system can be exercised effectively,” he said.