There’s Still Hope for U.K. Financial Services in Brexit Deal

Updated on
  • Luxembourg’s Bettel demands end to ‘binary thinking’
  • Unity of EU is priority for most governments, survey shows
Luxembourg Finance Minister Pierre Gramegna seeks "bridges" with London’s financial-services firms. (Scroll to 02:05)

The U.K. shouldn’t give up hope of getting financial services included in a final trade agreement with the European Union, with a Bloomberg survey of the EU’s 27 remaining governments revealing divergences of opinion.

While nearly all of the EU’s capitals consider maintaining unity of the bloc their main priority, a few take a softer line on financial services than the one expressed by Michel Barnier, the EU’s chief Brexit negotiator. Barnier has said there can be no easy access to the bloc’s single market for U.K. financial companies because this has never been included in previous EU trade deals and would be tantamount to allowing the U.K. to “cherry pick” the best aspects of EU membership.

“While I stick to the principle that there can be no cherry-picking, I still think that we should refrain from an orthodox or binary thinking,” Luxembourg Prime Minister Xavier Bettel told Bloomberg. “My top priority would be to limit the negative impact for both sides. Pragmatism will be needed in these negotiations on both sides.”

Bettel’s comments are the softest of any EU leader yet. Financial services look set to be one of the most divisive areas in the negotiations, with the U.K. demanding a generous deal while the EU refuses to shift from its insistence that Britain’s red lines -- such as ending the free movement of workers from the EU and resistance to European Court of Justice oversight -- make it impossible.

Both Sides

In the past few days, however, German officials have raised the prospect of a more flexible approach, while Spanish and Dutch finance ministers are said to have agreed to support a Brexit deal that keeps Britain as close to the EU as possible. Still, with the U.K. having to get an agreement with the EU as a whole, it’s crucial for both sides that the 27 nations have a unified position. 

The financial-services industry “is a legally and technically complex sector and exactly how it can be covered in a new relationship is difficult to say,” Sweden’s EU Minister Ann Linde said. “Given the stated intention of the U.K. government to leave the internal market, we wouldn’t expect a status quo situation” after Brexit, she said. 

Financial-services companies aren’t waiting around to see how the negotiations pan out and are pushing ahead with contingency plans. They want to have offices in the EU ready for when Britain leaves the bloc in March 2019.

Much will depend on the future-relationship negotiations, which are scheduled to start in March and end in October. Work on the more detailed trade agreement is likely to continue once the U.K. has left the EU and throughout a transition period until the end of 2020, although some on the U.K. side want the whole deal to be concluded earlier. Negotiators will explore how much the U.K. will diverge from EU rules and standards in every sector.

“From my point of view, and when I listen to our industry and businesspeople, most would be happy to stick as close as possible to the current status quo,” said Bettel. “However, this will not be possible in all domains.”

Future Relations

EU diplomats this month will begin preparing the groundwork for the contents of the agreement on future relations. A meeting on Tuesday to discuss cooperation in the fisheries and aviation industries follows talks last Thursday on how the overall agreement will be enforced.

“The deeper the access of the U.K. to the single market, the closer the U.K. will get to the arbitration of the European Court of Justice,” Bettel said. “The dispute-settlement mechanisms will be key to an agreement in order to ensure a level playing field.”

With much still to negotiate and some positions on both sides still unclear, here is a sampling of views from across the 27 remaining EU member states:

Britain must accept the rights and duties of the internal market if it wants to benefit from it. This means accepting the jurisdiction of the European Court of Justice. A Canadian-style free-trade agreement without the U.K. making budget commitments cannot be accompanied with a separate agreement on financial services.

Spain wants the closest possible economic and political relationship with the U.K., but the priority is to make sure that Britain isn’t in a better situation outside the EU than it was inside and that it can’t have benefits if it doesn’t participate in the bloc’s underlying principles such as the free movement of people. U.K. companies should have easy access to the EU financial-services market only if Britain accepts a model like Norway’s.

“It’s very difficult to see U.K. financial services being allowed to operate in the EU with the same access if the country leaves the single market,” said Sandro Gozi, Italy’s junior minister for European affairs. Regarding the future EU-U.K. trade agreement, “all sectors are important for us; we’re interested in exporting our products to the U.K., including in the mechanical, mechatronics and agri-food sectors.”

Denmark’s priority is “to have a good relationship and a free flow of products, primarily on agriculture and food,” Finance Minister Kristian Jensen said. “Let’s not kid ourselves. The first phase was difficult, but the next phase will be even more difficult and more technical and more troublesome to figure out.”

Poland wants more than a trade and economic relationship, but the final deal will depend on Britain’s position on regulatory cooperation and ECJ jurisdiction. “We should secure a unique formula of cooperation in areas including security, defense and foreign policy,” Deputy Foreign Minister for European Affairs Konrad Szymanski said. Poland’s trade priorities are electric machinery, agriculture products, furniture, textiles and chemicals, he said.

The automotive and electronics industries are the most important for Slovakia, while it’s vital to reach “an end-agreement with the U.K. that would be fair to both sides,” according to Peter Susko, spokesman for the Foreign Ministry in Bratislava. “We want the U.K. to become the EU’s closest business partner, but also a partner in security, defense and foreign-policy cooperation,” he said.

Security and foreign relations are also priorities in Bucharest. Romania will push for the deal to include a strong defense element, EU Affairs Minister Victor Negrescu said.

Failure to get a deal would be bad for both sides, Chancellor Sebastian Kurz has said. The U.K. must stay close on political and military issues.

Like most governments, Estonia puts the unity of the 27 remaining countries above all else. It echoes Barnier’s insistence that the the U.K. can’t have the best of EU membership without signing up to its obligations, and trade cannot be “frictionless.”

The rights of Bulgarian citizens are crucial, as is settling Britain’s financial contributions. Any deal that goes further than a simple free-trade agreement must not undermine the EU’s principles of free movement and ECJ jurisdiction.

Britain’s financial institutions won’t be able to operate in the EU market under the same conditions as they currently enjoy, Lithuania says. Nevertheless, the future relationship should include as wide a range of cooperation as possible with as little change as possible.

Sweden is interested in achieving the most positive future relationship possible between the EU and Britain. “We need to preserve as open and well-functioning trade in goods and services with the U.K. as is possible after Brexit,” EU Minister Ann Linde said. On the financial-services industry, “given the stated intention of the U.K. government to leave the internal market, we wouldn’t expect a status quo situation after the end of a transitional arrangement,” she said.

Portugal wants “a close future relationship, not just in commercial areas,” but also in areas such as tourism, customs and tariff quotas, the mobility of workers, security and defense, according to the Foreign Ministry in Lisbon.

The most important areas for Greece in terms of a future trade deal are the maritime and agricultural sectors. If the U.K. doesn’t opt for the Norwegian model, it is clear that access to single market is impossible, the Foreign Ministry in Athens says.

Cyprus’s top priority is to ensure an EU-U.K. relationship that is as close as possible in the areas of trade, finance, services, banking, security and defense. It is important to get clarifications from the British government on its intentions in these areas, according to government spokesman Nikos Christodoulides. Trade sectors especially important to Cyprus include banking, financial services and aviation.

— With assistance by Esteban Duarte, Radoslav Tomek, Kati Pohjanpalo, Andra Timu, Boris Groendahl, Birgit Jennen, Ott Ummelas, Slav Okov, Marek Strzelecki, Milda Seputyte, Niklas Magnusson, Joao Lima, Aaron Eglitis, Joost Akkermans, John Follain, Nikos Chrysoloras, Paul Tugwell, Peter Levring, Dara Doyle, Sotiris Nikas, and Raine Tiessalo

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