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Belligerent Brussels has misread Britain’s mood


LAST week saw some unwelcome headlines: ‘Amsterdam ousts London as Europe’s top share trading hub’ crowed the Financial Times.  

At one level the headline is shocking, as London’s position in financial services is so dominant, but at another level it is fairly lazy journalism, for while undoubtedly reported as bad news the real value in financial services is not where the deal is processed but the decision-making chain of fund manager, middle office, client relationship, depth of associated professions and much more. London remains pre-eminent in these and that will not change. However Amsterdam’s share trading gain is a loud warning of intent from the EU. It does not intend to play cricket. 

London’s share trading decline has been rapid and entirely unsurprising as the EU has not recognised the UK stock exchange as having the same supervisory status as its own. This loss of ‘equivalence’ effectively drives trade to European bourses by law. The chart below shows how immediate this loss has been with London’s share of EU trading halving overnight from 54 per cent to just 27 per cent, largely to Amsterdam’s benefit. 

Ewen Stewart Chart 17.02.21.jpg

Britain has unilaterally granted equivalence to the EU across all 28 financial service sectors. The EU, in return, has denied access in all but two critical sectors for them. While negotiations are ongoing with March as the target for agreement, this effectively is an act of economic war.  

The EU’s actions are a severe warning, if one was needed. The Withdrawal Agreement and the Trade and Co-operation Agreement with the EU may have been reached but let’s be clear, the EU at every turn has shown itself as wanting to inflict as much harm as possible on the UK.   

The EU is hardly acting as a responsible neighbour to a friend who generally has identical, or higher, regulatory standards than many EU members, offers significant intelligence and security sharing and is a major plank of western diplomatic and soft power. The EU should be careful, for rather than attempt to cow the British into submission the likely result will be the opposite as the vast majority of the UK population can work out for themselves exactly what is going on. ‘Hell hath no fury like a political bloc scorned?’ All the EU is doing is hardening opinion against it.   

There is no good reason why London should not be granted equivalence, as the EU very well knows. British financial regulation is amongst the most stringent and respected in the world. The EU has granted equivalence widely to most OECD nations and there can be no good reason to deny the undisputed European financial powerhouse similar rights. If it is good enough for Brazil it is certainly good enough for Britain.  

The Governor of the Bank of England, Andrew Baillie, to his credit, has made it clear that Britain cannot be a satellite of EU financial law and regulation. To do so, given the relative scale of importance of financial services between the UK and EU, would be akin to the French allowing the fine sparkling English wines to dictate the terms of viniculture.  

The EU knows this and its actions almost certainly contravene WTO law where members need to be treated equally and with equivalence. If the EU won’t yield, the Commission should be taken to court for breach of international law. Britain has and must retain the moral high ground but if the EU persists with this deliberate attempt to undermine trade in a discriminatory manner our Government must pursue it through the courts. The EU would not think twice about taking the UK to court on the most fatuous of issues, as we know from the episode of the Internal Market Bill. 

The truth is the trade deal that the UK and EU signed has not been met with good faith at all from the EU on any measure – with financial services just one, if critical, aspect of that. Trade with Ulster clearly is being held up with significant bureaucracy and deliberate intent; rules of origin are being used as an excuse to hamper British fashion exports with excessive tariffs while none are applied in the other direction; specialist rock concert hauliers face restrictions that are onerous to their drivers and make their businesses untenable; the EU through its own incompetence is forced to back down over potential vaccine confiscation and now in financial services – Britain’s greatest export industry – a deliberate and orchestrated attempt to forcibly transfer business is under way. 

Our Prime Minister must act with great urgency to protect British interests.  

Brussels has misunderstood the mood. This economic warfare will only strengthen attitudes further that to leave was the right call and our industry will adapt quickly to alternative opportunities, be it in emerging markets, the Far East or the US – but equally the British people will not be impressed by a Prime Minister who talks the talk but frankly can’t muster the detail or will to do something about it.  

Let’s maintain the moral high ground but equally be unafraid, as a last resort, if the EU continues to act in an unreasonable way, to pursue it through the courts.  

This article first appeared in Brexit Watch on February 17, 2021, and is republished by kind permission. 

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Ewen Stewart
Ewen Stewart
Ewen Stewart is a City economist who runs the consultancy Walbrook Economics. He is director of the think tank Global Britain and his work is widely published in economics and political journals.

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