Brexit Bulletin: The City in Limbo

(Bloomberg) -- Today in Brexit: The debate over post-Brexit banking is coming to an end—but it isn’t over yet.

What access will U.K. financial-services companies have to European markets after Brexit? It’s a question that’s been asked since Britain’s referendum two years ago. Only now is the answer becoming clear.

First the EU ruled out passporting—the system that would allow companies to have the same rights in the single market as they do now. Then it told Britain to forget about the less-advantageous model of mutual recognition (which for a long time the U.K. sought). Now the bloc doesn’t even like the U.K.’s scaled-down ambition for a better “equivalence” system than the EU gives the rest of the world.

The EU offers “equivalence” to countries, such as the U.S., when it recognizes that rules are as strict as its own. While the U.K.’s White Paper this month showed the government resigned to this model, it doesn’t like the EU’s ability to unilaterally withdraw access at short notice. The U.K. proposed an improved version that would allow greater leeway.

While EU chief negotiator Michel Barnier immediately dismissed the U.K.’s proposal, the arrangement is still open to negotiation, Bloomberg reports. Within the narrow scope of “improved equivalence,” some countries want to give Britain as good a deal as possible. A decision might have to be made soon, however, with some in the EU pushing for a settlement in a statement due to be concluded in October. The debate about how detailed and definitive that statement should be isn’t over.

Brexit Bulletin: The City in Limbo

It will be an important decision. A report published Wednesday warned that cities outside London are more exposed to the effects of a bad deal for financial services after Brexit than the U.K. capital. While finance represents a 29 percent share of London’s total exports, it makes up 56 percent of those for Edinburgh and 54 percent for Cardiff, according to the study, carried out by the Centre for Cities think tank and sponsored by the City of London Corporation.

In an interview with Bloomberg, Sam Woods, the Bank of England’s top supervisor, said the government’s position is a sensible one. “We’ve said fairly consistently that trying to oversee the financial stability of a financial services sector 10 times GDP without any say in the rules does not seem like a very appetizing prospect,” he said. “My read of the White Paper is that it’s 100 percent consistent with that comment.”

Today’s Must-Reads

Brexit in Brief

Farm Benefits | Theresa May will pledge on Thursday to overhaul Britain’s farming subsidies to make the system less bureaucratic after Brexit. The U.K. will reward agricultural practices that protect and improve the environment, rather than subsidizing farmers according to how much land they farm, she’ll say at the Royal Welsh Show in Llanelwedd, Powys.

Good Move | Spanish Foreign Affairs Minister Josep Borrell said May’s decision to take control of Brexit talks is good news. The move proved the process wasn’t progressing as it should, he said. He added that Spain is still waiting for feedback from the U.K. regarding a solution for Gibraltar in the talks.

Satellite Hopes | The U.K. will retain access to the European positioning and satellite navigation system Galileo after Brexit, head of French space agency CNES told Les Echos newspaper. CNES chief Jean-Le Gall said the U.K. may get a specific deal setting out conditions for access like Norway or the U.S gets.

Still Policy | May said ending free movement of EU nationals to the U.K. after Brexit is “non-negotiable.” Britain will not compromise on setting rules for migration of EU nationals, stopping “vast” payments to the EU budget, and ending the jurisdiction of the European Court of Justice in Britain, May said in a Channel 5 television interview on Wednesday.

That’s Why | Economic hardship resulting from austerity measures in the wake of the financial crisis caused Britons to vote for Brexit, according to new research. The rise of the U.K. Independence Party and broader political dissatisfaction are “strongly and causally” linked to exposure to austerity, said Thiemo Fetzer, assistant professor in the economics department at the University of Warwick.

Things Have Changed | Irish Foreign Minister Simon Coveney called on the EU to be open-minded in negotiating with the U.K., warning that a no-deal Brexit would be “very bad news” for Britain as well as Ireland. “The EU has always said that if Britain softened its red lines, it would show flexibility in return,” Coveney told reporters in London on Wednesday, referring to the government’s post-Brexit blueprint for Britain’s relationship with the bloc. “We need to test that now.”

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