France and Germany Cut Bankers Some Brexit Slack

(Bloomberg Opinion) -- Just what does a no-deal Brexit look like? Everyone is bracing for it – some even talk of stockpiling food and medicines – but nobody quite knows what the consequences of driving off the cliff-edge would be.

As U.K. Prime Minister Theresa May uses that fear of the unknown to prod lawmakers into approving her imperfect but take-it-or-leave-it deal, Paris and Berlin have started to go in the opposite direction by sketching out ways a no-deal scenario might be made less chaotic. The signs are lobbyists for the financial industry have succeeded in getting their views across.

A draft German law proposed last week would, if Britain leaves the EU without a deal in March, give the BaFin regulator powers to allow U.K. firms providing cross-border banking and financial services to keep operating in Germany until the end of 2020. There would be a similar transition period for insurers. Contract continuity would be preserved not only for pre-Brexit deals, but also for those struck afterwards, provided a clear connection can be shown.

France's draft law, meanwhile, is less generous – presumably a nod to its big home-grown banks that are hoping to benefit from Brexit. But it too takes care to lay the groundwork for a transition in a no-deal scenario. It pledges to secure contract continuity and allow cross-border access to payments systems as well as trade settlement and clearing without the risk of an overnight cut-off, according to law firm Clifford Chance.

Should these draft laws be approved as they stand, British businesspeople could find themselves in the paradoxical situation of finding it easier to strike an investment-banking deal in Frankfurt than travel there with a pet cat. The benefits of the financial passport have proven easier to preserve than the real thing.

To be fair, these laws look more like an attempt by European member states to limit self-harm rather than deviate from the tough line laid down by Brussels, which is that Britain can’t expect the benefits of membership without being part of the club. These national laws can still be over-ridden by EU legislation. Nor do they offer anything better than what is in May's agreement: they give firms no Europe-wide certainty.

But with the deadline looming and the stakes rising, the temptation for industries to wield their lobbying power and ask for their own “mitigating measures” will only increase. Right now, it's clearly not possible for individual countries to carve out their own rules, regulations, tariffs and border controls on goods. That doesn't mean some won't try for a home advantage. If bankers get cut too much slack, others will, not unreasonably, ask for similar treatment. For the sake of getting May's deal through, the EU will need to hold the line.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes.

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