The Chequers Cabinet “agreement” appeared to throw the City of London (and its associated services) into the River Thames. The White Paper now confirms that there is no realistic possibility of even half a life-belt for years to come.
The UK White Paper shows few signs of recognising the reality that it is proposing a “partnership” with an entity that is 6-8 times the size of the UK. This is not a debate between two equals. EU27’s population is 447.4 million so 7.7 times the UK’s 66.5 million. In terms of GDP, the comparison is not quite so unequal: EU27 is €13,519 billion versus the UK’s €2,417 so the EU27 is only 5.6 times the size of the UK economy.
The EU27 has set out its negotiation position in some detail in several sets of Guidelines for its chief negotiator. The latest Guideline was specified on 23 March 2018 after unanimous agreement by the 27 Heads of Government. These can be changed – but only with difficulty. Then there is the need for the assent of the European Parliament to any final deal.
However, the Guidelines were set in response to the EU27’s understanding of the UK’s “red lines” at the time and specifically included the possibility of evolution if the UK evolved. But they explicitly rule out any “cherry picking” and also re-iterated “that the Union will preserve its autonomy as regards its decision-making…” These are just two – amongst many – tests to apply to the UK White Paper to judge the likelihood of its acceptance as a start for negotiations.
Reading through the `financial services sections of the White Paper, one is struck by the complete absence of any detail on how to amend EU legislation to achieve its pious goals. The detailed agreements between EU Members are contained in perhaps 100 Directives and Regulations, most with secondary legislation and then Regulatory and Implementing Technical Standards. In total, they run to many tens of thousands of pages of incredibly detailed prescriptions built up since the Great Financial Crash.
The UK was heavily involved in creating this level pf precise detail in order to prevent the financial sector from misbehaving again on such a colossal scale. The White Paper gives no inkling of how such a vast task can be tackled. Moreover, the timescale would run into many years of Commission consultations, proposals, Council/Parliament debates and then 18-24 months for transposition into national law.
But the key weakness in the White Paper is its naïve assumption that the UK and EU27 are negotiating on a level playing field rather than with a partner 6-8 times one’s size. This naivety is so clearly betrayed by the statement of the possible costs of fragmentation – yet there is no recognition that the scale of Eurozone bank capital makes the cost just 0.02% of capital or just two weeks of profits.
Even if the EU27 had a massive change of heart and agreed to picking of important cherries and to give up its own autonomy to the UK in areas that are crucial for its own financial stability, it would still take perhaps five years before it could all be in force. That portion of the UK’s financial service industry that deals in euro or with EU customers would have long since drowned.
Full article available for consultancy clients here
© Graham Bishop
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