When one door shuts for some it opens for others. Bundersbak boss touting for financial business for Germany.
Hard Brexit will cost City of London its hub status, warns Bundesbank boss
Hard Brexit will cost City of London its hub status, warns Bundesbank boss
Passporting rights to operate across EU will be lost if UK does not at least stay within the European Economic Area, says Jens Weidmann
The president of the Deutsche Bundesbank, Jens Weidmann. Photograph: Daniel Roland/AFP/Getty Images
The head of Germany’s central bank has warned that London’s position as a financial centre would be dealt a severe blow if the UK left the single market because banks would be denied the right to operate across the 27 remaining members of the EU.
The “hard Brexit” option –
favoured by some leading Conservative eurosceptics – would mean banks would automatically be stripped of their ability to conduct business across the EU and open the door for Frankfurt to take business away from London, the Bundesbank president, Jens Weidmann, said.
In an interview with the Guardian, Weidmann emphasised that banking “passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of
the European Economic Area” (EEA).
The question over passporting rights is a crucial issue for Britain’s financial services industry since they allow firms to use London as a hub for serving clients from across the EU, without the need for licences in individual countries. Its importance appeared to be emphasised by data published on Sunday showing that
foreign banks with affiliates in the UK account for a large share of international banking activity in London.
In the wake of Britain’s vote to leave the EU, the foreign secretary, Boris Johnson, had tried to assure US banks that the UK would retain its passporting rights even if it left the EEA,
as many of Johnson’s allies are pushing for.
But Weidmann appeared to quash such a compromise, describing passporting rights as “crucial” for the City of
London because a lack of them could force companies to relocate to financial centres on the continent such as Frankfurt.
“Of course several businesses will reconsider the location of their headquarters. As a significant financial centre and the seat of important regulatory and supervisory bodies, Frankfurt is attractive and will welcome newcomers. But I don’t expect a mass exodus from London to Frankfurt.”
In a wide-ranging interview, the Bundesbank president warned of reading too much into signs that the British economy had already weathered the turbulence of the Brexit vote. “Britain hasn’t even applied to leave yet,” Weidmann said when asked whether the remain camp’s “Project Fear” had been exposed as scaremongering.
“To assume on the basis of the developments so far that there won’t be any negative consequences would be to draw false conclusions. Great Britain is very closely tied to the EU and
Germany. If you reduce these relations to that of a third country, it will suppress economic growth in Britain.”
Speaking to a group of European newspapers including the Guardian, Germany’s Süddeutsche Zeitung, France’s Le Monde and Italy’s La Stampa at the Bundesbank headquarters in Frankfurt, Weidmann also warned the remaining EU members against trying to compensate for Britain’s breakaway decision with steps towards further integration.
“For many of its citizens,
Europe has indeed lost its shine and become a projection screen for the downsides of globalisation and migration. Likewise, the usual instincts of the EU institutions to answer crises with “more Brussels”, more integration, no longer resonates with the public. Integration cannot be an end in itself, it has to make sense.”
Mario Draghi, president of the
European Central Bank, has argued that monetary union required a political union in order to flourish, but Weidmann said he saw no willingness among governments in Germany, France or Italy to cede control over their household budgets. “On the contrary, national governments and parliaments don’t want Brussels to interfere. We can also see this in the treatment of the EU budget rules, which are being increasingly put into question.”
Weidmann, the head of Germany’s central bank since 2011 after working as an adviser to Chancellor Angela Merkel, showed no solution to the standoff between southern and northern members of the eurozone.
Asked if there were reasons to revise Italy’s current course of austerity and budget discipline given that
Rome is cutting its growth forecast, Weidmann said: “The real question is, does Italy have an austerity policy at all? In view of the high debt levels, household consolidation is of tantamount importance, also to avoid any doubt about sustainability of its public debt.”The 48-year-old warned of the risks that came with extending the ECB’s low interest rate policy beyond next March: “The longer the low-interest phase continues, the bigger the risks of an ultra laid-back monetary policy. Under no circumstances must we keep interest rates low for longer than price stability requires. Resulting difficulties for individual financial institutions or national budgets must not deter us from normalising monetary policy once it is necessary to do so.” The ECB
left the single currency area’s main interest rate at 0% at its meeting earlier this month.
Reflecting on the changing status of central banks over the last seven years of the European debt crisis, Weidmann said he shared some concerns, voiced by activist groups such as Occupy, that financial institutions had become more powerful than elected governments.
“Central bankers are increasingly under pressure to solve all sorts of problems that extend way beyond monetary policy. After Brexit, everyone turned immediately to the central banks and relied on us to calm the waves and give politics the time to sort itself out.
“The financial crisis and politicians’ indecisiveness have pushed us into a new role, and we allowed it to happen. As a result, we intervene ever more deeply in individual markets and now have a problematic proximity to financial policy,” Weidmann said, pointing to the ECB’s role within the troika – alongside the EU and the IMF – during the Greece debt crisis".
