09 March 2017

128th Brussels for Breakfast – Notes

As the triggering of Article 50 approaches, so does the Summit that marks the 60th anniversary of the Treaties that laid the foundations of the EU. The increasing friction between Eurosceptics and the EU27, and an apparent absence of direction were portrayed in the Commission's White Paper.

Paula Martín/Graham Bishop

Organised by the Centre for the Study of Financial Innovation (CSFI), hosted by Grant Thornton with co-presenter Mike Vercnocke (City of London Corporation)  

Highlights from the “Brussels for Breakfast” meeting

Following the House of Lords votes to amend the “Article 50” Bill, the “B” subject was unavoidable and discussion moved to the EU27 response. It seems that Barnier’s team is in place and ready to receive its mandate and negotiating guidelines from a special session of the European Council. Then the phoney war will be over and negotiations can start in earnest. However, few thought that two years would be enough to handle the incredible scale and complexity of the talks. Indeed, it is possible that the UK will revoke its notice once the complexities and problems become fully apparent. Recent opinion polls suggest that +/- 30% want to leave the EU at any price, but more than 50% are showing reservations about a Hard Brexit. High profile speeches by former Prime Ministers Blair and Major re-inforce the growing qualms.

Brexit is but one of the factors forcing the EU to take a hard look at itself and President Juncker has now published a White Paper on five options – to inform the debate at the celebrations for the 60th anniversary of the Treaty of Rome. However, the “Big 4” leaders met in Versailles and made clear their preference for a multi-speed Europe (Option 3). For financial services, that means “incremental progress on improving the functioning of the euro area” – in other words, continue along the existing path. A May Reflection Paper will elaborate the content - after the French elections.

The Commission’s Staff Working Paper on equivalence triggered a lengthy debate as it is so fundamental to the City’s hopes of retaining its role as the financial capital of Europe. The omens do not seem good as the Commission is set to take a tough line in defending the financial stability of the EU27 rather than mercantilist support for the trading opportunities of London-based banks. It became very clear that an apparently-technical decision on equivalence has always been – in reality – a political one.

The EBA published its monitoring of CRD/CRR/Basel III compliance and was upbeat about EU banks – but the big problem looming is “resolution capital” rather than CET1 levels. The EBA has just published a raft of papers on the subject and we will return to these next month. But the bottom line is that a hobbled banking system continues to need CMU as a safety valve for supplying credit to the EU economy. However, much of the debate pre-supposes that President Trump will continue to support the global framework for bank regulation. We await the confirmatory tweet!

Why did the LSE abandon the DB merger on a fairly minor issue? The readers around the table of German newspapers were fairly clear that political opinion had turned against it after Brexit. [...]

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