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In an effort to counter claims that Brexit would be disastrous for the City, 110 “prominent City leaders” have put their names to a letter insisting that London as a financial centre “can thrive and grow outside the European Union”. [...]
There are elements of finance, particularly private equity and hedge fund management, which would be largely unaffected by exit, and could in all probability thrive outside the EU. But the backbone of the City is international banking, and for this constituency, access to the single market is critical. [...]
But what of the argument that once freed from the shackles of the EU we can build a great bonfire of harmful financial regulation and thereby massively improve our competitiveness? Sorry, but no. To conduct almost any transaction in or with Europe requires “regulatory equivalence”. The moment Britain begins to deviate from the European rule book, it will be progressively frozen out of the single market. And if you think the rules already oppressive, imagine what they will look like once the restraining influence of Britain has been removed from their design.
It’s true that City institutions could continue to “passport” into the EU once outside by setting up separately capitalised and regulated subsidiaries on the Continent, but this would be costly and complex, and it would eventually undermine much of the rationale for being located in London.
Where a transaction is cleared and booked is crucial to where it creates employment and is taxed. The Eurozone is almost unique as a currency area in allowing a majority of euro-denominated business to be cleared outside its own jurisdiction – that is, in London. Several attempts to correct this apparent anomaly have been made by the European Central Bank (ECB), only to be rebuffed by the UK Government through the European courts. [...]
Outside the EU, City banks would also have no guarantee of access to ECB liquidity. Most of the time this wouldn’t matter, but in a crisis it certainly does, and will therefore weigh on the question of where to locate a bank’s European operations.
The key leave argument has always been that by staying, Britain and the City tie themselves to what has self evidently become a disastrously run and destructive institution. The euro in particular was a huge mistake whose problems may yet prove insurmountable. Yet its difficulties won’t be resolved for the better by Britain leaving the EU. And if it means largely giving up an extraordinarily remunerative economic activity for no obvious substitute elsewhere, it’s hard to see the point of it.
The UK Treasury will shortly be firing off the second barrel of its case for remaining in the EU. Its first shot two weeks ago (which predicted that Brexit would leave households £4,300 worse off) did not take into account the threat to the UK’s cluster of global financial services, or that outside the EU there might be a sudden stop in the UK’s ability to finance its vast current account deficit. This again depends vitally on the UK’s pre-eminent position as a financial centre. [...]