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It must, therefore, have been a bittersweet moment for Jonathan Hill when, on Thursday, he unveiled his last proposal as EU Commissioner: the creation of a border-free EU venture capital market. This is intended to be a building bloc of capital market union. But for Brexit, Britain would have dominated it.
At present, Europe’s capital markets are fragmented and underdeveloped. The bloc relies excessively on banks to finance industry. Now, though, many of Europe’s banks, especially in the eurozone, are struggling under the weight of bad loans and so are unable to supply the necessary money. Hence, the plan to turn to the markets to fill the gap.
The idea is to create large integrated markets like America’s, covering not just venture capital but the whole slew of financial instruments such as bonds and publicly quoted equities. The City of London would have been the hub of this activity, creating wealth, jobs and tax revenue for years to come.
Brexit doesn’t just mean we will probably lose this opportunity. UK-based banks also stand tolose their existing “passport” to offer services across the EU. What’s more, the other EU countries are gearing up to grab as much business from the City of London as they can. The French government, for example, has already dangled tax breaks to lure bankers from London to Paris.
London will no doubt hang onto the bulk of its business since no other European financial centre has anything like the same critical mass. But to lose even a fraction of the business as well as the opportunity to lead Europe’s new capital markets project is a self-inflicted blow. Theresa May and her Brexit minister, David Davis, will have their work cut out to minimise the damage.