Germany wants the European Union to be prepared to grant U.K. financial companies transitional access to the EU if the Brexit process drags on, according to a government strategy document.
With the clock ticking toward Britain’s exit day in March 2019, the proposal by the Finance Ministry in Berlin says the EU should let member governments offer market access to British banks on a reciprocity basis for a transitional time. No mention is made of requiring U.K. banks to be domiciled in Europe, potentially removing a key obstacle at least temporarily.
As the fifth round of Brexit talks wraps up on Thursday, the document seen by Bloomberg outlines German positions for the negotiations between the EU and U.K. Without specifying a transition period, it says legal issues arising from Brexit that need to be addressed include “national transition arrangements in the area of market access for British institutions to the EU/Germany.” The Finance Ministry declined to comment.
The proposal suggests that Chancellor Angela Merkel’s government wants to keep doors open to the U.K. as Prime Minister Theresa May wrestles with the domestic politics of Brexit. Two German business lobbies, including the Federation of German Industries, warned over the past week that the risk of a disorderly British exit is growing.
German policy makers such as Bundesbank Executive Board member Andreas Dombret and Felix Hufeld, the country’s top banking supervisor, have cautioned against rushing to force the lucrative business of clearing euro-denominated derivatives from the U.K. after Brexit.
Chancellor of the Exchequer Philip Hammond, who is pushing for the U.K. to maintain close ties to Europe despite opposition from some Cabinet colleagues, said Wednesday that some kind of “enhanced equivalence” would be needed for financial services after Brexit.
Addressing lawmakers in London, he said the U.K. accepts that the EU needs to share in the supervision of clearinghouses and other parts of financial-services plumbing if it is to allow the lucrative business to remain in London after Brexit.
“We will have to work with our EU partners to construct governance, supervision frameworks that allow them to be comfortable about those arrangements,” he said. The European Commission said this year that about 97 percent of euro-denominated over-the-counter interest-rate derivative trades go through London’s main clearinghouse.