The European Union won’t cut a special deal with the City of London if the UK leaves the European single market, Germany’s top central banker warned.
Jens Weidmann, president of the Bundesbank, told the Guardian that London-based banks would lose their right to operate in the 27-nation trading bloc in the event of a so-called hard Brexit.
This scenario would see the UK leave the EU without negotiating any form of membership of the single market — the economic trading bloc that forms the core of the EU.
Weidmann told The Guardian that “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.”
Membership requires that countries harmonize their financial rules, that they accept the free movement of European citizens, and that they pay into a central budget — conditions which are unlikely to be accepted by Eurosceptics.
Current EU law allows European banks to operate branches in the UK that do not need to be separately capitalised from the parent company abroad. Similarly, non-EU banks, such as those from the US or Asia, can use their London subsidiary to sell services to clients across the EU. This has allowed London’s financial centre to act as a hub for global firms looking to do business in the EU.
The use of this bank “passport,” which allows banks in London to access the EU single market of 28 nations (including the UK), could come to an end because of the June vote for a British exit from the EU, or Brexit.
Other financial centres in the EU, such as Dublin, Frankfurt or Paris, could take over London’s hub role if the UK loses its passport.
“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,” Weidmann said.