EU Leader Warns Euro Trading Will Move Out Of London Post Brexit
A senior European Union (EU) official has said that Brexit would result in the City of London losing out on its role as a major clearing center for euro-based trading.
Valdis Dombrovskis, a vice president at European Commission and is responsible for matters relating to the Euro and a wide array of financial services.
Given his position, Dombrovskis is expected to have a major role in Brexit negotiations particularly with respect to the fate of London as a global financial hub.
With increasing signs that the British government is likely to pursue a hard Brexit, financial institutions are apprehensive of losing their existing rights to conduct business throughout Europe out of London. Commenting on the expected overall impact of Brexit, Dombrovskis said that the EU might see a loss of 0.2 and 0.4 percent in growth but the UK might see a loss of upto two and a half percent of its GDP.
A key area of contention is London’s current role as the euro clearing capital. The city handles over 70 percent of the total daily euro clearing business worldwide, which is estimated to be around €930 billion (£792 billion, $995 billion), according to data from a House of Lords report.
But the British vote to leave the EU has resulted in calls from European leaders that the clearing must move out of London. Dombrovskis said that the issue would need deep consideration.
In a statement, Dombrovskis said,
There are several factors at play. One is financial stability. There are questions related to the enforceability of swap lines between ECB and Bank of England if the UK is to move out of the jurisdiction of the European Court of Justice. And there is also a question of functioning of financial markets, basically of avoiding fragmentation of the financial markets. It’s a complex issue which we’ll need to assess
A report in December had hinted that the European Commission might consider introducing a legal provision that will require the European Central Bank to have control over the area where euro-denominated trading is handled. This would automatically mean the removal of the clearing business from London.
Dombrovskis said that while it was not the intention of the EU to punish Britain, there would need to be extensive discussions on how business between the two will be done in the future.
He would go on to say that the goal was to work together to arrive at a solution that suits everybody.
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