Two weeks is a long time in politics, especially when the politics concerned are not just domestic but include the Machiavellian machinations of an entire continent. If you’ve spent the past 14 days incommunicado on a sun lounger, therefore, you will have missed developments that could have implications for your finance career. Summer may be drawing to an end, but Brexit – my friend – is only just beginning.
For those who wish to catch up, here we have the favourable, and not so favourable happenings in Brexit-world since mid-August.
1. Philip Hammond, UK chancellor of the exchequer, emerged as a key defender of the UK’s financial services industry
Concerns had been previously expressed about the extent to which David Davis, the ‘Brexit Minister’, ‘gets’ the requirements of the UK financial services industry. Back in July, Davis insisted that migration was a ‘red line’ for the UK and expressed his belief that the European Union would come to realize this and make concessions. Specifically, Davis was of the opinion that the UK would be able to restrict migration and maintain access to the single market.
This cake-and-eat-it mentality looks like wishful thinking and could cost the UK financial services industry dear. Fortunately, chancellor Philip Hammond, seems to be calling Davis out on his fantasy. The Sunday Times reported that Hammond wants to prioritize the UK’s access to the single market for financial services as the country negotiates its exit from the EU. Fundamentally, it seems that Hammond wants to keep passporting.
This is what the UK financial services industry wants too. Anthony Browne of the British Bankers Association told Bloomberg that the industry, “unequivocally wants to maintain the current level of full access to the EU market.”
So far, so good. Except that….for the UK to benefit from passporting, it will need to accept unrestricted migration from the EU and unrestricted migration from the EU is not palatable to the majority of the UK populace which voted to leave the union. Hammond has said there must be “no red lines” (over migration). The rest of the British cabinet are reportedly not so sure.
2. Theresa May wants a bilateral deal
Tomorrow (Wednesday), UK prime minister Theresa May is hosting a meeting of her “top team” at Chequers. She’s reportedly asked them to come along with their proposals for negotiating Brexit. We know what Hammond wants. And we know what Davis wants. May herself reportedly wants a ‘bespoke Brexit deal’ which involves limits on free movement of people and access to the single market, particularly for car manufacturers and financial services firms. In this sense, May resembles Davis. She also resembles the City’s negotiating ‘grandees’, whom the Financial Times reported were pushing for something similar a few weeks ago.
3. But doubts are being raised about the ‘Swiss model’
If the UK does negotiate a bilateral deal, it’s likely to look like the so-called Swiss model. Margarida Marques, Portgual’s Europe minister, told Bloomberg that a ‘Swiss finish’ is what she’s expecting. Switzerland operates outside the EU but has 120 bilateral agreements with the bloc which allow it partial access to EU markets.
While this might sound great in theory, doubts being raised with increasing urgency about the Swiss model’s viability. Firstly, Pascal Couchepin, a former Swiss president, has pointed out that the Swiss agreements took years and years to negotiate. Secondly, as David Howarth, a professor at the University of Luxembourg, pointed out last week, some sectors (like life insurance) aren’t covered by the Swiss agreements: Swiss insurers have to establish a branch or subsidiary in the EU to access the single market. The same applies to Swiss banks like UBS and Credit Suisse.
4. A key ally of Angela Merkel said it will be “very difficult” for UK finance firms to continue passporting into the EU after Brexit happens
Angela Merkel has begun sounding a little less amenable about Brexit than before. The German chancellor has spent the past few weeks touring Europe trying to patch things up. Brexit marks a “deep break in the EU’s history of integration,” she said a few weeks ago.
Merkel’s allies have been making even less favourable noises. Juergen Hardt, a politician who speaks on foreign policy for Merkel’s Christian Democrat-led parliamentary group, told Bloomberg that the UK will need to contribute to the EU budget if it wants to access the single market. Michael Fuchs, another German politican and Merkel ally told Bloomberg that banks based in Britain stand to lose their ability to passport into the EU because passporting is “non-negotiable” and, “If you’re member of a club you have certain benefits, but if you’re out, you will not have the benefits any more.”
5. Owen Smith, the contender for leadership of the UK Labour party, wants another Brexit vote, or a general election on the subject
Next month, members of the UK Labour party will be given the opportunity to vote on their leader. There are two contenders: Jeremy Corbyn and Owen Smith.
Corbyn will almost certainly win. In the (unlikely) event that he doesn’t, Smith has vowed to prevent the UK government from triggering Article 50 until there’s been either another referendum or a general election to decide the manner of the country’s EU exit.
6. Frankfurt brunches and wooing in Warsaw, but UBS is moving a handful of staff to London
Lastly, London’s rivals have lost no time in trying to seduce finance firms currently based in the City.
A website set up by Frankfurt to attract City firms has had 27,000 views and Frankfurt has been hosting brunches for banks with an inclination to move there. The Financial Times, meanwhile, has glimpsed the diary of Mateusz Morawiecki, the Polish deputy prime minister. Therein are penciled meetings with senior executives at the Royal Bank of Scotland, UBS, Barclays, BNP Paribas,Citibank, Credit Suisse, all of which are reportedly thinking of moving more middle and back office jobs there.
The tiny exception to the leave London rule is UBS. The Swiss bank is cutting 15 jobs in Paris and might be moving some of them to London.