Germany wants to help UK banks get access to the European market after Brexit, but would need Britain to make concessions, according to a person familiar with the German government’s position.
With Brexit talks bogged down in divorce issues, the outlook for Britain’s financial services sector hasn’t been discussed yet. But the European Commission, which is leading negotiations on the EU side, has rejected the UK’s proposal for how its banks should operate in Europe after the split and is offering much more limited access instead.
The UK sees an opportunity to exploit lingering divisions among EU member countries. In Germany, Europe’s biggest economy, Chancellor Angela Merkel has said she wants to limit disruption to economic ties. Germany wants to help Britain and sees itself in a position to foster a compromise when the time comes, the person said, speaking on condition of anonymity. For a deal to work, the UK would have to accept the jurisdiction of the European Court of Justice and make an open-ended commitment to accept EU regulations, according to the person.
While the UK initially ruled out any role for the ECJ after Brexit, Prime Minister Theresa May has shown some flexibility as she seeks to maintain market access for British companies. With less than a year to go until Brexit, talks on the future UK-EU relationship started last week and a detailed, binding agreement on the future relationship will be sealed only after the UK has left.
The EU’s negotiating guidelines on financial services prompted debate between countries that are taking a hard line, such as France, and others that favor flexibility, including Luxembourg, which has close ties to London. Germany has signaled that it wants to uphold financial ties with London, in part to allow Europe to compete globally.
As things stand, the EU will offer the UK access based on so-called equivalence, meaning the Commission unilaterally decides if another country’s rules are up to scratch. The UK rejects that approach as too limited in scope and unreliable as the EU can withdraw authorisation at short notice.
Running parallel to Brexit negotiations, the EU is revising its rules on equivalence. They may be tightened further, making the EU’s offer even less attractive to UK institutions. Michel Barnier, the EU’s chief Brexit negotiator, said the bloc’s 27 other countries laid out their offer in March and it is Britain’s turn to say what it wants. “It is now up to the UK to come up with its vision for the future, which should confirm the UK’s red lines or adapt them,” Barnier said in a speech in Hanover.