London’s Latest Brexit Fantasy Awaits Dashing

Things are getting not better over in Jolly Old.
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By kloniwotski (Flickr) [CC BY-SA 2.0], via Wikimedia Commons

By kloniwotski (Flickr) [CC BY-SA 2.0], via Wikimedia Commons

There’s been a lot of wishful thinking in the City of London since unwashed provincials gave them two fingers and voted to destroy the very basis upon which the U.K.’s most vital industry stands. Maybe Brexit wouldn’t be so bad. Maybe Boris Johnson was right and they could have their cake and eat it, too. Maybe the government would figure out a way for the softest of soft Brexits, a kind of universal acid that would change everything and nothing at the same time. Maybe there’d be some kind of Norwegian or Swiss approach that allowed the U.K. to remain in the single market. Maybe there’d be some handy Canada-plus route that did something similar. Maybe someone would eventually come to their senses, realize what an incredible catastrophe this is all going to be, and just decide not to do it.

Most of these pious hopes were put paid when Prime Minister Theresa May made clear that, while she might disagree with the hoi polloi, she’d every intention of giving them what they want: Namely, a Donald Trump-style wall right down the middle of the English Channel. In other words: hard Brexit. No single market if it means accepting even a single additional Polish plumber. The English went for centuries without running water while throwing their waste into the streets, and they can do it again.

The last thin reed to which the bankers and hedge fund managers and other financial types has been equivalence. After all, May promises to adopt all current EU rules into British law by the time the end comes, and so British financial regulations will be the same as those on the continent, and so we can just keep on going right? Maybe even better, since the latest promise from Whitehall is “equivalence-plus.”

In an interview this week with Bloomberg, trade minister Mark Garnier spoke of trying to secure in negotiations with the EU “a special hybrid version…with a better version of equivalence or a different version of passporting.”

Sounds great. There’s just one problem and, you guessed it, it’s the same problem on which all of the other pies in the sky have fallen: It only sounds great to the British.

“This framework offers a fairly bleak basis on which the City might continue to thrive as a global financial center in Europe,” wrote Karel Lannoo, chief executive of the Centre for European Policy Studies in a recent paper….

“The EU has no incentive to create a hybrid model for the U.K. that allows it to protect the integrity of its financial-services trade with the EU from the outside,” said Mr. Rahman. “Whatever regime is created will be less beneficial [to the U.K.] than the status quo.”

There is, however, some good news in this sad, sorry, sordid tale: Even if all of the banks in London wanted to pick up sticks and move everyone to Frankfurt, they can’t.

Tough building codes and a shortage of space may make it harder than imagined. The city has a limited supply of very large offices, and zoning rules make a sudden uptick almost impossible. Any building over 22 meters—72 feet, or about five stories—is restricted to specific zones of the city and requires approval from a committee of local politicians….

In Frankfurt’s most-desired areas, “there is already a limited availability of properties compared to a high level of demand,” said Mr. Gripp at Engel and Volker.

London’s City Faces a Post-Brexit Dilemma [WSJ]
Moving to Frankfurt After Brexit Could Be a Squeeze for Banks [WSJ]

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