December 17, 2018
Finance

Deciphering Brexit double-speak

PARIS — Welcome to the Brexit Orwellian dimension, where words mean the opposite of what they say.

The “free-trade agreement” that Brussels and London are supposed to negotiate as part of their future relationship will instead make the exchange of goods more difficult than in the single market the U.K. currently belongs to. So lets call it instead a “restricted trade agreement” — for the first time in the history of such deals, the goal will be to make trade less fluid.

As for the “equivalence” regime that the EU has offered as the basis on which financial services should be managed post Brexit, the two parties are anything but equivalent.

Or to paraphrase Orwell again, one party will be more equivalent than the other.

As yours truly predicted, the future EU-U.K. deal will indeed include a segment or even a full chapter on financial services, like all trade deals before and notably the much-referenced CETA agreement between Europe and Canada.

For the French, the equivalence regime seems to be a weapon of restriction, whereas for Luxembourg, it is a way to keep the doors open.

But as predicted as well, it will be nothing like the deal the U.K. was hoping for, even after a few countries, such as Luxembourg, that have a strong interest in keeping a smooth exchange of financial services, made their interest known.

The EU has acknowledged that its current “equivalence” regime, whereby it grants authorizations on a case-by-case basis to third-country firms to operate in Europe, should continue to be reviewed and strengthened to take Brexit into account.

That doesnt, however, mean that it will allow a special status for the U.K. The reformed equivalence regime will be applied to all the so-called third countries. Equivalence has already been extended to a couple of dozen countries, from Australia to Brazil and from the U.S. to Saudi Arabia, for a specific activity under a specific EU regulation or directive.

And even if the regime is mentioned in a future, legally binding EU-U.K. deal, it wont bear much legal consequence since its a unilateral tool the EU has set up. Its aim is not to liberalize foreign financial services on EU territory, but to safeguard financial stability. The basic principle, which will not change with a future U.K. deal, is that what the EU gives, the EU can take away.

Jean Asselborn, Luxembourgs foreign minister | John Thys/AFP via Getty Images

Equivalence is not a contract with mutual rights and obligations but a discretionary exemption. The current review of the equivalence regime will, among other things, aim to come up with a system that can deal with the sheer amount of requests likely to emanate from the U.K. on most financial regulation fields. While no equivalence regime has ever been withdrawn by the European Commission, the fact that it can be pulled on short notice is a source of worry. But that could be dealt with if the EU agrees to a decent notification period.

The latest EU “concession,” which is not a concession, shows yet again that the only Brexit negotiations that matter at this stage are the ones taking place within each camp: between Theresa May and her hard Brexiteers, on one side; and among the EU27 on the other.

As Jean Asselborn, Luxembourgs long-serving foreign minister, said during a trip to Paris earlier this week, as much as “there cant be cherry-picking on the part of the U.K., there shouldnt be any cherry-picking within the EU” either. In other words, EU negotiator Michel Barnier shouldnt defend only the interests of some and forget others.

For Luxembourg, keen to retain its place as a financial hub, it meant, he added, “a strong equivalence regime” for financial services.

This he got. A deal struck with the French — who are reputed to be among the hard-liners on the topic of financial services — served as a basis for a new annex to the EUs Brexit guidelines, which European leaders were on track to approve this week at their summit.

Yet for the French, the equivalence regime seems to be a weapon of restriction, whereas for Luxembourg, it is a way to keep the doors open. Sorting this Orwellian dilemma will fall on the Commission in a couple of years, after Brexit becomes a reality.

Pierre Briançon is chief European economics correspondent for POLITICO.

Original Article

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