The U.K. could pay for its financial services sector to access the single market post Brexit, according to six EU diplomats familiar with an idea floated in Brussels by a northern European country.
Although it has not yet been discussed formally by diplomats formulating the EU27’s negotiating position, the idea will offer hope to British negotiators desperate for a sign that national officials are willing to be more pragmatic about the Brexit talks than the European Commission and the EU’s chief negotiator Michel Barnier. The U.K. has accused Barnier of being dogmatically attached to an inflexible vision of the European project.
Barnier has flatly ruled out any prospect of financial services access under the Canada-style trade agreement the U.K. is seeking, saying before Christmas, “There is not a single trade agreement that is open to financial services. It doesn’t exist.”
The diplomats insist that a red line banning cherry-picking of some benefits of the single market by the U.K. still holds, but the fact that the proposal for financial services access as part of a free trade deal has not been dismissed out of hand in Brussels suggests that there may be more flexibility than has been apparent up to now — so long as the U.K. pays.
The apparent deviation with Barnier’s hard-line position also suggests that the rock solid EU27 unity that persisted through Phase 1 of the talks may be harder to maintain during the more complex Phase 2 on the U.K.’s future relationship with the bloc.
“Saying that no trade agreement includes financial services is a good negotiating technique, but we need to be able to move beyond it,” said a senior official from one of the largest member countries. “We need at a certain point to have a proper, real discussion looking at possible, consensual solutions.”
The “pay for access” proposal has not yet been tabled at any formal Council meetings. But one reason that diplomats are now entertaining the idea even unofficially, is a sense that progress with the talks has been so glacial, they will be a need to consider creative solutions.
“Until a few months ago I would have said no, no way, but now things have changed,” said a senior diplomat from a small country, adding that one reason for the change of heart was that “it is pretty clear that we achieved very little in the first phase.”
One major advantage of the proposal is that U.K. payments into the EU budget would benefit all member countries, whereas a hard line that excluded access might only benefit one or two cities — notably Frankfurt and Paris — which could pick up business from firms relocating part of their operations from the City of London, one of the diplomats argued. The EU is struggling now to fill the budget hole that will be left by Britain’s departure.
Even so, there is a reluctance among EU countries to introduce the idea into official discussions without a first move from the U.K. government. “It’s London that has to put it on paper,” said one of them.
All six diplomats spoke under condition of anonymity, and many of them stressed how complicated it would be to reach a “pay for access” deal for the U.K. financial services sector. There would also be technical and practical issues to overcome.
“Financial services are so intertwined in EU rules,” said one diplomat from Central Europe, meaning that it could be very difficult to grant access to this sector but not to others. Ultimately, though, the diplomat said such barriers could be overcome. “If there’s political will, all gets solved,” the diplomat said.
Another diplomat from Eastern Europe warned that pursuing the proposal could present further problems. “If you open the door to the principle that if you pay, then you get things that others don’t get, you open a dangerous precedent,” argued the diplomat.
The discussion among EU27 diplomats of the bloc’s position on financial services is at a very early stage. During a technical seminar on the topic at the Council on Tuesday, however, member countries made clear they regard it as a central issue in the talks.
“The indication that member states gave was that this is a key topic and that it has to be thought through very, very carefully,” said a Brexit official who took part in the meeting.
U.K. negotiators believe that the asymmetrical nature of trade in services between the U.K. and the EU would make a payment for access deal difficult, unless the EU is prepared to pay for access to the U.K.’s market in return — something that both sides acknowledge is highly unlikely.
Reacting to the “pay per access” idea, a U.K. government official said: “It’s good news that EU diplomats are thinking creatively about how we ensure the vital services sector is covered by our future trade deal. But inevitably, given the level of access that the EU requires to the City of London, an obvious downside would be that payments would have to flow both ways.”
Catherine McGuinness, the policy chairman at the City of London Corporation said she had not heard of the idea being floated in London but said: “My immediate response is that it leaves us paying for a privilege, or being a rule taker, and that’s a position we couldn’t be in. So we stick to our original proposal for [a Free Trade Agreement].”
“I’m sure a lot of proposals will come up as we go through the negotiations. We start with this ambitious vision (the FTA), which we think will work for the U.K. and the EU, and the global sectors the City represent. We feel it is in everyone’s interest and we will keep plugging for that.”
In response to a request for comment from POLITICO, the Commission pointed to a speech Barnier delivered earlier this month at an industry event in Brussels that included a section on the EU’s rulebook on financial services. “A country leaving this very precise framework and the accompanying supervision gains the ability to diverge from it but by the same token loses the benefits of the internal market. Its financial service providers can no longer enjoy the benefits of a passport to the single market nor those of a system of generalised equivalence of standards. This is not a question of punishment or revenge; we simply want to remain in charge of our own rules and the way in which they are applied,” he said.
Cat Contiguglia and Charlie Cooper contributed reporting.
This story has been updated with a comment from the European Commission.