Britain is likely to face some economic disruption and worse trading terms if it loses access to the European single market when it leaves the EU in 2019, the bloc’s financial services chief said on Friday,Reuters reports.
Valdis Dombrovskis, who is also vice president of the European Commission, said “lots of time and energy” would be spent on negotiating new trading terms if British Prime Minister Theresa May pressed ahead with a so-called “hard Brexit” plan to leave the single market.
“If the UK is outside the internal market, we need to find a workable solution,” Dombrovskis said at a Bloomberg event in London. May is due to formally trigger divorce talks with the EU next month, lasting two years.
In the meantime, it was important Britain remained a fully committed EU member to approve financial rules such as giving regulators powers to close failing clearing houses speedily to avoid contagion, Dombrovskis said.
The EU has launched a project to create a capital markets union or CMU to improve the ability of markets to raise funds for the economy, but Brexit will change its “dynamics”, he said.
There was a need in upcoming divorce talks to see how market links could be preserved to make CMU work in a wider context and not just inside an EU of 27 countries without Britain, he added.
Some EU policymakers want clearing of euro denominated derivatives contracts to move from London to the continent after Brexit, potentially taking thousands of jobs from Britain. The European Central Bank’s first attempt at shifting euro clearing to the euro zone was shot down by the bloc’s top court.
“We know the European Central Bank has now put the issue back on the table. We have said that from the Commission’s side that we are ready to assess this situation together with the ECB and find an appropriate way forward,” Dombrovskis said.
But there was a need to consider the effect of shifting volumes on financial stability, the potential for market fragmentation, and costs for consumers, he said. “At the end of the day we need to arrive at a balanced solution.”
The EU executive is reviewing the bloc’s derivatives trading and clearing rules, seen as one way of getting euro clearing to shift to the euro zone, but bankers have warned it could end up in New York or Asia instead.