German official urges financial industry to prepare for disorderly Brexit

Source: Xinhua| 2018-09-26 23:43:51|Editor: yan
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BERLIN, Sept. 26 (Xinhua) -- A German federal government official on Wednesday urged the country's financial industry to start making concrete preparations for a disorderly exit of Britain from the European Union (EU).

"A no-deal scenario would be the worst outcome -- nevertheless, caution demands that we also prepare for it," said Joerg Kukies, secretary of state in the ministry of finance. Kukies' comments were made at an insurance industry conference in Berlin where he reminded companies that it was primarily their own responsibility to take mitigating steps.

According to Kukies, the federal government was currently trying to help lure financial services firms, who were considering leaving Britain as a consequence of Brexit, to Germany's own financial hub of Frankfurt. These measures formed part of a wider initiatives by the ruling "grand coalition" to strengthen German capital markets.

The remarks were made shortly after finance minister Olaf Scholz warned at a banking conference in Frankfurt that it was still "difficult to say whether (a post-Brexit agreement) can be reached" before London crashes out of the bloc on March 29, 2018.

A recent EU summit attended by British prime minister Theresa May in Salzburg is widely seen as having failed to resolve differences between the two negotiating parties with the bloc's national leaders rejecting her so-called Chequers proposal in which London leaves the single market but still retains relatively frictionless bi-lateral trade in goods.

Even if the United Kingdom still succeeded in persuading the EU of the benefits of such a "bespoke" arrangement in time for a deal to be ratified by March 29, the model would not address concerns voiced by many British banks whose service-sector activities are not covered by May's preferred deal. As a consequence, these firms are likely to lose their current "passporting" rights to conduct financial business in across the 27 member states of the EU.

Earlier in September, German chancellor Angela Merkel (CDU) announced that her cabinet would seek to create "attractive framework conditions" for firms from the City of London to relocate in Frankfurt to avoid losing access to European capital markets. Towards this end, Berlin will weaken domestic labor law protections against the short-term dismissal of employees who are engaged in risk-taking behaviour and earn more than 234,000 euros (274,000 U.S. dollars) per year.

Frankfurt and Paris are the two main competitors to host new European headquarters created by a potential exodus of British bankers. The British financial services lobby group "TheCityUK" has estimated that up to 70,000 jobs could be lost in total in the domestic industry if Britain does not remain in the single market after Brexit.

Frankfurt is already home to three major regulatory bodies, the European Central Bank, German Central Bank (Bundesbank) and German Federal Financial Supervisory Authority (BaFin), potentially giving it an edge over other continental rivals. Merkel has also promised that the Frankfurt stock exchange operator could count on her government's support to demand a transfer of lucrative Euro-clearing activities from London to the EU.

"The logic speaks certainly does not speak against (a transfer from London to Frankfurt). Politically, I can easily explain that Euro-clearing must take place in the Eurozone and in that case Frankfurt is certainly an excellent location," Merkel said.