As in all separations resulting from lengthy negotiations, the versions of the coveted last-minute Brexit agreement, concluded only to avoid the worst and limit the worst economic damage for the parties, tend to be conflicting. And just as in a "cinepanettone", without which we could have survived, the conciliatory statements of the president of the European Parliament Tajani were partially denied by Theresa May's spokesman, who defined the words attributed to the Premier "inaccurate" and irrelevant .
However one wishes to interpret the content of theagreement last Friday, it can be said that the hypothesis of the divorce of the century in the "hard Brexit" style has been averted and that in summit in Brussels on 14-15 December which will see the leaders of the European Union gather there will certainly be an opening declaration. It will be said that the progress in the talks is considered suitable for opening the operational table that will define relations between the EU and Great Britain and that by October 2018 the real and proper definitive agreement will have to be ratified by all the Parliaments of the countries, according to procedures and its own legislative dictates, by 29 March 2019.
The preliminary agreement therefore serves as a good starting point for the internal discussion within the Government that Prime Minister May has convened for 19 December. The Premier herself invited the ministers to express their ideas on Brexit to obtain a broader consensus for the continuation of the talks, which will now get to the heart of the more technical and crucial issues of separation.
An interesting background concerns the well-known issue of the border between Northern Ireland, which remains part of the destinies of Brexit, and the Republic of Ireland, firmly anchored in the EU for 45 years. In fact it turns out that the ECB has purchased Irish bonds in addition to the theoretical quota set by the "capital keys", as it did for France and Italy in similar moments of political storm, thus proving to be always attentive to the momentum of the market in compliance with the feasible actions from its mandate. Another sign of what it means to be part or not of a single European market.
In the coming months and until the end of March 2019, when Great Britain will no longer be in the EU,
the acquired rights of residents of Great Britain with European citizenship are protected. So are newcomers, but restrictions similar to those for British citizens remain on reunification. The securing of the European budget for 2014-2020 with the guarantees on the freezing of the contribution quotas of the EU countries reassures minds, which will also find a method of disbursement in installments for the separation which it will cost the UK between €45 and €50 billion, in line with expectations.
From April 2019, with the loss of the vote and of the representations within the community bodies, Great Britain will begin a new phase of detachment in which it will not be able to fail in the community directives and it will be necessary to define which of the solutions already tested (Norwegian or Canadian) may or may not be the most fitting. And here we arrive at the crux of the question that more than any other could tip the balance of this phase towards a long-term separation. If the Norwegian model is chosen, the British will have to guarantee free movement of people and will be free to enter into free trade agreements (“FTA”) with the EU and/or other countries, but without being able to use passporting on financial services anymore.
The EU negotiator, Michel Barnier, was very clear on this: leaving in March 2019 will mean the loss of the "European passport" on financial services, which represent around 9 billion pounds of annual tax revenues calculated by the British Bankers' Association for the British state. Barnier specified even more harshly: “The single market is a package that envisages 4 indivisible themes: equal rules, institutions, freedom of action and strengthening of single structures. AND Britain's decision to cut off the free movement of people clearly means that the UK will lose the benefits of the single market".
The impact on the economy across the Channel from the English financial sector to the automotive sector promises to be heavy, given the already low productivity, as specified by the Chancellor of the Exchequer Hammond, even if news of an amicable Brexit momentarily put the British pound back on track. An illusion for many analysts: because the financial services business includes derivative contracts in euros and other European currencies together with their settlement (clearing). Any renegotiation for maturities beyond Brexit on systems and legal guarantees different from the Anglo-Saxon ones compared to the European ones, remains a huge unknown factor for the markets and for the international banking system, not just the English one. Because, as well demonstrated by the subprime crisis, the financial systems are correlated and therefore the economic and financial damage of a possible change in the levels of collateral will not only apply to British banks, if by October 2018 a technically flawless solution is not found that safeguards all the banks involved in a turnover estimated at more than 500 billion dollars a year.
Already six months ago the ECB had returned to office after two years, had sounded the alarm by requesting London to expand its control and monitoring powers precisely on the clearing of derivatives, extendable to all financial services in euro and offered beyond the EU border via passporting, bearing in mind that 99% of euro repo and interest rate swap contracts are settled in London. So before celebrating the moves of banks and clearing houses by basking in the assumption that the London Stock of Exchange also owns Borsa Italiana, and that we could thus have a paved road to compete with Paris and Frankfurt, perhaps we should ask ourselves about the systemic effects of a change that impacts the system of international regulations and clearinghouses as never happened for volumes and financial institutions involved.
