Last week, the British government asked German business leaders for help in securing a good deal with the European Union on financial services. The request deserves to be taken seriously. Europe's businesses have much to gain from keeping London as a thriving financial center.
The city is by far the most significant financial hub in Europe. In 2016, the U.K. accounted for more than three-quarters of the E.U.'s foreign-exchange turnover, 85 percent of its hedge-fund assets and nearly a third of its equity-market capitalization, according to a recent report by the European Parliament.
Some in the EU-27 see Brexit as a chance to lure away parts of this business — and they're right. Yet it won't be easy to replicate the wealth of expertise that the city has built up. In addition, some of London's financial infrastructure — its system for clearing derivatives, for instance — is complex and delicate. Relocation would be risky, especially if it has to be done abruptly. The city's customers in the E.U. have an interest in minimizing this disruption.
To be sure, the U.K. government can't expect business as usual for London. When the U.K. leaves the single European market, as Prime Minster Theresa May has said it will, banks and insurers in the U.K. will lose their automatic "passports" to operate anywhere in the E.U. Many financial-services companies would like to stay in London but won't be able to once those permissions are lost: The EU-27 accounts for a large part of their revenue.
Still, a compromise ought to be possible. Britain and the EU-27 could agree on some form of regulatory "equivalence" — under which the E.U. would recognize that the U.K.'s rules are as good as its own. The idea isn't new: Europe already applies the principle of equivalence in its financial-services dealings with other non-E.U. countries. To be of much use for London, equivalence would need to be extended to new areas of business — but there's no reason why that shouldn't happen. This would give U.K. financial-services firms partial access to the E.U. market, serving the interests of the U.K. and the E.U. alike.
A deal along these lines would be vastly better than none, and not just for Britain. Europe, too, has in interest in coming to terms.
FROM AN EDITORIAL ON BLOOMBERG VIEW
