Macron rebuffs post-Brexit City deal unless UK pays into EU budget

French president Emmanuel Macron has rejected the idea of a tailored Brexit deal for the City, insisting Britain will not be allowed full access to European Union markets, including financial services, unless it pays into the EU budget and accepts all its rules.

Macron delivered the tough message at the end of a joint press conference with Theresa May at Sandhurst military training college on Thursday. A day-long UK-EU summit was held to underline the close relationship between the two countries after earlier news of a £45m British boost to border security in Calais.

Financial services is one of the sectors in which France hopes to seize an increased share of the EU market after Brexit. City firms are concerned about new trade barriers, including the loss of so-called “passporting” rights, that allow them to operate throughout the EU from headquarters in London.

Asked whether France would seek to “punish” Britain, by insisting financial services should not be included in a UK-EU trade deal after Brexit, Macron said, “I’m not here to punish or reward”.

“The choice is up to Britain: it’s not my choice – but they can have no differentiated access to financial services,” he said. “If you want access for financial services, be my guest – but it means you have to contribute to the budget, and accept European jurisdiction. It’s a situation that exists for Norway”.

Banks, insurance companies and other financial firms in the EEA – the EU along with Iceland, Liechtenstein and Norway – are able to do business in the UK with separate regulatory approval. The system is known as passporting and allows firms to trade freely across borders.  It applies the other way round, so that UK firms can operate in other EEA countries.

The conundrum facing the Bank of England is that Brexit will change this (unless passporting is replicated in any deal with the remaining 27 members of the EU). This means those firms which currently use passporting to operate in the UK will need to be regulated in the UK by the Bank's regulation arm, the Prudential Regulation Authority. In the case of banking, Bank of England data show that about 70 banks could be impacted.

But the numbers could be bigger across the entire financial system. There are nine different passports that banks and financial firms use to provide banking services alone.

The Financial Conduct Authority, the City regulator, last year published data showing just over 8,000 companies authorised in other EU states use these rules to do business in the UK while 5,476 UK-registered firms hold at least one passport to do business in another EU or EEA member state. All that will need to be sorted out in the negotiations ahead.

The alternative was a Canada-style trade deal, he said, which could include financial services, but would not include access “on the same level” as existing EU members.

Brussels has consistently stressed that Britain will not be allowed to “cherry-pick” sectors, but Brexit secretary David Davis has said he is seeking a “Canada plus plus plus” arrangement, based on the EU-Canada trade treaty, but with additional access for services.

Britain hopes that with the first stage of talks out of the way, it will be able to capitalise on close trading relationships with key EU allies to achieve a bespoke deal – but Macron said France would stick to the agreed script.

Protecting the integrity of the single market meant that if Britain chooses a Canada-style deal, it cannot be offered the same access to the single market that membership allows, the French president added. “There should be no hypocrisy in this respect, or it would not work and we would destroy the single market.”

The prime minister pointed out that she had said in her Lancaster House speech that Britain would leave the single market after Brexit; but she hoped to achieve a “deep and special partnership” with the EU27.

May said: “I would not want to exclude any sector in the trade agreement to come ... But it does not mean that the access it will allow will be equivalent to [being] a member of the single market.”

On the issue of London, May said it would continue to be “a major global financial centre,” insisting that would be to the benefit of the UK, Europe and the global financial system.

Brexit was not formally on the agenda at the summit, where ministers including foreign secretary Boris Johnson and culture secretary Matt Hancock met their French counterparts to signal the breadth of cooperation between the two countries on issues from artificial intelligence to weapons construction.

Asked how he felt about what he called “the Brexit” and whether he hoped it would be reversed, Macron said: “I very much respect the choice of the British people even though I regret it.”

May and Macron also confirmed a £45m boost to investment in border security in Calais, which the French president said would help to speed up processing times for migrants, to one month for adults, and 25 days for unaccompanied children.

Macron stressed that a new “Sandhurst Treaty” signed at the summit will sit alongside the existing Le Touquet treaty, and help to improve the situation for migrants in Calais, which he visited earlier this week. He said migrants must be treated, “more humanely and in a more efficient manner”.

The prime minister, asked whether she was getting little in return for the pledge of more cash, said it would improve Britain’s border security. “It is in our interests,” she insisted.

Both leaders repeatedly underlined the close relationship between the UK and France, as they confirmed that the Bayeux Tapestry will come to Britain on loan, in 2022.

“I am honoured at the loan of such a precious piece of our shared history which yet again underscores the closeness of our relationship,” May said.

Macron said with the range of bilateral agreements, across culture, security, art and trade, the new countries were, “making a new tapestry together”.

Earlier, the prime minister hosted a small working lunch with Macron at a gastropub, the Royal Oak, in her constituency, before they travelled to Sandhurst to be greeted with a military band and an RAF flypast.

The Ministry of Defence and the French defence ministry issued a joint communique setting out a series of steps the two countries will take.

They will establish “a UK-France defence ministerial council”, to act as a “permanent and regular forum”, for the French and British defence secretaries to exchange ideas and carry out joint planning.

The announcement came alongside confirmation that the UK will send three Chinook transport helicopters to aid France’s anti-terrorist operation in Mali.

Johnson also tweeted that the two countries had decided to establish a joint “panel of experts” to examine future projects – adding that perhaps the Channel Tunnel should be “just the first step”.

French officials stressed that Thursday’s summit was unconnected to the Brexit negotiations, despite reports that Britain hopes the £45m in additional funds it will provide for security in Calais and the surrounding area could help to win support from France for a generous trade deal.

In a major speech in September, Macron called for a “profound transformation” of the EU after Brexit, which would see a core of countries bind themselves together more closely, with common defence, asylum and tax policies.

He also suggested other countries might choose less integration, in an EU in which the UK could “one day find its place again”.

Powered by Guardian.co.ukThis article was written by Heather Stewart Political editor, for The Guardian on Friday 19th January 2018 07.33 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010