The UK could lose 30,000 finance sector jobs as a result of Brexit, but EU rivals need to act to avoid importing banking risk to the continent, according to an influential thinktank with close ties to the European commission.
The City of London stands to lose 10,000 banking jobs and 20,000 roles in accountancy, law and consulting, as EU clients move business worth €1.8tn (£1.6tn) to the continent after Brexit, according to Brussels-based Bruegel.
According to the economics thinktank’s model, Frankfurt would be the biggest winner, with Paris, Amsterdam and Dublin also making gains. But the researchers warn that having a more geographically diverse spread of financial institutions, without stronger oversight of banks, would heighten the risk of a banking meltdown in the event of an acute financial crisis.
These risks could be reduced and benefits shared more evenly, the authors argue, if the EU takes a common approach to investment banks rather than 27 national systems in a “regulatory race to the bottom” to steal London’s crown.
The analysis is based on the assumption the UK will leave the single market, as set out in Theresa May’s Brexit speech last month.
“Brexit involves risks for market integrity and stability, because the EU including the UK has been crucially dependent on the Bank of England and the UK Financial Conduct Authority for oversight of its wholesale markets,” states the report. “Without the UK, the the EU27 must swiftly upgrade its capacity to ensure market integrity and financial stability.”
Nicolas Véron, a co-author, said the EU faced a mix of risks and opportunity, but had barely started discussing post-Brexit financial regulations.
“What is important is for the EU27 to find its feet in the new financial system of the post Brexit landscape,” he said.
Rather than creating “27 clones of the FCA and Bank of England”, the EU should instead design “a more centralised consistent architecture”, with central authorities for banking regulation and conduct, Véron added.
The City could be a flashpoint in Britain’s EU exit, given London’s outsized role as Europe’s financial centre. Twice as many euros are traded in London as in the 19 countries of the single currency combined.
Bruegel was an early advocate of “banking union” – the eurozone’s shared, but unfinished, system of banking rules – and its reports are closely read within the EU institutions.
Véron expressed optimism that the EU would act despite the loss of political momentum that many people expect in 2017 as a result of elections in the Netherlands, France and Germany.
Barring an upset, by October 2017, “governments would be in place, which would create a fairly favourable context for decision-making”, he said.
guardian.co.uk © Guardian News and Media Limited 2010