Brexit: What happens next?
27 Jun 2016 - Blog, News
Financial services impact is greatest because of the ‘passport arrangement’
It has made for frightening headlines that jobs at HSBC, Morgan Stanley, Goldman Sachs Deutche Bank could be moved if the UK leaves the single market.
This is because the current ‘passport arrangement’ in the single market allows financial companies to do business across Europe without separate authorisation for individual countries – so a US bank for example can do business across Europe from its office in London.
But leaving the single market completely is not for definate, during the nogotiations ahead there are models for potential exit:
The Norwegian model (The economists’ favourite):
UK leaves the EU but joins the European Economic Area (EEA) which is the 28 EU member states plus Norway, Iceland and Liechtenstein, and extends the free movement of goods, services, capital and persons beyond the EU to those three countries.
The UK would not benefit from or be bound by the EU’s external trade agreements but would be free from EU rules on agriculture, fisheries, justice and home affairs
It would have to make significant financial contributions to the EU and continue to allow the free movement of persons, two of the Leave camp’s main criticisms of EU membership.
The passport model still applies.
The Swiss model:
UK leaves the EU and does not join the EEA
The UK negotiates various bilateral agreements with the EU on a sector by sector basis, rather than the market as a whole.
Switzerland has negotiated a large number of sector-specific bilateral agreements with the EU and has access to some parts of the single market
The passport model may still apply
UK leaves the EU and either relies solely on the rules of the WTO (around tariffs) as the basis for trading with the EU or negotiates a new bilateral trade deal with the EU.
Passport model no longer applies.
There’s also a view that lighter regulation of the city would be possible outside the EU and that would stimulate further growth in the financial sector. That could in turn offset any jobs and business that might be lost if the passport option is removed for operations based in the UK.
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