The recent grim headlines out of the European Union had little or no impact on the European financial markets. The Euro remains elevated and the European stock market indices as well, despite the largest economies being in some sort of lockdown mode – partial or complete.
In a blowout for the way the European Commission organized the vaccine purchasing, the European Union countries are left without enough vaccines in the pipeline. As such, no later than yesterday, Madrid announced that it would suspend the vaccination campaign for two weeks due to lack of vaccines. At the same time, over four-hundred people die daily in Spain – and the numbers are similar, or even worse in other European countries.
Naturally, the European Commission reacted quickly. It announced yesterday that the E.U. would give full equivalence based market access for U.S. clearinghouses with no time limit. Is this in retaliation to AstraZeneca, a UK-based company, being responsible for the vaccine delays in the E.U.? Probably not, but one starts to see the true impact of Brexit – and it is not about fisheries.
What Are the Implications of the E.U. Decision?
Another coincidence is that the E.U. decision comes days after the new U.S. President has been sworn in. It shows that the E.U. got over Brexit and will pivot toward the U.S. instead.
Leaving conspiracy theories aside, what are the financial implications for such a move? Plenty of things to discuss here.
First, since Brexit started, the buzz was that new competition from Frankfurt will drive business away from the City of London. In fact, the real threat for London was always New York.
Second, the U.S. clearinghouses will no longer need to maintain an office in London to access the E.U. markets. They did so in the past, but with the new decision, this is not a requirement anymore. Hint – job losses, as the U.S. can do the same business from the U.S.
Third, time will tell if the focus on the Brexit negotiations was right to be on goods and trade. Financial services are key to London and, while it still has supremacy over cities in Europe, it will lose its influence, and this is just the first step in that direction.
We talk here about trillions of dollars and euros cleared through London that no longer need to do so. It is a huge blow to the U.K. financial services sector and for the country as a whole.