EU chief’s caution to UK over forthcoming trade deal

With the Brexit bill having been finally approved by parliament last week clearing UK’s exit from the European Union, a fresh row appears to have broken out over future trade relations for which negotiations were expected to be tough. The new head of the European Commission, said the UK must follow the EU’s rules if it wants access to its markets.
Ursula Von der Leyen warned in a speech during her visit to London last week that negotiations would not be easy and that there would have to be “a number of trade-offs and choices” over financial services.
Her comments came as Bank of England governor Mark Carney and former chancellor George Osborne suggested that given the international standing of the firms in London’s financial district (known as the ‘City’), the UK should go its own way and not become a “rule-taker”.
During the speech, Von der Leyen lamented the UK’s exit from the EU but said a post-Brexit partnership could be “unprecedented in scope”. However, she warned there will not be enough time for both sides to reach a comprehensive trade agreement by the end of 2020, as prime minister Boris Johnson has promised. She said that instead they “must prioritise” certain areas.
Von der Leyen met with Johnson whilst in London, with the PM’s spokesperson saying Johnson had told Von der Leyen the UK “wanted a positive new UK and EU partnership, based on friendly cooperation, and shared history, interests and values, adding that he “was clear that the UK would not extend the implementation period beyond 31 December 2020.”
Johnson stressed that he wanted “a broad free trade agreement covering goods and services, and cooperation in other areas”.
Von der Leyen said she wants a comprehensive free trade deal, but said the more the UK diverges from EU standards, the less access it will get to “the world’s largest single market”.
The pair did not exchange gifts as the second phase of talks got underway in earnest.
On the tricky issue of financial services, Von der Leyen said: “It is a matter of trade-off and choices, and nothing will be as it was before, all will change. The two sides have said the UK should be able to access the EU’s financial markets using an “equivalence” system which would deem Britain’s standards and regulations to be in alignment with the EU’s.
However, Bank of England governor has said that given the City’s international prominence, it “is not desirable at all to align out approaches, to tie our hands and to outsource regulation and effectively supervision”.
His comments were echoed by ex-chancellor Osborne, who told BBC Radio that “some freedom to be a global financial sector wouldn’t be a bad thing”.
Incoming Bank of England governor Andrew Bailey claimed last year that “there are things we would have done differently with EU rules if we had developed them unilaterally”.
He suggested that the UK and EU’s agreement “on the objective we want to achieve will not change after Brexit” but noted that “left to our own devices (the UK) would construct financial conduct regulation in a rather different way”.
The EU’s former commissioner for financial services, Jonathan Hill, made similar observations after standing down from his post in Brussels after the Brexit referendum, telling the House of Lords it made no sense to “subcontract all our rule-making to someone else” in the hope of maintaining the status quo.
William Wright, head of the capital markets think tank New Financial, said it is important to remember that “equivalence” is granted separately to certain parts of the sector and is not a “blanket solution”.
“I think the most likely outcome is that the UK will ask for equivalence in a very specific handful of (financial) sectors,” he said, particularly stock exchanges and clearing. Yet he said the freedom of non-alignment for the rest of the sector would come at the cost of many firms “having to move more operations, staff, capital to the EU”.
The future of the City (London’s financial district) is set to be one of the more complex parts of negotiations, but before they can begin the UK government will need to decide if it wishes to pursue a very close partnership with European markets or push more aggressively as is favoured by many Brexit-backing backbench Conservative MPs.
(The author is our foreign correspondent based in the UK. He can be reached at