The Impact of UK Financial Services Withdrawal on EU

Recent discussions have revolved around the potential withdrawal of financial services provided by the United Kingdom (UK) to the European Union (EU). Many claim that such an action would lead to the collapse of the EU's financial system and the euro as a viable currency. However, these claims are highly questionable and lack any substantial evidence. This article aims to address these concerns and offer a comprehensive analysis of the actual impact such a withdrawal could have on the EU.

Understanding UK Financial Services to the EU

Firstly, it is crucial to understand that the financial services provided by the UK to the EU are not as critical as they are often made out to be. These services are largely provided by independent banks, many of which are already relocating to financial centers such as Frankfurt, Dublin, and Paris. The UK's position in the EU has never been about holding the financial system hostage; rather, it has been a symbiotic relationship that benefits both parties.

European Financial Services Market

It is important to recognize that the European financial services market is robust and highly competitive. Continental financial service providers have the capability to fill any gaps left by the UK's withdrawal. These providers are already gearing up for this scenario by setting up new entities and applying for regulatory licenses. In fact, regulators in financial hubs like Frankfurt and Dublin are reporting an unprecedented workload due to the increasing number of applications for financial licenses.

Specific Areas of Focus

Clearing and Collateral Markets

The argument that clearing and collateral markets in the UK are unique and irreplaceable is also unfounded. A significant portion of the funds involved in these markets do not belong to UK banks. Restricting access to EU clients to their own assets would be commercial suicide, akin to a shop refusing to serve its biggest customers. Financial institutions can simply novate contracts to other reliable and professional financial centers. This would not only maintain the continuity of financial services but also ensure a more stable and secure market.

Credit Downgrades and Market Disruptors

The notion that the euro would collapse if the UK stopped providing financial services is also highly unlikely. In fact, the real risk lies with sterling. Following a credit downgrade resulting from such an attempt to damage the EU, sterling's value would plummet, severely impacting the UK economy. The EU would merely move its financial operations to more reliable and strategically located centers, thereby reinforcing its position in the global financial market.

Theaters of Financial Services in the EU

Given the established nature of financial services within the EU, particularly in cities like Frankfurt, Paris, and Dublin, the argument that the EU would collapse financially is largely overblown. These cities are already equipped to handle the financial transactions that currently take place in London. The transition would not only be smoother but also a blessing to the EU, as it would break free from the UK's influence in financial matters.

Conclusion

Based on the current state of the EU financial market and the capability of its financial centers, the idea that the UK withdrawing its financial services would cause the EU to collapse is unfounded. The European financial market is resilient and capable of adapting to such changes. The real impact would likely be on sterling rather than the euro, and the EU would need to take proactive steps to ensure stability in the financial sector.