The European Union has just had one of those lessons in freemarket capitalism that so many dislike. That it’s the consumer that benefits from this socioeconomic system, not the supplier. Entirely contrary to the soft Marxism that underpins so much of modern liberal thought it’s the buyer, not the seller, that benefits.
Brussels will allow firms on the Continent to continue using London’s vital clearing services after the Brexit transition ends in a victory for the City.
European Commission vice-president Valdis Dombrovskis said the bloc will introduce “time limited” provisions from January next year to ensure firms are still able to access the capital’s clearing houses, middlemen which handle trillions of pounds of trades each year and are a crucial part of the global financial system.
Brussels did not confirm how long the arrangement will last. It will kick in if the UK and the European Union fail to reach a Brexit deal.
The decision is likely to be seen as a climbdown by EU chiefs, who have long resented Britain’s dominance in clearing.
There’s a lot of bruised amour propre on that EU side. What really grates for them is that the centre of the euro wholesale markets is in London – a place that is not, as we all know, in the euro. They’ve tried to do various things about this too. Insist, for example, that those euro clearing markets must be in countries where the European Central Bank is that central bank. This doesn’t work even as an argument but they’ve tried it.
Some of them truly cannot understand why the financiers would rather work in a global megacity like London rather than some provincial backwater like Frankfurt. Or in rampagingly free markets rather than well regulated ones as in France. There’s even mystification at the idea that people would prefer to trade somewhere with the rule of law rather than bureaucrats doing what seems best at the time.
But what’s happening here is a welcome wake up call from reality. It’s as Our Merv – Mervyn King that is – has pointed out. The people who benefit from the euro services of the City are not the suppliers in the City – although they hope to make a profit, obviously – but the customers who get the euro services. This is why those customers are willing to pay the fees, because they judge the services to be worth more than what they’re charged.
Thus the argument about City access to Europe is put the correct way around. This isn’t about whether firms in the City can sell into Europe. It’s about whether corporates in Europe can gain access to the financial services they desire and need. And once it is put this correct way around then the answer is obvious, isn’t it? European should have free access to The City. And those bruised egos of the European regulators be damned.