The governor of the Central Bank of Ireland said Britain was likely to leave the European Union with a deal but that the European banking system was completely prepared for a “no deal” scenario.
Addressing an audience at the Connect Hall of the Hong Kong Stock Exchange on Tuesday, Philip Lane said that the incentives for the UK to accept a version of the withdrawal bill were very strong.
“The best case is a deal,” he said. “That is more likely. But, in case there is no deal, the European financial system will be ready. The regulators have prepared everything.”
Lane has been Ireland’s central bank governor since November 2015. He is also a member of the Governing Council and General Council of the European Central Bank (ECB).
Finance ministers of the eurozone on Monday endorsed Lane as the next chief economist of the ECB, to take up his role at the end of May. The ministers met in Brussels. He was the only candidate put forward by the EU governments for the role.
Of the 27 countries that will remain in the EU on March 29, Ireland will be the most affected by Brexit. It is the only EU country to share a land border with Britain.
Lane said that Brexit had resulted in more than 100 applications from financial service firms to move operations to Ireland. They include investment firms, trading venues, electronic money institutions and commercial and retail insurance firms. Some are new legal entities and other existing entities seeking to extend their current authorizations.
“Dublin has grown in the last two years,” he said. “There has been a change in the volume and complexity of the city as a financial capital.”
Lloyd’s of London and Bank of America are two banks that will move their EU headquarters to Dublin.
“Dublin is busy but is not a new London,” he said. “Financial institutions are moving operations to several EU cities, including Dublin, Frankfurt, Amsterdam, Brussels and Madrid. Some of these moves will be permanent. They are moving to Dublin because of the skilled labor force, the legal system – and the weather.
“The EU 27 has a single, collective approach to regulation and supervision. All are committed to this. There is not a race to the bottom. We implement European regulations. There are no differences,” he said.
Ireland is home to over 400 international financial service (IFS) companies, including over 200 foreign-owned firms, employing almost 42,000 people. They include some of the world’s largest IFS companies in sub-sectors such as banking, funds, asset management and investment, insurance and reinsurance, fintech and aircraft leasing.
Ireland is the number one location worldwide for hedge fund administration, servicing 40 percent of all global hedge fund assets. It has over 4.9 trillion euros (US$5.53 trillion) of assets under administration, over 14,000 funds and promoters from 50 countries.
According to official forecasts, Ireland’s GDP this year will grow by 4.2 percent, compared with 7.8 percent last year and 7.2 percent in 2017. These are the highest growth figures in the EU.
On Jan. 15, the UK Parliament rejected the withdrawal bill of Prime Minister Theresa May by 230 votes, the largest government defeat in more than a century. Since then, May has been talking with Brussels in an attempt to amend the bill and win a majority in Parliament.
She has promised a new amendable Brexit motion by Feb. 27 but has not said it will be a true meaningful vote on her withdrawal agreement. But Brussels has ruled out renegotiating the agreement.
Donald Tusk, the EU’s most senior official, said the agreement negotiated over the last 20 months “remains the best and only way to ensure an orderly withdrawal of the United Kingdom from the European Union”. This includes the “Irish backstop”.
During the negotiations, Dublin and Brussels proposed that the UK introduce customs controls on the Irish Sea; this would allow the border between Northern Ireland and the Irish Republic to remain open. But May rejected this. Since then, the two sides have been unable to agree on a practical way to control the border and monitor the movement of goods and people.
So they reached a compromise of the “backstop” under which Britain remains in the customs union until the two sides find a way to solve this border issue. The bill states that Britain cannot leave the union on its own but will need the consent of Brussels. Many members of May’s Conservative Party reject this.
Those living on either side of the border strongly oppose the reintroduction of a hard border; they say it would severely damage the local economy and risk the return of violence.
Dublin fears that, if customs, police or army posts were built along the border, they would be attacked by extreme Republicans. This would in turn bring retaliation by militants from the other side. And the terrible cycle of violence might begin again.
So it is not a matter of tariffs and inspection of goods but of life and death.
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