A leading City lawyer claims
that Britain’s departure from the EU exposes such great systemic risks
at the heart of the eurozone that it could trigger another global
financial crisis.
In a dynamite new report, Barney Reynolds of US law firm, Shearman & Sterling, lifts the lid on what he calls hidden systemic flaws in the EU’s financial system which are currently mitigated by the role played by the UK’s financial markets.The report, Managing Euro Risk: Saving Investors from Systemic Risk, and published by the Politea think tank, claims that as a member of the European Union and a global financial hub, the UK’s supervision of much of the EU banking system has protected the world’s financial markets from significant oversights in EU law. As a host of the global financial market, the UK has been performing a supervisory function, one that has shielded the world economy from risk by counteracting EU assumptions that eurozone debt is sovereign.But Reynolds, who is head of the Shearman’s financial regulatory practice, adds: “EU financial regulations conceal financial risk which is dangerous to the world economy. This is because the eurozone system has misleadingly treated member-state debt as sovereign for years, despite no one country having sovereign control over its currency.”Until now, he says the UK has played a vital role in mitigating this eurozone risk. But this protection will not automatically continue on the current basis after Brexit, unless the two parties can put their heads together and agree a mutually beneficial trade deal on financial services, such as Enhanced Equivalence, which is now the preferred outcome for the government. “Failure to foster a deal could lead to disaster for the eurozone.”Reynolds is the brains behind the concept of “enhanced equivalence” and has been campaigning for years that it’s the best solution for both parties because it is relatively straightforward, and has the merit of being adaptable as regulations change. Under enhanced equivalence, the EU would allow UK financial businesses to trade in the EU under UK law, so long as UK regulations meet international standards and outcomes.Reynolds told Reaction: “This acknowledgement of the role the UK plays in eurozone debt is a game-changer for the dynamics of how the government negotiates with the EU. It re-boots discussions onto the right footing by identifying the key role the UK plays for the EU and the terms on which it does so.”“It shows how extraordinary Michel Barnier’s demands for a level playing field and for the UK to apply EU laws like state-aid actually are, since the EU is running the Eurozone at the risk of investors all over the world, which is far from operating on a level playing field.”Reynolds adds the problem arises because EU financial regulations misrepresent the risk levels of Eurozone debt. Despite the inability of Eurozone member states individually to issue their own currency, EU regulatory institutions still register their debt as “sovereign”.....
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