The Americans and the Brits have a good record on trade, so London should look to New York, not Paris, for deals, writes Mervyn King
The eminent economist Bob Solow once said his profession “requires three qualities: faith, hope and clarity; and the greatest of these is clarity”. For the past four years the British view of its future trading relationship with the EU has reflected much more of the first two virtues than the latter. Thankfully, we’re now seeing signs of lucidity. A speech last month by the UK trade negotiator, David Frost, was admirably clear on the subject.
This week, the EU general affairs council, which is overseeing the talks with the UK, approved the bloc’s negotiating mandate for the discussion on a possible free trade deal. As the Financial Times remarked, “one of the EU’s aims from the talks is to ensure that it does not allow an economic threat to emerge on its doorstep”. It will do this by insisting on the UK sticking to a “level playing field” on its rules and regulations.
Any regulatory alignment should be determined by the UK’s interest in remaining the pre-eminent financial hub in the European time zone. Why align with Europe when the real game is elsewhere? From the start of the Basel process, these requirements were always seen as a minimum — individual governments were free to go further to make their banking systems safer. And the US, Switzerland, Sweden, as well as the UK, were, indeed, keen to set a higher bar.
The first reason for prioritising the Americans over the Europeans is that much of the UK financial sector’s business in Europe is already being done through separate subsidiaries or branches in the EU. Obviously, those companies will have to abide by EU regulations when selling within the bloc. But there’s no reason why Britain would wish to force those rules on firms operating in the UK when they’re selling either domestically or to the rest of the world, including to the US.
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