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Tuesday, 13 June 2017

Brexit and a Chance of Liberating London

We are now learning that the decaying corridors of the Palace of Westminster have been alive with an undercurrent of negotiation between the parties, as the Tory party has confronted its near-defeat in the general election. If Mrs May is able to pull off her shabby compromise with the Democratic Unionist Party, to enable her to face up to 'confidence and supply' votes in the Commons, her ministers will [apparently] go ahead with building a Grand Coalition in the form of a Commission or Committee on Brexit. Potentially this can accommodate all parties around a set of principles similar to those set out in this blog last week: separating the UK from the 'political' aspects of the European Union while keeping the country within the 'economic' community [possibly as a member of EFTA and the European Economic Area].

Soon, there will be a large literature on how the Remainer May became - to all appearances - an Arch-Brexiteer, reckless of the national interest: and how that Arch-Brexiteer May was so comprehensively rejected by the nation. With her defeat, and the consequent imperative to accede to the demands of the DUP [particularly the softening of austerity and the need for a 'soft' border in Ireland] a sensible consensus can be envisaged. This will all become swathed in legend, as everybody involves gathers around the new Brexit forum and carefully forgets what they actually said in May and the first week of June, 2017.

One issue of importance is prominent in today's press, however, and I want to stress here how important it is that the UK should be the apparent looser in this debate. This is the question of the location and regulation of the market in euro derivatives. Currently the market is overwhelmingly located in London, in terms of where the contracts are datelined and in specifying that any disputes are to be settled under The Law of England; though the actual trading is in cyberspace. The amount that is traded is reported to be around a trillion euros a day: that is, one thousand thousand million euros [given that a modern 'billion' is a thousand million]. European-based bankers and the European Central Bank and some members of the Commission and the Parliament think that this market should be datelined and contracted in a eurozone country under EU law. I strongly agree. Let the European system, the eurozone system, accept all the risk that is inherent in that market. The content of the market is not money, is not comprised of 'real' assets or assets exchangeable in any meaningful way for 'real' assets: it is an Everest of betting slips. It is a bigger accumulation of debts than that which is still being sorted out from the 'crash' a decade ago. The British state and the Bank of England should be pressing as hard as possible for that market to exit the UK: even as the UK softens the official perception of Brexit.

London-based traders would remain more adept at devising and trading in these bets than their continental rivals, once the datelines are shifted to Frankfort or Paris [or both], and their turnover would not saddle the British state with an immeasurably great potential burden. There would be no downside to that shift of responsibility: and as there is no possibility of Britain joining the euro, the regulation of the market should piously be passed to the eurozone. The UK economy need loose nothing but a burden.

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