This past week saw a G20 meeting with an unusual (and some would say dangerous) new precedent. For the first time in ten years, the G20 communique did not contain any commitment to free trade. The serious fault lines between the new, more protectionist Trump administration and the pro-global free trade group led by Chancellor Angela Merkel’s Germany and European Union have already raised concern around the globe.
This week also marked the dawn of a new chapter for the United Kingdom. Prime Minister Theresa May made it known she will invoke Article 50 of the Lisbon Treaty notifying the European Union of the country’s intention to Brexit on March 29th. The European Union has responded that they will not begin negotiations until May. They are making Great Britain wait until after both Easter recess and a scheduled April 29th EU Summit to begin the up to two years of negotiations for the exit arrangements.
This is already having real-world repercussions for banks in the universe of finance that are busy announcing plans to move European-center operations away from London and throughout the United Kingdom to other rival financial centers within the European Union so that they will not quite possibly lose access to the European continental markets and customers. London is the major loser in this troubling but not unexpected development.
The geopolitical instability in the world continues unabated with every week seemingly raising another question about the financial and political certainty of the world. Gold offers insurance and protection during market turbulence. Now is the time to win over your financial advisor regarding gold in your portfolio.
Britain Invoking Article 50 on March 29th, EU To Make UK Wait till May to Start Talks
In another important week between Great Britain and the European Union on the painfully slow-motion Brexit ordeal, Prime Minister Theresa May of the U.K. announced she will trigger the long-awaited Article 50 of the Lisbon Treaty to leave the EU on March 29th. No sooner had she released this information then the EU responded with a cool reply that they would not even begin discussions with Britain until an April 29th EU Summit.
This was the first reality slap in the face from the opposite members in the European Union who are determined to make the British suffer as an example to any other would-be EU deserters. Already people like the European Union President Donald Tusk have betrayed their harsh stance on where they stand as the defenders of EU interests at the expense of British ones with statements like:
“We must do everything we can to make the process of divorce the least painful for the EU. Our main priority for the negotiations must be to create as much certainty and clarity as possible for all citizens, companies, and member states that will be negatively affected by Brexit.”
The disagreement on major issues between the two one-time friends Britain and the EU are already creating tensions before the negotiations even begin. There have been sharp disputes and hard words concerning the settlement bill of Great Britain, any future free trade agreement, and even how the talks will be structured in the first place.
These talks will not even start until after the ministers of the ponderously slow-working 27 nations agree to and approve intensely detailed negotiation protocols at the European Commission in Brussels. It may require a few weeks at best. This pushes back the initial discussions on British withdrawal terms to late May or even June.
Former European Commission French Michael Barnier has been tapped to lead the blocks negotiations with the U.K. He is to handle day to day talks and remain in close contact with the 27 national member state governments to be sure that the United Kingdom does not outmaneuver the block by playing one faction off against the other.
The tensions are rife enough that the British have begun drawing up contingency plans for a Brexit without an ultimately acceptable and approved deal. Brexit Minister David Jones recently notified Parliament’s EU scrutiny committee that:
“It’s quite possible that either the negotiations will turn out to be impossible to conclude, or there may well be a negotiated settlement whereby we leave on other terms.”
This comes as the United Kingdom is ready to do battle with the EU especially over the departure payment. The European Union feels the British should pay about 50 billion pounds (or $62 billion) to leave. At the same time, a number of Theresa May’s ministers believe that the maximum limit should be three billion pounds, per the Tuesday report in the Times.
The EU’s concentrated efforts are on making sure the British can not easily depart the EU and set a dangerous precedent for the other jealous members. They feel the block must protect the stability and more importantly commitment of the other 27 member states to the continuously integrating political and economic union. This story is one of the most important going these days, as the future of the world’s banking and financial center London and the financial health and future of the world’s largest economic block the European Union are both on the line.
British Banks Announcing EU Operations Relocations to Dublin and Frankfurt
In the wake of the Brexit negotiations about to finally begin their two year process, the global banks with operations in Europe have announced their own intentions to relocate their EU-focused offices and staff to two other cities outside of the United Kingdom. The dual major winners in this latest blow to London are Dublin, Ireland and Frankfurt, Germany.
Dublin is the leading contender for the EU base of Barclays Plc, Bank of America Corp., and Standard Chartered Plc, where they will be able to enjoy the only other major English speaking country in the EU (with similar regulations to Britain’s) and to maintain their guaranteed access to the single common market. Frankfurt is the likely final destination of both Citigroup Inc. and Goldman Sachs Group Inc. European operations.
Banks have become fearful of an increasingly likely hard Brexit where the British walk away without passporting access to the EU. This is why they are preemptively moving their European-based staff, offices, and assets. Frankfurt is appealing because of its location as head of the European Central Bank, the headquarters of Deutsche Bank AG, and BaFin.
There are wildly varying estimates of how many high-paying financial jobs this will cost the city of London and Great Britain in general. According to one think tank Bruegel it will amount to as many as 10,000 jobs in banking and another 20,000 positions in the financial services industry. This graphic shows the impact the Brexit is going to have on the future of banks and their personnel in the United Kingdom:
More damaging for the U.K. by far is their estimate that around 1.8 trillion euros (or $1.9 trillion) in assets will flee the country along with those European asset relocations. There are other job loss estimates for London and the U.K. that range from as few as 4,000 to as many as an eye-watering 232,000 positions.
G20 Meeting Pushing European Union Into Trade Alliances with Japan and China
In another geopolitically rocking event this past week, the G20 finance ministers met and battled over the provision in the communique regarding free trade. United States Treasury Secretary Steven Mnuchin insisted on them removing the free trade clause for the first time in the 10 years it has existed in the document. This has encouraged the European Union to step up its efforts to move especially closer to a free trade alliance with Japan, but also to renew endeavors with China on the same topic.
In the Brussels press conference Tuesday, European Union President Donald Tusk stood shoulder to shoulder with Prime Minister of Japan Shinzo Abe to encourage the two entities to “show the world the flag of free trade as a model.” Standing next to the pair was European Commission President Jean-Claude Juncker who stated:
“Our negotiations with Japan are now in a decisive and hopefully final stage. This agreement is necessary. It is necessary because we believe in free, fair, and rules-based trade.”
With the Trans-Pacific Partnership trade pact between the United States and another 11 nations (including Japan) now dead, Japan is eager to prove its willingness and ability to work directly with Europe. Japanese Prime Minister Shinzo Abe declared:
“We shall try to aim for agreement in principle with the European Union at the earliest possible date because it will show the symbol of free trade to the world.”
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