Brexit Bulletin: Billions and Trillions

(Bloomberg) --

What's Happening? Whatever the true cost, there's a lot at stake in the post-Brexit debate.

For years the cost of Brexit was an argument waged by economists and disputed by partisans. From “Project Fear” in the run-up to the 2016 referendum, to pre-Brexit projections and post-Brexit analyses, most figures were challenged, re-interpreted or flat-out denied.

Now we have a number to hold on to: £4.4 billion ($5.7 billion). According to a report by the U.K.'s National Audit Office, that's the minimum amount the British government has spent on preparing for Brexit since the vote to leave the European Union almost four years ago. It's about two-thirds of the £6.3 billion made available by the Treasury. 

Forget billions, though: trillions are at stake if the EU decides to deny the U.K. so-called “ equivalence” in financial services. EU Brexit chief Michel Barnier talked tough on Thursday, appearing to hold finance as leverage in the same way the British plan to maximize their well-stocked fishing waters. Granting access to EU financial markets is a unilateral decision, Barnier said. “There will be dialog, of course, but no negotiations.”

Read More: Barnier Keeps Equivalence Threat Hanging Over London Banks

The U.K. wants a deal wrapped up quickly, but the EU has committed only to completing assessments by the end of June. That signals possible disruption for London-based financial services firms, that don't already have an operation in Frankfurt up to speed.

It might not matter, though, if the U.K. follows Mervyn King's advice. The former Bank of England governor, now an academic, writes for Bloomberg Opinion today that London's bankers do need equivalence, but not with the EU. 

“New York is the real rival to the City, not Frankfurt, Paris or other would-be EU financial centers,” King writes. “As such, any regulatory alignment should be determined by the U.K.'s interest in remaining the pre-eminent financial hub in the European time zone. Why align with Europe when the real game is elsewhere?”

Beyond Brexit

• Italy has more problems than coronavirus: No one knows what to do about its deadly bridges.
• Coronavirus could cost the global economy $2.7 trillion. Here's how. 
• The Covid-19 crisis has caused the price of luxury U.S. lobsters to tumble, putting farmers on the brink.

Brexit in Brief

Delayed | A review of U.K. infrastructure spending will no longer be published alongside the Budget on March 11. The review is a key part of Johnson's pledge to “level up” U.K. regional economies, but the coronavirus threat is increasing pressure on government funding.

Migration Pressure | The U.K. Office for Budget Responsibility is preparing to downgrade its forecasts for Britain's economic growth in next week's budget because of the projected impact of a new “points-based” immigration system, the Financial Times reports. 

The Next Risk | U.K. house prices rose for a fourth straight month in February, increasing 2.8% from a year earlier to a national average of £240,677 ($312,000). But while the Brexit factor might be subsiding, Halifax warned that coronavirus could be the next risk to impact the property market.

Sad in the Sun | Britons living in Spain are confused and fearful about their post-Brexit futures, the academic author of a new study told the Guardian. “Lots of people have just buried their heads in the sand,” said Karen O'Reilly, a sociology professor at Loughborough University.

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To contact the editor responsible for this story: Caitlin Morrison at cmorrison59@bloomberg.net

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