The Economic and Financial Aspects of the Post-Brexit Era: Competition and Complementarity

Xavier MUSCA * Chief Operating Officer, Crédit Agricole SA. Contact : xavier.musca@credit-agricole-sa.fr.

It is difficult to distinguish the economic impacts of Brexit from those of the pandemic. Nevertheless, UK's GDP decreased by 5.2%. Imports from the EU declined significantly and UK became less open and less competitive internationally. A strong inflation followed the depreciation of the pound in 2016 and UK has experienced a contraction in investment due to uncertainty. The economic impact of Brexit on the EU is limited since its economy is much larger.

In the financial sector, UK is now in the position of a third country, without a European passport, subject to sectoral regulatory equivalence regimes. Team movements from the City to the Union have been rather limited (4%). London still has many assets, including market infrastructures such as central counterparties, which are complex to replace by continental structures. Regulatory competition has not much materialized so far, but can intensify by adaptations to make UK regulations more efficient without weakening the framework.

At midnight on December 31, 2020, the United Kingdom (UK) left the single market and the customs union under the terms of a free trade Trade and Cooperation Agreement (TCA, 2022), which had been negotiated and signed at the last minute on Christmas Eve, allowing the UK to narrowly avoid a disorderly no-deal Brexit. The British goal of freeing themselves as much as possible from any obligation to the European Union (EU) led to a “hard Brexit”, ending British conformity with EU regulations (except for Northern Ireland, which was granted special status under the Northern Ireland Protocol). This resulted in the introduction of significant barriers to trade in goods and services between the EU and the UK.Economic relations continue to be characterized by the antagonistic rhetoric of the Conservative Party, which wants to claim an economic and…