LONDON (Reuters) – The European Union needs a “master plan” to move euro financial services from London to the bloc if it is to expand the role of the single currency in a global economy dominated by the US dollar, a senior EU lawmaker said Monday.
Markus Ferber, a senior member of the European Parliament, said if the EU is to compete with the greenback, it needs an appropriate financial system.
“We need a clear step-by-step master plan that helps major financial sector businesses move from the UK to the European Union,” said Ferber.
He was speaking ahead of the publication of a European Commission paper on Wednesday on promoting the global role of the euro that sets out how to reduce dependence on the City of London, Europe’s biggest financial center, after Brexit.
“The COVID-19 crisis has highlighted vulnerabilities in the dollar-dominated international financial system,” said the commission paper.
“Britain’s withdrawal from the EU reinforces the need to further deepen the Union’s capital markets.”
This paper recommends better enforcement of EU sanctions, and makes EU-based financial market infrastructure less vulnerable to unilateral sanctions from third countries.
EU-based securities depository Clearstream and Euroclear, and messaging services such as Swift were affected by President Donald Trump’s actions against Iran.
Trading in euro-denominated debt securities, commodities and other instruments should also be encouraged, the paper said.
The EU’s “MiFID” securities reform and benchmark rules should aim to help the euro-denominated energy index emerge, and increase the attractiveness of euro bonds and stocks, he said.
EU and European Central Bank executives will also review the policy, legal and technical issues arising from the possibility of a digital euro.
The Commission, ECB and the bloc’s market and banking watchdog will work with industry to assess “possible technical issues” associated with the shift in derivatives positions from London to the EU, the paper said.
This paper may minimize the likelihood that the EU will provide UK financial services access to the EU beyond the temporary access it has granted to derivatives clarifiers by mid-2022.
About 6.5 billion in euro stock trading switched from London to the bloc overnight on January 4 and city officials do not expect this to return, with swap trading by EU investors also under pressure to leave.
“A related source of risk is the excessive reliance of EU banks on the foreign currency exchange market,” the paper said.
When looking at company takeovers, the Commission will also check whether they make EU companies “more vulnerable” to comply with sanctions from third countries, the paper said.
There was also a need to cut the bloc’s “over-reliance” on foreign investment banks and foreign currency funding, he said.
Reporting by Huw Jones; Edited by Catherine Evans
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