Banking regulators in Germany warned London that it might lose its popular status as gateway to Europe, particularly for banking sector. The warning was sent after Britain decided to quit European Union bloc. The warning was confirmed by Bundersbank’s executive board member, namely Andreas Dombret in a private meeting, which involved Germany businesses and banks.

Dombret speculated that London would lost its status as a gateway to Europe in financial and banking sectors. He personally did not agree with the confrontational approach related to the relationship between UK and the EU in terms of financial service sectors. For him, the Brexit negotiation will negatively affect EU’s position. As reported in BBC, he suggests containing the trends toward renationalization.

The European Union is Under Hard Pressure

In almost a similar tone, a European Parliament’s Brexit negotiator, Guy Verhofstadt, was also worried that the European Union risks disappearing completely unless it reforms in the right way. According to him, some important figures are putting the economic bloc. The external pressure includes pressure from President Donald Trump related to designation of the EU. There is also Vladimir Putin, who suggests dividing the bloc.

Internal Pressure also came from nationalists and populists who had frequently question the Brexit. Consequently, Guy Verhofstadt said that this is a critical moment for the European Union. Unless it reforms, the EU may not only lose its status as a Gateway to the Europe, but also disappear completely.

Some are even requiring significant changes in financial and banking sector after Brexit. They include the of financial center strategy for London, the calls for low corporate taxes for private sector, and even the calls for loose financial regulation. Meanwhile, the strict financial system is one of the main characteristics of financial regulation in London. Therefore, deregulation will deeply affect the Britain’s economy.

UK’s Economy Will be Deeply Affected

Right Now, London serves as the capital of the financial services for the EU. When the role is changed, many parties will be also be affected. They include particularly wholesale banking activities, which involve large businesses and government institutions. Almost 80% of the financial transactions, including foreign exchange, take place in London.

Billions of pounds are traded everyday. Therefore, what takes places in London influences the interest rate changes, inflation rate, and even currency fluctuations. That is why Dombret did not suggest the EU to engage in race to the bottom, as any changes to the present free-trade relationship between the EU and Britain may have significant impact upon the financial services to the whole UK and millions of people in this sector. Furthermore, German business will also be affected, since it uses London as a source of Funding.

With Brexit negotiation, some banks expect that an equivalent role can be agreed between the UK and the EU. This way, the banking sector will be faced with fewer regulatory obstacles. However, Dombret did not see it optimistically, as he was skeptical that equivalence is an ideal substitute and offering a sound fundamental for the banking system. For him, equivalence is far away from the single market access.