The War against the City of London

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Jean-Claude Juncker, Theresa May

Brexit is about Geoeconomics. And the actors implied are the usual suspects: states and corporations; and the sum of both, the perennial National Interest. Brexit is not about staying in or out of the EU. The main concern lays on the ability of governments to offer attractive tax cuts to companies willing to offshore their corporate taxes, the financial prowess it entails, and with that, the geopolitical strength it can give to a country.

The EU is the intellectual pretext of the aforementioned conflict. As a matter of example, threatening the UK with exclusion from the Single Market is an empty threat. They know it in London, they know it in Brussels but it is a good excuse to publish loud headlines, and avoid the crux of the matter. Essentially the biggest commercial partner of the UK is the US, country with which the UK has no commercial treaty. On the other hand, Great Britain has the biggest trade deficit with Germany. Thus, a trade deficit does not interest any of the parts. So the UK will certainly have the same commercial relation with the continent, either in the Single Market, under any other umbrella, or state vis-à-vis state. Why? Because it is in the interest of both the continent, and the UK to keep trading.

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The only danger of the Single Market lies in the way it is used. Should the European market become too integrated with the Eastern powers through the OBOR plan, a dangerous economic block would emerge. Economics is never neutral; it often turns geopolitical. This is an especially interesting case. If China manages to implicate Eurasia in its political, industrial sphere, China would become the first non-liberal world power, making Europe a possible hostage of this situation. An economic partnership with the United States should be arranged, to resist the onslaught coming from the East. But even if this so called Eurasian integration is unlikely to happen, the Deutsche Bank has already compromised $3B in OBOR infrastructure projects.

Things could get trickier for the British when it comes to the financial passport. Passporting, is the right of any European Economic Area (EEA) business to operate in another EEA country without needing further authorization in each country. This is especially interesting for London once it is fully out of the EU, because it removes bureaucratic costs, but it is of great importance for the City of London and its financial services. The City of London Corporation is a major clearing centre, and recently has become the second-biggest offshore clearing house for the Yuan. However, after the Brexit referendum, some pessimistic voices warned about the capacity of the City of London to continue acting as a clearing centre for the Yuan after the British withdrawal from the EU. However, according to SWIFT, in full Brexit unravelling, London ranks first as a clearing centre for the Yuan.

The biggest battle in the Brexit war lies in the overseas territories of the British Crown. Last year, the European Commission published an eclectic list of 17 territories accused of being tax havens, among others: Panama, Barbados, United Arab Emirates, Macau, Bahrain, etc. Of the 17 states, none belong to the British overseas territories nor is a dependency of the British Crown. However, according to a story from The Independent, this situation might change in the near future, because the EU will start to set its sights on territories suspected of being tax havens; such as “Anguila, British Virgin Islands, and the Turks and Caicos islands.” However, the EU might discover that the breadcrumb trail leads to Europe. A study by Oxfam (World’s worst corporate tax havens exposed) reveals that some of the top 15 worst tax havens are in Europe, and in the very EU. The so-called “worst tax havens” are the (3) Netherlands, (6) Ireland, and (7) Luxembourg. Surprisingly enough, a study by the University of Amsterdam, shows that the offshored corporate taxes are mainly allocated in the (23%) Netherlands, (14%) the UK, and (1%) Ireland. Ironies of fate, the Deputy Prime Minister of the Netherlands has stated that he will block any trade arrangement that goes without specific measures to tackle corporate tax fraud. On top of it all, there is the Kafkaesque situation of the President of the European Comission, Jean-Claude Juncker, who for 18 years as a Prime Minister of Luxembourg, did all he could to block any EU effort to fight against corporate tax avoidance.

Brexit unmasks the power behind the institutions. Because even if we see well dressed man and woman, representing supranational institutions, and state governments, the negotiation are not meant to affect the latter. Institutions and governments are used as a leverage to accomplish other objectives, like those mentioned before. But well-dressed men always seem to help. Thus, we have seen a more or less expected ally of the City of London. The French Prime Minister Emmanuel Macron stated “the French would have left the EU if they were asked to leave the EU in a referendum like the British.” It looks like the new Pompidou will be an accomplice of the European reform that Brexit might unleash.

Pol Serrano is a journalist, and MA in Politics and International Relations at the University of Kent. He specializes in economics and security.

 

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