Germany says EU pragmatism is required for London monetary relations

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LONDON (Reuters) – A senior German government official said Friday he was “deeply concerned” about the lack of progress in trade talks between the European Union and the UK as German companies rely heavily on funding from London’s financial center.

FILE PHOTO: The financial district of the City of London is seen from Greenwich Park in London, Britain, Jan. 22, 2017 during the early morning mist. REUTERS / Hannah McKay / File Photo

London is Europe’s largest financial center, but it will be largely cut off from the bloc when UK post-Brexit transitional arrangements expire on December 31st.

The UK and the EU have entered an intense phase of talks on a free trade agreement, although EU access for financial firms in the UK is being dealt with separately by Brussels.

“As far as I can tell, German companies rely heavily on the wholesale finance offered by the City of London. With that in mind, we need to maintain pragmatism no matter what,” Deputy Finance Minister Jörg Kukies said at an Afore online event Consulting.

“But at the moment we are deeply concerned about the lack of progress in the negotiations,” he said.

Kukies said that no matter what comes up, “there is so much depth and intensity in the relationship between European countries and Britain that it will not turn into hostility, I am absolutely convinced of that.”

The EU is accelerating work on a Capital Markets Union (CMU) to reduce reliance on London and fund recovery from COVID-19, a five-year-old project that has made patchy progress.

Germany holds the EU presidency, and Kukies said the bloc’s leaders would agree in December on a “very clear path” to implement the new CMU measures proposed last month.

Among these, long-term investment incentives through the bloc’s capital requirements change for insurers should take priority, he said.

“One of our lessons from the Wirecard scandal is that we particularly want to strengthen the market surveillance powers of European institutions,” said Kukies, referring to the collapse of the German payment company.

Critics say stronger EU oversight is needed for the CMU to work.

“We want to explore best practices in the US and other regions of the world to see how centralized market surveillance can help avoid some of the problems we’ve had.”

Reporting by Huw Jones; Adaptation by Tomasz Janowski and Mark Potter