Nearly four months after the Referendum on Brexit, hard information about how the exit process will be conducted is still in short supply. Theresa May has recently declared the intention to trigger the Lisbon Treaty Article 50 procedure and, therefore, to start negotiations by March 2017. In the meantime, while the spotlights have been shining on UK public institutions and authorities and their assessment on the best exit strategy for the UK, there seems to have been less attention to the "European" side of things. We know that Michel Barnier will be handling the negotiation on behalf of the Commission and Guy Verhofstadt on behalf of the Parliament. While the UK may seek to keep the advantages of the Single Market while not applying rules on the freedom of movement, the EU position seems to be strict on the fact that the four freedoms must not be split. Beyond this, there is less clarity. Across Europe, various nations have begun vigorous campaigns to poach from the UK financial sector.
The French Government, for example, is reported to be considering a number of proposals aimed at rolling out the red carpet for the City's bankers. This apparently includes a strong income tax break up to 50 per cent and the right to exclude foreign properties and assets from the calculation of wealth tax for eight years (up from the current five years). Other measures include a single point of contact in English for those relocating to France, in order to provide wide-range guidance on several topics. It is indeed a very attractive red carpet in light of the fact that the famous 75 per cent tax rate, strongly supported so far by Hollande, no longer applies. Moreover, the French Financial Regulator, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), has announced a simplified and accelerated licensing procedure for foreign companies using the European passport and wishing to set up an insurance company, an investment company, a payment institution or an electronic money institution in France.
Various sources report that the Polish Government will offer, instead, incentives to banks and funds for training new employees as well as tailored university degree programmes related to IT and finance skills required by foreign banks. Prime Minister Morawiecki had, in addition, scheduled meetings with executives at several major financial institutions.
The importance of Brexit to EU Member States also depends in part on their current trade with the UK. As, for example, Germany, the Netherlands and France have more significant trade relationships with the UK, Brexit is of greater strategic importance for these countries. With regard to Italy, trade with the UK is on a par with trade with Switzerland. Italy has less skin in the game and is in a position to take a more neutral approach.
At the same time, Italy has been carrying out numerous reforms during the Renzi Government and these may make Italy more attractive to UK institutions looking to relocate. Areas of particular interest include the labour and tax reforms. While Italy has not yet adopted Brexit incentives, these may be on the way in some form or other.
Brexit, though, is also a moving target of sorts. Relocation plans of UK institutions will, of course, depend on the Brexit negotiations but also on the incentives offered by the remaining EU Member States. Likewise, EU Member States are likely to modify their Brexit plans based on the steps to and status of negotiations and interim actions taken by the UK government (e.g. from the Continental European view, concerns about the rights of foreign residents).
In sum, it is instructive to examine the goals of the UK Government for the post-Brexit period, but there is another side to the story. UK actions over the next few months, apart from the announced negotiation stance, are likely to influence greatly where Brexit may end up in a tango or with each party left sitting at opposite ends of the ballroom. In any case, even in the event of a "hard Brexit", there will be issues in the financial sector, among others, where a certain level of cooperation going forward would be valuable. Let us hope the dance floor does not remain empty.