Thursday 19 January 2017

Central Bank Governor calls for 'urgent' progress on harmonisation of Europe's CMU

Published 09/10/2016 | 13:43

Philip Lane, Governor of the Central Bank
Philip Lane, Governor of the Central Bank

THE Governor of the Central Bank, Philip Lane, has called for “urgent” progress on the harmonisation of Europe’s Capital Markets Union as reliance on London as a location for euro-denominated capital markets activity weakens in the wake of Brexit.

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Speaking at the Euro50 Group and Center for International Governance (CIGI) Breakfast meeting in Washington DC earlier today, Governor Lane said that further volatility in financial markets is expected as the UK and Europe seek to forge a new relationship in the wake of last June’s referendum.

Mr Lane, who said that the increase in capital ratios for European banks in recent years had helped ensure an “orderly market response” to Brexit, also said the substantial decline in Sterling since the poll provides “an important stabilizing mechanism” by which the adverse implications of Brexit for the UK’s terms of trade are mapped into international relative price adjustment.

“It is important to put the recent movement in the Sterling-euro exchange rate into context,” Mr Lane told delegates that included Paul Tucker, former Deputy Governor of the Bank of England and Domenico Siniscalco, the former Minister of Economy and Finance in Italy.

“It partly just unwinds the sustained appreciation of Sterling that took place that took place between early 2013 and early 2015”.

The Central Bank of Ireland has recently adjusted its 2017 growth forecast from 4.2 percent to 3.6pc owing to the close economic ties between the UK and Ireland.

Philip Lane, Governor of the Central Bank, tells a Bloomberg Television interviewer in New York that companies might relocate to Ireland ‘depending on how the [Brexit] negotiations go’
Philip Lane, Governor of the Central Bank, tells a Bloomberg Television interviewer in New York that companies might relocate to Ireland ‘depending on how the [Brexit] negotiations go’

Dublin, along with cities such as Frankfurt and Paris, have been mooted as a potential beneficiaries of Brexit should financial services firm seek to relocate here to secure passporting rights allowing them to operate across the European Union.

Passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.

However Governor Lane cautioned British financial firms planning to moving from the UK to European countries, that any moves should not be driven by regulation alone owing to the common EU system of financial regulation and supervision.

“The locational strategies of financial firms should not be driven by regulatory considerations but should rather reflect the typical determinants in the economic geography literature:  availability of skilled labour and suitable office accommodation;  quality of public infrastructure; relative cost levels (both wage and non-wage components); national education, legal and tax systems; language and cultural factors; and relative attractiveness in relation to “quality of life” indicators,” he said.

“Brexit is a disruptive event that has adverse implications for both the UK and EU economies. At this point, the focus of policymakers has to be on negotiating a new UK-EU settlement that can allow both the UK and EU to prosper over the long run. For central bankers, the transition towards the new arrangements has the potential to be a source of volatility and will require continuous monitoring and risk assessment”.

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