Financial protection

Germany prepares emergency laws to cope with hard Brexit

FILE PHOTO: Workers are seen crossing London Bridge with City of London skyscrapers seen behind during the morning rush hour in London
Clearing off. Source: Reuters

The German government is preparing a set of emergency laws to avert chaos in financial markets in the event of a no-deal Brexit next year.

“It’s clear that we need to start working on legislation now to prepare for a hard Brexit,” Deputy Finance Minister Jörg Kukies told a conference in Berlin on Wednesday.

The government is working on two new laws protecting cross-border insurance agreements and derivatives contracts that aren’t processed by so-called clearing houses. Deals involving clearing houses are already protected as they act as a platform for trades and are backed by a default fund to ensure a transaction is completed even if one side goes bust.

“This is a preventive measure that we want and need to take due to the mounting time pressure,” said Mr. Kukies.

Germany is coordinating its regulatory response to Brexit with other countries including France, Spain and Italy. Berlin is also in close contact with the EU Commission to ensure that European and national legislation remain in harmony. “Rest assured that we will do everything to reduce friction and the risks to financial market stability,” Mr. Kukies added.

Hard and fast

The new measures are in addition to financial laws that the finance ministry started preparing some time ago to address tax issues and the impact of a hard Brexit on mortgage banks.

With just six months left to the March 29 exit date, there are growing doubts about whether the EU and Britain will be able to resolve their differences and agree on a final Brexit deal.

Chancellor Angela Merkel told the Bundestag on Wednesday there was still a chance of concluding an agreement but that Berlin was preparing for all options, including a no-deal departure. Brexit negotiations were still stalled yesterday after UK prime minister Theresa May failed to secure movement on the critical Irish border problem at an EU summit last night.

One of the biggest Brexit uncertainties is what will happen to the clearing of euro-denominated derivatives deals. Most of the clearing is done in London at present but it may have to be moved to the continent after Brexit. The volumes involved are huge, totaling some £38 trillion (€43 trillion, $49.9 trillion), according to Bank of England figures.

Mr. Kukies said the decision on euro clearing would be taken in Brussels, not in Berlin, but that Germany was in close contact with the EU Commission on the matter.

Bundesbank board member Burkhard Balz said the uncertainty surrounding the future of euro clearing was “extremely unsatisfactory” but that the key was to ensure the continued stability of the EU financial system.

Andreas Kröner is a Handelsblatt finance correspondent. To contact the author: a.kroener@handelsblatt.com

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