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And Barnabas Reynolds, a partner at Shearman & Sterling LLP and Global Head of the Financial Services Industry Group, suggested the “eurozone volcano” had the potential to cause enormously damage should it erupt. Mr Barnier, speaking at a conference organised by the Eurofi think thank last week, took the opportunity to put the boot in, rejecting British proposals to give the City of London access to the European Union. Claiming the Government was seeking to maintain the benefits of the single market without the obligations, he added: “I will be blunt: its proposals are unacceptable.
The EU have created their alternative narrative, which ignores the reality
“There is no way member states or the European Parliament would accept this.”
However, Mr Reynolds was unfazed what he has previous referred to as Mr Barnier’s “sabre-rattling”.
Specifically, he suggested the EU’s belittling of the UK’s financial sector conveniently ignored glaring problems with the eurozone itself.
He told Express.co.uk: “The EU have created their alternative narrative, which ignores the reality.
“The most compelling way to completely ignore something is to assume it isn’t there at all.
“Their narrative is that the UK is a smaller trading area compared to the EU so needs to accept whatever the EU determines.
“This narrative portrays the EU as though it were a sovereign country, which it is not, negotiating for the benefit of itself, which is not the case – in fact, it negotiates tactically, for the benefit of particular member states.”
The entire narrative was wrong because the UK had the ability to trade with the rest of the world and the size of the bloc did not necessarily translate into superior negotiating leverage, let alone an ability to trample on sovereignty, Mr Reynolds explained.
He said: “Indeed, at issue for the UK is its sovereignty, which is non-negotiable.
“Conversely, the EU needs to keep the eurozone show on the road in its current form, so that no member state is asked to cross-subsidise the others to any material degree.
“That’s the ‘bargain’ on which it is struck, and if it’s undermined the whole pack of cards could tumble down.
“To keep the show on the road without running that extreme (and potentially immediate) risk, it needs UK help and a financial services deal with the UK.”
Mr Reynolds warned: “Basically, the EU leaders are sitting on top of the eurozone volcano.
“Its set-up is highly detrimental to the southern and eastern Eurozone, plus the UK, US and other trading partners.
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“Hence the point that it is being run at the expense of the rest of the world, for the benefit of the northern eurozone.”
Mr Reynolds has previously said the way the eurozone operates involves what he calls the “dumping of financial risk” on to the UK’s markets.
He added: “On the UK negotiations the one thing the EU won’t own up to is this problem. And yet it lurks behind everything.
“They talk about trading access for financial services as though they have nothing to hide and no problems to address.
“They talk as though it’s an entirely internal matter for the EU, and the business of the EU, how to address the eurozone.
“And yet, this is absolutely not the case. It’s the business of the world.
“The financial markets are completely interconnected. EU financial institutions trade with other financial institutions all around the world.”
EU-based subsidiaries of global financial institutions, many of which had headquarters in the UK and US, trade under EU laws and regulations – the very ones which create the “huge systemic risks” he had written about, Mr Reynolds said.
He warned: “The level of systemic risk embedded in the EU system is far higher than anything which triggered the 2007-8 financial crisis (which emanated from unmanaged systemic risk in sub-prime bonds based on property in California, Florida, Nevada and other US states).
“The UK mitigates that risk for itself and the rest of the world right now, through top-up capital requirements imposed on financial firms incorporated here.
“But that method can no longer be used in its current form after year end. The UK and US need to address eurozone risk in a new way.
“The EU in its negotiations seems oblivious to this, which is itself very concerning, since the risk they create can only be meaningfully addressed if they own up to it.
“Instead, they talk about pulling financial firms into the EU under EU law, as though that’s somehow a good thing to do.
“The people who are ultimately exposed to this risk are all of the world’s investors and savers, since financial contagion results from such systemic risk, when sentiment turns, and massive losses spread around the whole system.
“Nothing in what Mr Barnier has so far said gives evidence he’s even aware of this, let alone has a solution for it.”
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